Generally the ubiquitisation strategy requires collaboration with other stakeholders, to a greater or lesser extent, by forming partnerships and alliances with other firms or organisations. In most cases, firms will come to a commercial arrangement to enable them to operate in this way. So restaurant chains rent kiosk space in shopping centres or pay for carts to be located on school premises.
In the first instance, often a major link is with a firm that specialises in land and commercial property development. For instance in the UK, McDonalds Golden Arches Ltd was set up by a corporate franchisee of McDonalds joining with a UK-based commercial property expert to develop the original chain. The importance of acquiring land for developing the chain is illustrated by the land holdings of supermarket chains – so-called ‘land banks’.
Another important potential partnership is with franchisees (see also pages 75-76 of our book). Many chains have developed, more so in the USA than the UK, through business format franchising. According to the British Franchise Association, business format franchising is the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis. Usually the outlet itself is owned (or leased by) and operated by the franchisee. However, the franchisor retains control over the way in which products and services are marketed and sold, as well as monitors the quality and standards of the business. The franchisor will receive an initial fee from the franchisee, payable at the outset, together with on-going management service fees – usually based on a percentage of annual turnover or mark-ups on supplies. In return, the franchisor has an obligation to support the franchise network, notably with training, product development, advertising, promotional activities and with a specialist range of management services.
There are clear advantages for the franchisor for this kind of development:
- Franchisees provide their own capital investment thereby reducing the cost of growing rapidly
- Franchisees typically know their local market, selecting sites in areas they know well
- The risk of opening a new unit is shared with the franchisee.
- Because franchisees are ‘working for themselves’ ie they retain any profit generated by the unit, they work harder than managers would.
There are clear advantages for the franchisee also:
- Franchisees do not have to come up with their own new idea – the franchisor has already developed the concept and the brand
- Good franchisors also help secure funding for the initial investment, as well as discounted bulk-buy supplies for outlets
- Larger, well-established franchise operations typically have national marketing and advertising campaigns, as well as recognised brand name
- Good franchisors offer comprehensive training programmes in business skills.
As well as links with property developers and franchisees, service firms are also developing partnerships with other firms to deliver co-branded operations. This is when two companies co-locate their operations in order to benefit from each other’s locations and create economies of scale from their infrastructure, such as food retailers with operators of petrol filling stations.