An Indian company is running a hotel chain in India but now it is planning to internationalise its operations in European countries. Explain why the company should adopt franchising as an entry mode over licensing.

Licensing is a method of foreign operation whereby a firm in one country agrees to permit a firm in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor. The licensor has minimum involvement in day-to-day functions and the returns are also comparatively low. In Franchising, the franchise provides an established product or service which may already enjoy widespread brand-name recognition. This gives the franchisee the benefits of selling proven products and services to a pre-sold customer base which would ordinarily take years to establish. This is so because a defined level of quality and consistency are assured to the customers in this model. The Franchising model offers important pre-opening support as well as ongoing support in the form of training, national and regional advertising, operating procedures and operational assistance, ongoing supervision and management support, etc. which are not available in licensing. Franchising model will be more suitable for this Indian hotel over licensing as franchising is more apt for service industries than licensing which is more suitable for manufacturing industries. Franchising will provide the following advantages to the Indian company: It will provide access to venture investment capital without the need to give up control of the operation of the chain in the process. Once the brand and formula are designed and properly executed, the franchisor will be able to sell franchises and expand rapidly across countries and continents using the capital and resources of their franchisees, and can earn profits commensurate with their contribution. It will provide access to European markets at greatly reduced risk and expense. The Indian company/franchisor will be relieved of many of the legal formalities involved in starting a new outlet, such as obtaining the necessary licenses and permits. In some jurisdictions, certain permits (especially alcohol licenses) are more easily obtained by locally based, owner-operator type applicants while companies based outside the jurisdiction. Therefore, hotel and restaurant chains that sell alcohol often go for the franchisee mode of international entry. The need for franchisors to closely scrutinize the day-to-day operations of franchisees will be greatly reduced.