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Chapter 1 Introduction1.1 ContextWith the rapid development of economy, franchise emerges as the product of modern industrial revolution. As innovative ways of organization and management, the franchise, originated from the U.S, quickly spread out worldwide simply because it can be practiced beyond restrictions of countries, cultures, and industries. Statistics indicate that there were nearly 16,000 franchise systems in operation, with their partners amount to 160 million. The global franchising industry has a sale of more than one trillion U.S. dollars annually, providing as many as 20 million jobs. China, being increasingly attractive in the international franchise market, is now looking for opportunities to invest in profitable franchising programs (中国投资咨询网, 2007中国特许经营业研究咨询报告, URL: /reports/2006098liansuojingying.htm ).In 2004, Chinas top 100 franchise enterprises achieved a total sales volume of 496.8 billion yuan, rising 39% compared with that of 2003. Employees in franchising companies reached 810,000, increased by 27% from the 640,000 a year before. And in 2005, the sales volume continually flows up to 236.53 billion yuan for the former half year, grown by 29.9% from that of 2004 (中国投资咨询网, 2006年中国连锁经营行业分析及投资咨询报告, URL: /reports/2006104texujingying.htm).Franchising in China has been escalated into the era of high-speed development, albeit, many problems also exist behind the prosperous surface. Culture collision, lagging administrative strategies and inefficient logistics, challenged the franchise system in China. For the house-furnishing industry especially, the market is still far from mature. With the purpose to promote Chinese house-furnishing industries, this study tries to explore the successful worldwide expansion of the famous Sweden furniture retailerIKEA and its implications which Chinese house-furnishing industries might benefit from.1.2 Significance of the StudySince WTO gave its admission to China five years ago, China has gradually opened wider its markets to more fields, house-furnishing industry particularly. When IKEA from Sweden opened the forth chain super mall in Chengdu last November, its retail volume in China immediately amounts to 1.6 billion yuan (丁鹏飞, 许凤婷，2006). Its successful franchising management renders a new promising way to develop house-furnishing industry, especially for those who are also in the process of worldwide expansion and towards the international market.Through chain stores and franchising, enterprises engaged in house-furnishing may find their access to the international market more easily. However, in this process, risks also by-produced. Thus, a theoretical analysis of franchise management and the case study of IKEA will definitely offer some help for those who would like to develop in house-furniture industry to gain a better understanding of franchise management. The study may provide some hinds as well to those who even would like to adopt this promising way to develop their own business when facing international opportunities. By an insightful study of IKEA, the address of the strategies of IKEA adapted in marketing, logistics, price-controlling and culture in this paper are bound to be fruitful experience to franchise management for both the potential customers and the prospective Chinese house-furnishing enterprisers who intends to seek opportunities in international markets.1.3 Shape of the PaperThis dissertation will be developed in seven chapters. Chapter 1, the Introduction part, which will be initiated by introducing the context, research problems, and significance of the study.Chapter 2 is functioned to define and categorize characteristics of franchise management. This chapter also present a tentative analysis of the advantages to both the franchisers and the franchisees.Chapter 3 will present an analysis of some factors such as manageable and unmanageable factors that impact on the house-furnishing industry. Chapter 4 will mainly focus on the analysis of marketing strategies of IKEA. Its unique logistics, culture, etc., which contribute much to the success of IKEA.Chapter 5 will state the current situation of Chinese house-furnishing industry and pinpoints some inspirations form IKEA. The concluding chapter generalizes the secret of IKEA, inspirations from IKEA to Chinese house-furniture industries and some tentative suggestions are made to those who are going to take franchise management in international markets. Chapter 2 Characteristics of Franchise and Its AdvantagesThis chapter mainly discusses the definition and characteristics of franchise and the advantages of taking the franchising system as a way to expand market internationally. Some unique management concepts will also be given proper attention to so as to generalize some fruitful implications to house-furniture industries. 2.1 DefinitionAccording to the International Franchise Association (IFA), franchise isa contractual relation between franchisor and franchisee. As per the contract, the franchisor provides a unique business concession, guidance and assistance in the aspect of staff training, organize structuring while the franchisee make certain payments in return. (中国品牌网, 什么是特许经营, URL: /news/2005/12-31/16481.html ).While the Chinese government gives another version: A license granted by the franchisor to operate a particular business using the franchisors name, where the franchisor provides assistance to the franchisee, exercises continuing control and receives periodic financial consideration from the franchisee for the services provided. (Century 21,特许经营概念， URL: /txjy/jmzx_txjy.asp ).Yet, according to the Europe Franchise Association, franchise is A form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisors trade name and usually with the franchisors guidance, in exchange for a fee.(Investorwords. WebFinance, Inc. Franchise,URL: /2078/franchise.html )From the above definitions for franchise, it can be identified that regardless of the underlying difference, the core of those different versions lies in: franchisor provides assistance; franchisee makes payment in exchange for the using of brand, franchisor controls over the franchisees behaviors.There are basically two types of franchise when divided by the development stage of franchised, while the major differences lie in the scope of franchising right（谷素华,2005）.1. The early type of franchise, called trademark products franchise or products distribution franchise is that the franchisor empower the franchisee certain rights to manufacture and operate products of a specially appointed brand. The franchisor gives concession to a franchisee that has been provided intellectual property rights such as technical, patents and trademarks in the scope of the right to use on the business activities as stipulated, but is not engaged in production for the stringent requirements. Typical examples of such forms of franchise lie in automobile dealers, gas station and beverage cans and marketing. This mode of development at the international level has been decreased and gradually turned to evolutes towards the manage-pattern franchise model. 2. The manage-pattern franchise model is a second-generation franchise, and the franchise that people are familiar with falls into this category. It requires the franchisee not only handle with the franchisors products and services, but also operate to the same level of quality standards and business objectives as the franchisor stipulated. Entry fees and subsequent payment for keeping their rights paid by the franchisee provide the franchisor capitals enough for training, advertising, research and development and follow-up support. This model is currently being developed rapidly.2.2 Characteristics of FranchiseAs a matter of fact, franchise is the expanding of technology as well as brand value. It involves not only visible products, but also invisible services such as patent right, continual services and necessary training. Franchise usually features comprehensiveness, unique brand sense, ongoing royalty fees, instance help and strategies. 2.2.1. ComprehensivenessThe system and business method must be capable of being passed on; otherwise the franchisee cannot get full understanding over the system. The franchised business must be thoroughly tested and proven in practice to be successful. No one would join a franchise system which has to struggle to surrive. Not until the franchisor has tested his ideas in the market place and proves that it is efficiency that will he win the follow up joiners. Therefore, the existing franchise system must have some unique advantages to win a share of the market.2.2.2. Unique Selling Points The franchise should have some unique points such as branding, the method or system of operation. The costs and returns must be worthwhile for the Franchisor and all the franchisees that operate within the franchise system (Die Welt, 1995). Set McDonalds as an example. Compared with the rest fast food restaurants, McDonalds is no doubt the biggest in the world, whose selling point is brand value, which always means clean and comfortable environment, high quality of services and standard flavor as well as prices. Though quite a lot of fast food restaurants today copy the model of McDonalds, it still wins the largest customer group due to the developed operation skills and continual innovation.2.2.3. Ongoing Royalty FeesThe franchisee would make a payment of an initial fee to purchase the franchise as well as ongoing fees for maintaining it. Just like in IKEA, franchisees usually pay a 3 percent of royalty fees to the Inter IKEA group, who plays as the franchisor. 2.2.4. Immediate Help and Assistance The Franchisor offers immediate help and assistance to the franchisee, while he should also provide continuing support and guidance. To better improve the franchisees quality, this term is usually contained in the franchise agreement to guarantee that the standard services or products are available in each store, which in turn help in building the headquarters brand value（新概念教育，加盟新概念, URL: /about/join/txjm.html ）.2.3 Advantages of FranchiseIf the real success of one business is up to factors such as: packaging of the product presentation, trade name, trade marks, service marks, the service it provides, the image, the distinctive appearance of the premises, promotional indicia-including get-up logos etc., or the owner operating enthusiasm and personal attention, then franchising may be the number one which should contain all those qualities. It is that business format which offered relatively easy accessibilities to individually owned franchise outlets.2.3.1. Advantages for FranchiseesSeven major advantages are involved in franchise management for franchisee.- The opportunity for successful investment is increased. - Systematically management training is available.- Costs could be lowered.- Famous trademark or services of the headquarter is available.- Advertising costs could be reduced.- Financial support by the headquarter or the bank are within easy access.- A wider source of information.As mentioned above, taking part in the successful franchise system would definitely promise the franchisor a better future. Their capital returns are usually guaranteed. The franchisees could overcome their shortage of being lack of expertise through systematic training provided by the headquarter. In addition, as the brand is proved to be successful, costs involves advertisement, logistics and management could be reduced to a minimum level for the benefit of scale economy, when energy could be saved on the other hand. 2.3.2. Advantages for FranchisorsFour major advantages bring franchisors a lot benefits in expanding business.- Rapid expansion could be realized without the constraints of capital.- The positive side of the franchisees is conducive to the development of the headquarter.- Management costs could be reduced to concentrate the efforts on improving the management level.- Getting hold of the support of the government makes the headquarter accelerate the international expansion possible.(谷素华，2005; Century 21,特许经营概念, URL: /txjy/jmzx_txjy.asp ; 世界经理人, 特许经营的优势, URL: /htmlnews/2005/07/04/5187.htm ; Douq Hood, Marilea S. Hood, The Franchise Advantage-benefits and disadvantages of franchise businesses-BriefArticle,URL:/p/articles/mi_m0DTI/is_7_28/ai_63911513 ）.For the franchisor, business scale could gain a rapid expansion and financial risk could be brought down as every outlet is financed by the franchisee. Centralized management and scale economy renders the franchisor a more efficient way to cut costs and save energy. What is more, franchise has won clear support from most countries and areas round the planet. Thus the franchisor has the opportunity to expand internationally when they gradually enhance core competitiveness.Chapter 3 Risk Analysis of the Franchise Managementin House-furnishing IndustryThe franchise has provided a special business format for both the franchisee and the franchisor to take the minimum risks. However, it does not necessarily mean that the minimum risk equals to no risk. Even in the US, where the legitimate environment for franchise is rather mutual compared to those of other countries, there is still around 30% or 40% of franchising stones that end up in flat within five years, according to the US Assistant Minister of Commerce（胡楷, 2003）. 3.1 Factors that Impact on the House-furnishing FranchiseAs a special business format, franchise underwent a significant development across the world since its came into being. And for the house-furnishing franchise, there are many factors involved. First of all, location is always the most important element in the house-furnishing franchise, because this industry is of certain difference from those falls into other kinds of industries. Shopping conveniences are always considered as the highest priority by people who want to do their purchase, though some other factors would also be taken into consideration such as price and quality. Secondly, the logistical channel must be mutual enough in both the local area and a broader international area. That is another important factor that would impact on the house-furnishing franchise. Every link point of the whole channel such as resource availability, the delivery channel, etc, must be checked so that the whole process of the goods could be produced and delivered in an efficient way. Thirdly, the brand recognition should be carefully examined for the sake of future development. In case that brand is not so popular in certain countries and areas, being a part of the franchise system may be just like taking a risk. Though the same brand could be famous in some other places, it dose not necessarily mean that exploit a new business unit would win the same popularity. Of course, there are other factors that would more or less affect the development of the house-furnishing franchise such as the macroeconomic situation, the local distinctive culture and the political environment, which would be discussed in detail as potential risks in the following sections. Generally speaking, there are two kinds of risks for the franchise in house-furnishing industry.3.2 Manageable RisksThough both parties win from the franchise system as less human resources are needed, risks also challenge both parties.3.2.1 Risks for the Franchiseea. Autonomy rights are faced with considerable restrictions“The biggest price that the franchisee paid in joining in the system goes to the lost of its autonomy” (Bernachot Christine, 1994: 101). Independent company, the franchisee could not possess a complete control over their own companies. In order to render the commodity and service to the standard level, the headquarter has the right to control over the franchisee with consistent stringent requirements, while the franchisee has to chalk up guidance and assistance from the headquarter. Every point including the decoration of the store, the arrangement of the commodities, the business equipment and mode of operation, has to be in accordance with the style and the requirement of the headquarter. The lack of uniqueness and autonomy would mean the loss of ability to adapt to the changing market. Only pursue of decent styles would not enable the franchisee to make adjustments in accordance with changes in the market price and marketing strategies. b. Operation status is implicated by the franchisors decisionJoining the franchise, the investors link their gains and losses with the franchise, and the success or failure would be affected by the headquarter to a large extent. Once the headquarter suffers problems or lagging support, the franchisee would be implicated (胡卓红, 2001) . The mistakes made by the headquarter in decision-making often leave the rest part of the system suffer losses. In addition, the franchise develops too fast for the follow-up services to keep up with. For example, a certain franchise was in good business situation for standing at a rather convenient location, however, the over-fast development and the limited capacity of the delivery system exclusive distribution systems to normal operation. Thus, suppl