Essay Sample on Subway's Method and Level of Compensation

Subway used master franchising to gain entry to China through Jim Bryant. Bryant, the master franchisee, recruited and trained regular franchisees. Bryant also served as the link between Subway and the franchisees. The compensation package for Bryant included $5,000, which is half the initial franchise fee (Cavusgil et al., 2011). This hefty compensation served as motivation for the master franchisee to recruit as many franchisees as possible. Assuming that all the current 140 Subway shops in China were recruited by Bryant, he has earned $700, 000. Additionally, Bryant is also paid a third of the royalty (Cavusgil et al., 2011). Royalty is paid by franchisees continuously. Therefore, Bryant continues to receive remuneration as long as subway shops continue to operate. Thus, Bryant is not only tasked with bringing new entrepreneurs but also ensuring they continue to operate. As a result, he has to provide support to the subway shops to ensure they are profitable.

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On top of that, Bryant is allowed to own subway shops. Therefore, Bryant can earn additional income from these shops that serve as a model to the others. Bryant faced challenges when he opened a subway shop with customers unable to make orders (Cavusgil et al., 2011). Therefore, this helped Subway, as Bryant started a pilot shop to help anticipate and solve challenges. From the compensation package of Bryant, it is evident that his pay is proportional to the investment he brings to Subway. This approach serves to benefit both parties since the master franchisee benefits when he makes a recruit. As for the percentage of royalty received, the more the shops, the more he earns thus satisfactory.

For the regular franchisees, they are given an established brand name that has proven successful. Subway also provides specific suppliers of equipment and raw materials. As a result, Subway ensures that its products are fresh and of high quality. The franchisees also significantly benefit from the training provided by the master franchisee. Since Bryant has already experienced the market, he can provide knowledge and expertise to the franchisees to help them succeed. Also, Subway charges $10,000 as the initial franchise fee. Compared to other companies, this fee is lower. For instance, McDonald's charges a franchise fee of US $45,000, and Taco Bell requires $40,000 (Daszkowski, 2019). Furthermore, in other countries, Subway charges a franchise fee of $15,000 (Daszkowski, 2019). Therefore, Subway has lowered this fee in China, given the challenges that recruits face. Also, as compared to competitors, the fee is favorable as it is cheaper. As a result of its reduced franchise fee and the other provisions, the method is satisfactory. However, the royalty fee is excessive and unwarranted. Compared to competitors, Subway charges the highest royalty fee of eight percent. McDonald's and Taco Bell, for instance, charge only four percent (Daszkowski, 2019).

Recommendations for Improvement

Subway should consider lowering its royalty to match with its competitors. Although there are 140 subway shops in China, this number is relatively low (Cavusgil et al., 2011). Given the size of the country and its population, there should be more Subway shops. Other countries have a higher number of restaurants. The United States has 25,760 Subway restaurants, while Canada has 1,000 (Kiprop, 2018). Therefore, to help increase the number of restaurants in China, Subway should reduce the royalty to help attract more entrepreneurs.

Also, Subway should be more flexible with its franchisees in China. The significant difference in culture initially caused numerous challenges. Hence, Subway should give the franchisees the freedom to alter the packaging and the food served. Cavusgil et al. (2011) noted that most people did not like sandwiches. Therefore a slight change in the menu may help the restaurant meet the tastes and preferences of the country.

References

Cavusgil S.T, Rammal H. & Freeman S. (2011) International business: The new realities. Pearson Higher Education AU.

Daszkowski, D. (2019, Nov. 20). Most popular food franchises and how much they cost. The Balance. https://www.thebalancesmb.com/most-popular-food-franchises-and-how-much-they-cost-1350254

Kiprop, J. (2018, Feb. 20). Countries with the most Subway restaurants. WorldAtlas. https://www.worldatlas.com/articles/countries-with-the-most-subway-restaurants.html