Franchising Globally

Franchising around the world is quickly increasing. There is a dual process of international franchising and diffusion of local franchising systems through innovation, learning, and imitation. Alon (2005) discusses the development of service franchising as a global phenomenon with a focus on the use of franchising, franchisor clusters, master international franchising, and cases relating to Russia, Philippines, and China.

In the U.S., Canada, and parts of Western Europe, retail franchising has reached domestic market saturation, while emerging markets remain relatively untapped. Retail franchises have been established in these markets primarily in the last 15 years through master franchises and corporate franchise agreements, and to a lesser extent joint venture franchising and conversion franchising (Alon and McKee, 1999; Connell, 1999; Doherty and Quinn, 1999; Hadjimarcou and Barnes, 1998; Hoffman and Preble, 2003). Emerging markets, which account for 80 percent of the world’s population and 60 percent of the world’s natural resources, present the most dynamic potential for long-term growth to businesses, in general, and to franchisors, specifically. The U.S. Department of Commerce estimated that over 75 percent of the expected growth in world trade over the next two decades will come from emerging countries, particularly Big Emerging Markets, which account for over half the world’s population but only 25 percent of its GDP.

This study makes a singular contribution to the literature by being the first to analyze the differences between nascent entrepreneurs and franchisees using the Panel Study of Entrepreneurial Dynamics (PSED) national database of the United States of America. The PSED, developed through the entrepreneurship research consortium, was one of the most comprehensive studies ever completed on nascent entrepreneurs.

In the U.S. economy, the service sector has witnessed a tremendous growth in the past several decades, and the hospitality industry is one of the major components of this fast growth (Ketchen et al 2006). Different to most of the other service sectors, the hotel industry is usually capital intensive and its logistics and supply chain can be as complex as those of manufacturing operations (Chen and Dimou, 2005). For hotel companies, this can be a great obstacle to equity-based expansion models in various markets, particularly in the international market. This also raises the issue of the importance of the internationalization process through franchising for hotel companies.

International franchising research has advanced in recent years and, with it, the state of knowledge on why and how franchising companies expand into new markets. Initial research into the emerging field of international franchising has focused on both organizational and environmental determinants. Organizational determinants, which are among the causes of internationalization (Dunning, 1981), included size, age, growth, franchise fee and royalties, and dispersion (Alon, 1999; Elango, 2007; Fladmoe-Lindquist et al 1995; McIntyre et al 2006).

Every year Italy provides millions of visitors with distinctive experiences, thanks to the natural, cultural, and social resources that characterize the country. An analysis of the role of the tourism industry — an important component of the Italian economy — is therefore appropriate and timely. Franchising can contribute greatly to a host market environment and to specific service industries in particular (Alon, 2004). Weaknesses in the Italian hospitality market could be compensated for and reduced by the development of the franchising concept, which is seldom used by Italian hotel chains as they seek to expand in the local market. The low level of franchising in the Italian hospitality sector stands in stark contrast to countries like the U.S., and to other countries where franchising represents as much as 65 percent of the total bed offer (Pine et al 2000). As Altinay (2004) points out, the implementation of franchising is a very difficult organizational activity, and this is particularly true in markets such as Italy, Spain, and Greece, where family-run companies resist the logic of franchising. Considering the data provided by Assofranchising (2005), in a positive overview which reveals a constant growth of franchising during recent years (during 2005 the increase in total turnover was 6.9 percent), the presence of franchising in the hotel sector is still insignificant: with a total turnover of €41.35 million, it represents only 0.2 percent of overall franchising activity in the country.

This study tries to isolate critical factors affecting the performance of North American fast-food franchises within the Moroccan business environment, with a primary focus on the roles of culture, business rules, and tradition. Specific cases of companies currently operating in Morocco’s the fast-food business sector will be analyzed.

Scientific research in the field of franchising as a business model has been conducted for more than 20 years, but it was only during the 1990s that research interest in this area became more intense, particularly research that focused on the global context. During this period franchising became an increasingly interesting business concept to scientists and researchers from different areas, because the variables involved in franchising merit specific study (Combs and Ketchen, 2003) to entrepreneurship experts, because franchising represents a driving force for starting a business venture; to marketing experts, because it represents one of the main distribution channels in new economies; to strategic management experts, because it represents and important organizational form; and to financial experts, because they are interested in capital investment structures in franchise businesses.

Microfranchising has matured from its beginnings in nonprofit development communities to capture the attention of the wider business community. Its successful proliferation in diverse emerging economies such as Kenya, El Salvador, and India has led to the establishment of profitable organizations, the creation of jobs, the alleviation of poverty, and sustainable economic development. We are aware of the great potential of this emerging business model, but are concerned about the paucity of academic literature on the subject. This article is an attempt to remedy this situation by synthesizing existing perspectives and stimulating new avenues of research. Specifically, we explore viable models in the practice of microfranchising by revisiting literature pertaining to its precursor — franchising. Contemporary cases are also highlighted in order to identify effective and successful strategies.

In 2006, Ruth’s Chris Steak House was fresh off a sizzling initial public offering (IPO). Dan Hannah, Vice President for Business Development since June 2004, was responsible for development of a new business strategy focused on continued growth of franchise- and company-operated restaurants. He also oversaw franchisee relations. Now a public company, Ruth’s Chris had to meet Wall Street’s expectations for revenue growth. Current restaurants were seeing consistent incremental revenue growth, but new ones were critical and Dan knew that the international opportunities offered a tremendous upside.

Internationalization remains an important task for network operators in the hotel sector. They must try to adapt their chain to the country they want to penetrate, but this is not always easy. To internationalize their operations the majority of firms choose a franchising system. However, Best Western (BW) has successfully developed and implemented the use of a wholly unique system of internationalization by using affiliated networks. This organizational structure allows for rapid international expansion while retaining the ability to tailor what they are offering to local environments. The purpose of this paper is twofold. In the first section, we review the international tourism and hotel sectors. Then, in the following section, we analyze the internationalization strategy and processes of Best Western. Its organization is neither franchised nor company owned, but rather an affiliation network, which is worth studying in the context of internationalization. Finally, the limitations of this paper and tracks for future research are summarized in the Conclusion.

Denis Tensek (MBA) and his wife Jasmina Pacek (MFA) spent a considerable amount of time in the U.S.; both went to graduate schools in California and have worked for well known American companies. Armed with the know-how they obtained from their experiences in the U.S. they left their management positions and returned to their homeland of Croatia in order to spend time with their family and to help their country develop.

One day in late 2001, Rick Wang, the managing director of RetailCo Inc., the master franchisee for The Athlete’s Foot in China, was reviewing the most recent sales report of his company. He found that the sales volume had declined precipitously over the past six months, down almost one-third from what it had been only one year ago. Inevitably, Rick was concerned.

This book has attempted to capture some salient issues relevant to international franchising. Among the themes running through the book were internationalization, emerging markets, and franchising entrepreneurship which are worth continued to study. Franchising has been shown in industries as diverse as television programming (Thomas, 2006), healthcare services, technology, and childcare services. This current book has concentrated on the traditional industries employing franchising, notably retailing and hotels, across multiple countries and continents. Future studies should continue to add to the repertoire of industry and country studies that examine franchising in different institutional contexts and industry settings. Good theories of franchising that can explain the use, expansion, and internationalization of franchising should be able to hold true across countries and industries with only limited adjustments. Both resource-based and agency-based theories show promise. Together they may have greater explanatory powers (Castrogiovanni et al 2006). In the following section, I will comment on each of these franchising areas (internationalization, emerging markets and entrepreneurship) noting areas for possible future research.