Edited by Léo-Paul Dana
Chapter 38: A Model for the Choice of Organizational Form in International Franchising
V. Nilakant, Callum J. Floyd and Mary Ellen Gordon Franchising has become ubiquitous, not only locally but also globally (Quinn, 1999). Over one-third of all retail sales in the United States pass through franchises, making franchising a dominant mode of retail entrepreneurship in the United States (Bradach, 1997; Shane, 1998). The growth rate of franchising is comparable to that of the US economy as a whole since 1986, with more than 200 new franchises appearing each year (Lafontaine and Shaw, 1998; Shane and Spell, 1998). As the franchise business arrangement is also a government-supported form of international involvement, business format franchising is becoming a preferred method of entry into foreign markets (Alon and McKee, 1999; Eroglu, 1992; Welch, 1989). Despite its increased use, franchising is a complex phenomenon (Bradach and Eccles, 1989). It can be simultaneously viewed as an organizational arrangement, a governance mechanism or a resource exchange process. Outwardly, the franchise chain may seem like a simple organizational form seeking to provide a standardized product or service. McDonald’s exempliﬁes this replication of a simple business concept, providing stringent selection, training, operating and monitoring practices, so that customers receive a similar experience at over 8000 restaurants in the United States and 26000 worldwide. While units of this franchise system and many others appear strikingly similar, beneath may reside complex strata of heterogeneous organizational arrangements. Franchise systems often comprise both company-owned and franchised units (Brickley and Dark, 1987; Caves and Murphy, 1976; Lafontaine and Kaufmann, 1994; Rubin, 1978; Shane, 1996)...
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