Franchising Systems around the Globe: A Status Report

While markets for certain franchised products and services have become saturated in the U.S. (the fast-food sector, for example), international franchising opportunities have been developing at an unprecedented rate due to the growth of global markets. Many developed countries are experiencing similar trends and are turning to franchise strategies for growth. Despite its recent growth, there is relatively little specific information on the current status, challenges, and future prospects of international franchising. The purpose of this article is to provide such an assessment of the status of franchising in world markets. The Franchising Phenomenon Franchising has emerged in recent years as a highly significant strategy for business growth, job creation, and economic development both in the U.S. and in world markets (Hoffman and Preble 1991). Franchisors are classified either as product-tradename or as business format franchisors (Arthur Andersen 1992). Product-tradename franchising, which is prevalent in automobile sales, retail gasoline, and soft-drink distribution, uses franchisees to distribute a product under a franchisor's trademark. Business format franchising is designed to have the franchisee replicate, in different locations, the entire franchisor's business concept including the marketing strategy and plan, the operating manuals and standards, and quality control. Restaurants, personal and business services, rental services, and non-food retailing are examples of the 67 distinct business segments where this "package" concept is currently in use. Business format franchising is predicted to be the dominant form of franchising internationally in the twenty-first century (Hoffman and Preble 1993). While business format franchising has been experiencing rapid growth in the U.S. since the 1950s, the 1980s was a period of rapid international expansion during which some 400 U.S. franchisors increased their overseas units by more than 70 percent, to almost 39,000. The majority of these overseas units were located in Canada, Japan, Europe, Australia, and the United Kingdom. The Diffusion of Franchise Systems In recent years, international opportunities have been developing at an unprecedented rate for a variety of reasons: global economic integration taking place as a result of lowering trade barriers in the European Community (EC); the passage of the North American Free Trade Agreement (Canada, Mexico, and U.S.); and a reduction of entry barriers in many former communist countries (Russia, Central Europe, and Eastern Europe). Deregulation of industries within these nations has also been occurring on an accelerated basis. Furthermore, many developed countries are experiencing trends similar to those that made franchising so successful in the United States (Ayling 1988, Chan and Justis 1992). Examples of these developments include a rapidly increasing demand for goods and services, expanding urbanization, increasing mobility, more women in the work force, rising disposable incomes, and a shift to service-dominated economies. The success of non-U.S. franchisors in their home markets, coupled with their often small domestic market has caused these franchisors to quickly internationalize their operations. The development of international franchising by non-U.S. franchisors has been relatively swift: Benetton, the Italian-based clothing franchise, boasts more than 4,000 licensed outlets worldwide. Canada, France, Italy, and Japan each have several hundred franchised companies, many of which have taken their packaged (format) concepts abroad. While all this serves to suggest that the franchising concept is rapidly spreading around the globe, actual data on franchising's movement can only be partially gleaned from a patchwork of diverse sources. The above problem is compounded by the fact that the international aspects of franchising have not received much academic or managerial attention. …