NAFTA and franchising: A comparison of franchisor perceptions of characteristics associated with franchisee success and failure in Canada, Mexico, and the United States

Abstract Business-format franchising, which includes the product or service, the brand name or trademark, and the operating system developed by a franchisor, has experienced significant growth over the past few decades. International franchising also is growing at a rapid pace, in part, because of market opportunities that include new trade agreements. The debate over North American Free Trade Agreement (NAFTA) increased the focus on North American franchising. In spite of this attention, there are few, if any, comparative studies of franchising in Canada, Mexico, and the U.S. At the same time that international franchising growth is extolled, there is an argument over the extent to which franchising increases business success. A number of studies support the success thesis, however, recently critics claim that franchising does not significantly increase survival rates of franchisee-owned units. The objectives of this study are, first, to extend the study of franchisee success and failure by analyzing franchise executives' perceptions of the importance of a number of characteristics associated with franchisee success and failure, and second, to examine differences among the executives' perceptions of these characteristics based on the location of the franchisor—Canada, Mexico, or the United States. We also analyze the effects of franchise strategy, type of franchise business, and size of the franchise on executive perceptions of the characteristics associated with franchisee success and failure. Franchisor executives rated the relative importance of 39 statements, taken from previous research, that are associated with perceptions of success. Results from a factor analysis indicate that 30 of the variables load on 5 significant factors. Examination of the content of the factors indicates that the first factor (system quality), and the second factor (brand name) consist of variables that directly relate to the core of business-format franchising, the quality of the operating system and the brand name of the franchise. The third factor (local environment) consists of statements that represent general characteristics of the local franchise environment. The fourth factor (communication) consists of variables that link the franchisee with the franchisor and other franchisees. The fifth factor (franchise activities) consists of variables that represent idiosyncratic characteristics or activities of a franchisee. Franchise executives also rated the relative importance of 16 statements associated with franchisee failure. Of these, 6 statements, associated with franchisor activities, are combined to form a scale of franchisor failure, and 10 statements, associated with franchisee activities, are combined to form a scale of franchisee failure. The findings indicate that there are significant differences in most of the scales of success and failure among franchisor executives' perceptions based on country location. In addition, there is also a significant effect of franchise strategy on perceptions. There are no significant differences by type of franchise business or size of the franchisor. This research contributes to two important areas of research in franchising; the study of perceptions of the characteristics associated with franchisee success and failure, and international franchising research. The study also has practical applications. Knowledge about country differences in perceived characteristics of success and failure will help franchisors to identify aspects of the business system that require increased monitoring and investment. Awareness of country differences will also influence the selection of relevant training and development. Finally, knowledge of differences in perceptions may assist franchisors in adapting systems and policies that are likely to increase the success of their international sites.