Institutional environment and internationalization of franchise chains: a regional and global analysis

Abstract

PurposeIn this study, the authors identify how formal institutional environments in destination countries matter to franchise chains as they internationalize. The institutional environment of the destination countries of franchise chains is characterized according to three institutional dimensions necessary to attract international investment – public governance, ease of doing business and legal processes – and analyzed in the context of regional and global franchise expansion.Design/methodology/approachThe descriptive quantitative study involved 625 franchise chains from Australia, Brazil, Germany, India, Russia, South Africa and the United States, with a total of 2,939 observations.FindingsResults suggest that franchise chains from emerging markets are guided by the institutional conditions of ease of doing business and the quality of legal processes in global expansion and guided by ease of doing business, quality of legal processes and governance in regional expansion. On the other hand, franchise chains from developed markets are guided by the ease of doing business, quality of legal processes and governance in global expansion and governance and ease of doing business in regional expansion.Research limitations/implicationsThe sample included only franchise chains associated with organizations that represent franchises in their countries of origin, and the study does not analyze the effect of institutional distance between countries of origin and destination.Originality/valueThis study identifies the formal institutional characteristics that explain selection and commitment in international markets by franchise chains from different countries. The contribution is in analyzing the phenomenon through the lens of institutional theory and showing, through a global sample, that institutions matter to franchise chains from different types of countries (developed and emerging) and with different strategies for internationalization (global and regional).