Market conditions driving international franchising in emerging markets

Abstract

PurposeThe purpose of this paper is to introduce a model that explores various possible determining factors in the rate of franchising among emerging nations. Emerging markets are some of the fastest growing economies in the world; moreover, the countries they represent are undergoing substantial economic transformations. Yet despite all this, little is known about the factors influencing country selection for expansion into these markets. In an attempt to enhance the knowledge that managers and scholars have on franchising expansion, the present study examines how market conditions may constrain diffusion of franchising into emerging markets. They are: geographical distance; cultural distance; uncertainty avoidance; individualism; political stability, and corruption. The author also controlled for gross domestic product, the efficiency of contract enforcement, and nascent entrepreneurship.Design/methodology/approachThis study uses a quantitative approach applied to a sample of 63 Spanish franchisors with 2,836 franchisee outlets operating across the emerging countries.FindingsResults conclude that geographical distance, uncertainty avoidance, individualism, political stability, corruption, gross domestic product, efficiency of contract enforcement, and nascent entrepreneurship are able to constrain the spread of franchising across emerging nations.Research limitations/implicationsThis study provides readers with a general overview of the current state of global franchising diffusion overseas. Results obtained in this study are useful for understanding and predicting the demand for franchising in emerging countries.Practical implicationsThe present manuscript develops and tests a model that can be useful not only to academics interested in broadening their knowledge regarding global franchising, but also to firm managers wanting to establish new outlets in emerging nations. Thus, franchisors may use the results of this study as a starting point for identifying the emerging regions whose characteristics best meet their needs of expansion.Originality/valueThis paper explores how certain market conditions may drive international diffusion of franchising into emerging markets. The scant theoretical or empirical attention given to this topic has usually been examined from a US base and focused on developed markets. To fill this gap, the present study analyzes the international spread of the Spanish franchise system, which since 2008 has ranked fifth worldwide in terms of both the number of franchisors and the quantity of franchisee outlets across emerging markets.