Franchising versus Company-Run Operations: Modal Choice in the Global Hotel Sector

Abstract

Franchising is already an important component of global strategy in many service sectors such as hotels. This article asks, “Given a choice between a company-run and a franchised operation, what factors will tip the strategic selection toward franchising, for a particular hotel property?” The modal choice is influenced by both the environment or conditions in the market in which the hotel property is located— as well as the characteristics and strategy of the global hotel firm that is to decide whether to franchise, or run the property themselves. The propensity to franchise is shown to reflect a mix of factors, including: level of development of the intended foreign market; the extent of globalization and international experience of the firm; and strategic factors such as the degree of investment in its global reservations system and brand, as well as the size of its overall operations.