Internationalization of
Franchise Systems
Though the internationalization of firms has progressed in theory
development and empirical testing during the last two decades,
researchers continue to concentrate on the exporting behavior of
manufacturers to the exclusion of other forms of international
involvement. This exploratory study provides a partial test of the
internationalization hypothesis in a franchise setting and identifies
two segments of franchisors, which differ in several ways. Franchise
systems in the final stage of internationalization have larger international operations, generate a larger percent of sales from international operations, and have more diversified expansion plans. In
addition, systems in the two stages differ in ownership structure.
The findings add insights into the internationalization process of
franchise systems that are useful to practitioners in the implementation of market expansion strategies and to researchers in the continuing effort to further understand international franchising.
Though franchising is expanding faster and more vigorously
than other business forms (International Franchise Association
1990) with intensifying competition both domestically and
internationally (U.S. Department of Commerce 1988), the
internationalization of U.S. franchise systems is understudied
(Eroglu 1992). Several authors have proposed theoretical
frameworks for investigation of the international franchising
phenomenon. Eroglu (1992) takes existing descriptive research
on international franchising combined w^ith export literature to
develop a conceptual model of the determinants of franchise
internationalization. Similarly, Karuppur and Sashi (1992) propose the use of transaction cost analysis to examine internal
and external antecedents of international franchising and
develop hypotheses accordingly.
Huszagh, Huszagh, and Mclntyre (1992) utilize the conceptual
foundations of: 1) competitive strategy to examine fundamental differences between franchisors with domestic-only versus
domestic-and-international focus, and 2) theory of the firm to
examine the mediating effects of market conditions, specifically access to capital markets and advances in technology,
over time. Building on the international product life cycle concept, Welch (1989) constructs a model of global development
ABSTRACT
Faye S. Mclntyre
Sandra M. Huszagh
Submilled November 1994
Ilcvised March 1995
September 1995
© Journal of International Marketing
Vol. 3. No. 4, 1995. pp. 39-56
39
in franchise systems, then empirically examines the process of
international entry by Australian franchisors (1990).
Each of these investigations, whether descriptive or theoretical,
conceptual or empirical, raises the basic question of differences
between domestic and international franchisors. Despite the
fact that by 1990 one of every six U.S.-based business format
franchisors had already expanded operations to foreign markets (International Franchise Association 1990), no one has yet
looked for differences among international franchisors. This
article extends the boundaries of knowledge by first providing
a description of the internationalization process as it applies to
franchise systems. Next, the methodology and findings of a
clustering routine designed to provide a partial test of the internationalization hypothesis are presented. The internationalization process is further assessed by testing for differences in
organizational characteristics, performance in international
markets, and international strategy of franchise systems at different stages. Finally, managerial and policy implications are
discussed, along with suggestions for future research.
THE INTERNATIONALIZATION
PROCESS
Cavusgil and Nevin (1980) provide a conceptual model of the
internationalization of firms, identifying four stages in the
process: domestic marketing, experimental involvement,
active involvement, and committed involvement. They argue
that different firms will be at different stages in the internationalization process at any point in time and that firms will
proceed through the process at differing paces.
Figure 1 outlines the four stages of the internationalization
process and identifies critical activities pertaining to franchise
systems. The following sections describe the stages of franchise internationalization in the context of existing literature.
Domestic Franchising
Just as the majority of manufacturers do not export (Czinkota
1987), a large portion of franchisors are involved only in
domestic marketing. Recent estimates indicate that fewer than
20 percent of U.S. franchisors operate outside the United
States (Freeman 1994; International Franchise Association
1990; Walker and Cross 1989). However, with 95 percent of the
world's population located outside the United States (U.S.
Department of Commerce 1994), international markets represent an opportunity that should not be ignored; McDonald's
and Coca-Cola, for instance, generate 45 percent and 80 percent of income, respectively, from international operations
(Serwer 1994).
Even for franchise systems that eventually expand internationally, domestic franchising typically precedes international
40
Faye S. Mclntyre and Sandra M. Huszagh
Figure 1
Franchise System
Internationalization
Stage 1
Domestic Franchising
Franchising soiely in the
home market
Stage 2
Experimentai invoivement:
Preiimlnary evaiuation
of international
expansion, leading to
minimal invoivement
Stage 3
Active Invoivement:
Systematic exploration
of expanding international
franchising activity
Stage 4
Committed involvement:
Long-term commitment to
franchising in
international markets
Source: Adapted from S. Tamer Cavusgil and John R. Nevin, "A
Conceptualization of the Initial Involvement in International Marketing,"
in Theoretical Developments in Marketing, edited by C.W. Lamb and P.M.
Dunne (Chicago: American Marketing Association, 1980), 68-71.
involvement (Welch 1989,1990). Indeed, distribution strength
within the domestic market is among the major success factors
critical to international expansion, regardless of entry mode
(Cavusgil and Naor 1987; Rynning and Anderson 1994).
Through domestic distribution, firms acquire the general
knowledge concerning marketing methods and common characteristics of customers that may be transferable across geographic locations and can facilitate "lateral growth," i.e., the
establishment of operations in new and dissimilar environments (Johanson and Vahlne 1977, p. 28). Operational expertise and feedback from the domestic marketplace and
franchisees help raise the firm to a higher state of readiness for
international activities; domestic market penetration positions
the franchisor as a successful firm with a proven package and
may provide the franchisor with more confidence to expand
into foreign markets (Welch 1989, 1990).
Jnternationalization of Franchise Systems
41
Experimental Involvement
A senior executive's interest is a factor in many initial international entry decisions, with the interest frequently initiated by
inquiry from potential franchisees (Freeman 1994; Hackett
1976; Walker and Etzel 1973; Welch 1989,1990). Experimental
involvement may be characterized by very low levels of managerial commitment of resources; often only one or a few international markets are involved (Cavusgil and Nevin 1980).
Some franchisors test new markets with company-owned
stores prior to beginning major franchising efforts (Hackett
1976; Welch 1989), since knowledge about foreign markets is
acquired mainly through operating in the markets (Anderson
1993; Johanson and Vahlne 1977).
Problematic environmental factors faced by systems that
progress beyond the domestic franchising stage appeared as
major barriers in the 1970s (Mclntyre and Huszagh 1988).
Such difficulties may lead the franchisor to withdraw from
international operations. Indeed, by the mid-1970s about 40
percent of international franchisors reported that one or more
foreign units had failed (Hackett 1976), and 9 percent of systems attempted, then completely abandoned, franchising in
foreign markets (Walker and Etzel 1973).
Market exit may be tied to insufficient financial and managerial
resources closely related withfirmsize. Though smallfirmsare
certainly not precluded from international involvement, size
does appear to be a factor in the internationalization of export
firms (Cavusgil and Nevin 1980). However, the phenomenal
increase over the past three decades in the number of U.S. franchisors with international operations and the number of units
located outside the domestic borders indicate that international
franchising is viewed as a viable expansion strategy.
Active Involvement
After entering a foreign market, the success of international
units becomes a catalyst for further international ventures
(Hackett 1976). In the active involvement stage, most franchisors expand at a slow and steady pace in order to address adequately the administrative and legal issues of each market
(Lifflander 1970). Although more markets may be developed at
this stage, involvement may be limited to traditional markets,
i.e., those that are "psychologically close," as would be
Canada to U.S. marketers (Cavusgil 1984a, p. 204).
Along with the effects of success in overseas ventures, significant resources are also posited to act as catalysts, speeding the
internationalization process (Anderson 1993). Thus, it is not
surprising to find size of thefranchisesystem an important factor. Earlier research found that systems with more than 300
units accounted for over 76 percent of international franchisors
(Hackett 1976). Similarly, 71 percent of franchise systems with
42
Faye S. Mclntyre and Sandra M, Huszagh
200 or more units were "actively engaged" in international
franchising (Walker and Etzel 1973). These findings confirm
the potential for the impact of scale economies on franchise
system internationalization.
Given the rapid growth of franchising during the 1950s and
1960s in the United States and expansion internationally during the 1970s and 1980s, one would expect that many franchise systems have made the successful transition to the last
stage of internationalization—committed involvement. The
exploration of glohal opportunities found at this stage of
development (Cavusgil 1984a; Cavusgil and Nevin 1980) is
illustrated by the fact that U.S. franchise systems have diversified their served markets well heyond the traditional, developed countries. According to leading sources in the franchise
industry (International Franchise Association 1990; U.S.
Department of Commerce 1988), U.S. franchisors are currently
operating in most of the world's major markets.
As is often the case when dealing with specialized populations, the construction of a sample frame consisting of international franchisors proved not to he a simple task. No single
source could he identified that catalogued franchising firms in
this manner. Thus, a list was compiled by examining the most
current issues of three franchising directories. All sizes and
types of franchise systems in each directory were chosen for
the study if operations outside the United States were indicated (e.g., U.S. and Canada, all fifty states and Puerto Rico,
worldwide). Based on this screening process, the sample frame
for the mail study was composed of a cross-sectional census of
332 U.S. firms with international franchise operations.
Committed Involvement
RESEARCH METHOD
Sample and Data Collection
A series of personal interviews were conducted with executivesfroma convenience sample of internationalfranchisorsto
direct questionnaire development. More specifically, questions
were designed based on insights from executives that market
entry and expansion arefrequentlyconcurrent decisions.
A draft of the questionnaire was then developed and distributed to a subset of the sample as a pretest. Follow-up phone calls
to participating franchisors resulted in minor modifications,
improving the clarity of skip patterns in the survey instrument. The revised questionnaire subsequently was administered to the remaining franchisors in the sample frame.
A series of procedures was followed to increase management
participation in the study. To ensure that the appropriate executive in each company received the questionnaire, personal
phone calls were made to each company to confirm or ascertain
Internationalization of Franchise Systems
43
the name and title of the individual responsible for international franchising decisions. These executives were contacted,
the purpose of the research was explained, and their cooperation invited. Each executive received a coded copy of the survey (to avoid duplication in follow-up mailings) and a
personalized cover letter on university letterhead. Two followup mailings were sent at approximately three-week intervals to
those firms that had not yet responded. Nineteen surveys were
returned undeliverable, leaving 313 firms in the sample frame.
The pretest and three waves of data collection resulted in 145
responses. Of these, 52 were excluded from the study for various reasons: firms who returned the form unanswered citing
company policy against participation in surveys; firms who
returned questionnaires with incomplete responses; firms who
were not involved in franchise operations or had no international operations. Thus, with 93 usable responses, the effective
response rate was 29.7 percent.
Nonresponse bias was analyzed by wave analysis. No significant differences emerged across meaningful variables such as
years of international experience, number of units, and startup date of the organization.
,
\ ;—
Intemationalization
Measurement
In this exploratory study, we attempt to identify franchise systems in the last three stages of the internationalization process:
experimental involvement, active involvement, and committed involvement. The identification process will yield insights
on the current status of market expansion by franchise systems
and whether increased involvement will offer commensurate
financial rewards.
Though foreign sales as a percent of total sales (FSTS) is commonly used to estimate a firm's degree of internationalization,
Sullivan (1994, p. 330) concludes that FSTS is an "intrinsically
unreliable" measure. An examination of the literature assessing
the relationship between FSTS and financial performance
resulted in the following: "six studies reported a positive, six
an indeterminate, and five a negative relationship" (Sullivan
1994, p. 327). Given the documented problems with FSTS, a
new approach is called for. Since managerial expectations
appear to differentiate non-exporters from exporters (Cavusgil,
Bilkey, and Tesar 1979), we explore the possibility that they
also differentiate among firms in the last three stages of the
internationalization process. Therefore, as the major predictor
variable, perceptions of expected performance in foreign operations were used to differentiate stages of internationalization.
Cyert and March (1963) incorporate expectations as a major
component of their behavioral theory of the firm, deriving from
44
Faye S. Mclntyre and Sandra M. Huszagh
information within the firm (e.g., resources allocation and past
experience) and information ahout the environment (e.g.,
competitive activity and market structure). It is posited that
higher expectations will parallel higher levels of internationalization. Managerial expectations have been identified as among
the most important determinants of the level of firms' export
activity (Cavusgil 1984a, 1984h), with higher expectations paralleling higher levels of export activity (see Cavusgil 1984b for
a succinct review of expectations in the extant literature).
Basche (1971) developed a three-point scale to assess expected
profit on export sales versus profit on domestic sales. Typical
marketing objectives include sales volume, market share,
profit, and return on investment. Thus, a four-part question
was included in the survey to examine the extent to which
each of these objectives of international expansion differ from
the objectives of domestic expansion; this scale forms the basis
of the clustering routine used to identify internationalization
stages (discussed in the next section). Managers were asked to
state if the sales volume, market share, profit, and ROI objective
for international units was set above, below, or about the same
as the objective set for domestic units. The four-item scale is
provided in the Appendix. Cronbach's alpha value of .7524
demonstrates acceptable scale reliability (Hair et al. 1992).
Franchisors were clustered with the SPSSx Cluster routine
using nearest neighbor method with squared Euclidean distance measure. Although a three-cluster solution was expected,
tests for differences on the clustering variables resulting from
this solution failed to show a significant partitioning of the data
(Aldenderfer and Blashfield 1984). Thus, the two-cluster solution was judged most meaningful and further examined.
FINDINGS AND DISCUSSION
stage Identification
While disappointing at first glance, the two-cluster solution is
not inconsistent with recent efforts at internationalization profiles. For example, Cavusgil and Yeoh (1994) identify
international growth objectives of three categories of firms,
defined as: 1) non-exporting and reactive exporters, 2) active
exporters, and 3) committed exporters. If, as Cavusgil and
Yeoh imply, firms in the first stage of international involvement are best grouped with domestic-based firms, the
absence of firms in the experimental involvement stage from
this study should not be surprising. Franchisors currently in
the experimental involvement stage may be maintaining a
reactive strategy internationally and may have made no reference to international operations in the directories. Therefore,
we conclude that franchise systems in the experimental
involvement stage are not adequately represented in this sample and examine the two-cluster solution for identification of
systems in the active and committed involvement stages.
Internationalization of Franchise Systems
45
Differences between the two clusters on critical performance
objectives clearly establish two distinct groups of franchisors
operating in the international arena (see Table 1). While we
suggest no causality, the strength of managerial expectations
parallels the extent of internationalization. As discussed
below, higher expectations of franchise managers translate
into higher performance.
Table 1
Performance Objective
Averages by Cluster*
Cluster
One
(n=60)
Cluster
Two
(n=33)
Yearly Sales Volume Per Unit
2.233
1.273
Total Market Share in the Country
2.417
1.606
Net Profit Per Unit
2.267
1.182
Return on (Franchisor's) Investment
2.200
1.576
Objective for Foreign Units
Averages are based on a three-point scale v^rhere 1 indicates objective for
foreign units is above objective for domestic units, 2 indicates objective
is the same for both domestic and foreign units, and 3 indicates objective for foreign units is below objective for domestic units. Differences
in cluster means are all significant at p < .0001.
Cluster 1franchisorsset significantly lower expectations than
do Cluster 2 for all four performance objectives (p < .0001).
With higher expectations paralleling higher levels of international involvement (Cavusgil 1984a, 1984b), Cluster 2's inclusion of firms with higher expectations of international units
appears indicative of franchise systems in the committed
involvement stage. Systems in Cluster 1 expect the same or
less of international units than of domestic units, indicative of
those in the active involvement stage.
Stage Differences
Research indicates the "prevalent and aggressive nature" of
fast food restaurants in both domestic and international markets as early as the mid-1970s (Hackett 1976, p. 66). Though
many product/service categories appear to have a balance of
both active and committed franchisors (Table 2), systems in
the restaurant classification could be anticipated to be further
along the internationalization process. Based on the percentage of firms in each stage, over twice as many restaurants are
in the committed involvement (CI) stage as are in the active
involvement (Al) stage.
The mixed findings refiected in Table 3 suggest that characteristics such as system size and experience are not consistent
46
Faye S. Mclntyre and Sandra M. Huszagh
Classification
Active Committed
n (%)
n (%)*
Business Aids & Services
8(13.3)
3(9.1)
Construction, Home Improvement,
Maintenance and Cleaning Services
6 (10.0)
4(12.1)
Restaurants (All Types)
9(15.0)
12 (36.4)
Lodging, Entertainment, and Travel
7(11.7)
1 ( 3.0)
Automotive Products & Services and
Rental Services
3 ( 5.0)
3(9.1)
Retailing (Non-Food)
9(15.0)
2(6.1)
14(23.3)
6(18.2)
4(6.7)
2(6.1)
Personal Services (Educational
Products & Services, Equipment
Rental, and Laundry & Cleaning
Services), Convenience Stores,
and Misc.
Retailing (Food Other Than
Convenience Stores)
Table 2
Classification of Respondents
by Cluster
Rounding results in percentages not summing to 100%.
predictors of international involvement. Such inconsistencies
are not unexpected given the dehate among researchers M^ho
conclude that firm size constitutes a significant barrier to
exporting (Culpan 1989; Samiee and Walters 1990) and those
who conclude that size has minimal or no impact on international activity and involvement (Cavusgil 1984b; Katsikeas and
Piercy 1993). Our findings support the perspective that total
system size, and size of the domestic system, have little impact
on the internationalization stage and, thus, do not appear to act
as a barrier to internationalization in this sample of franchisors.
Characteristic
Mean
Active
Mean
Committed
Differences in
Cluster Means:
t stat. (p-value)
Total Number of Units
660.6
821.6
.68 (.249)
Number of Domestic
Units
610.7
701.6
.42 (.339)
Number of Foreign
Units
53.8
120.1
2.12 (.019)
Age of Franchisor (yrs.)
19.6
24.0
1.56 (.061)
Years of International
Experience
9.0
10.8
1.04 (.145)
Percent of Sales From
International Units
2.545
6.875
Internationalization of Franchise Systems
Table 3
Organizational Characteristics
and Performance
2.56 (.006)
47
While CI franchisors are more experienced via the firm's age
(though the difference is only marginally significant), there is
no statistically significant difference in international experience hetween the two clusters. Though time in operation differentiates hetween domestic and international franchisors
(Huszagh, Huszagh, and Mclntyre 1992), it does not appear to
differentiate hetween franchisors in different stages of the
internationalization process. Both findings on size and experience point to the need for the use of nontraditional measures
to explain the internationalization phenomenon.
Consistent with Cavusgil and Zou (1994), the data do indicate
a significant difference hetween the two groups' international
market performance, as measured hy the percent of sales generated from international operations. While managers' higher
expectations coincide with higher performance and the difference in the two stages is significant (p < .006), both group
means are helow 10 percent. However, this result is consistent
with a recent survey which found that 93 percent of international franchisors receive less than 10 percent of income from
operations outside the United States (International Franchise
Association 1990). Nevertheless, it is important to recognize
that major franchise systems, such as McDonald's and CocaCola, expect their future growth markets to he overseas
(Serwer 1994).
The location of current international operations for firms in
the two stages, indicated in Tahle 4, shows that the majority of
franchise systems in hoth stages operate in Canada. Personal
interviews with several franchisors provide anecdotal evidence that some firms view Canada as an extension of the
domestic market, rather than a foreign country. For example,
one executive stated that though his firm had not yet entered
international markets, "we have heen in Canada for many
years." Another executive whose firm operates a large number
of Canadian units failed to mention Canada when asked about
international markets. These comments may help explain the
ahsence of El franchisors from the sample frame; i.e., firms
may fail to mention international operations in the directories
because they view Canadian expansion as further domestic
market penetration.
In all other markets, a larger percentage of CI franchisors have
operations. Table 4 also illustrates that CI franchisors have
significantly higher levels of multinationality, measured as the
numher of markets in which a firm operates or has affiliates
(Kogut and Singh 1988). In an attempt to determine if there are
identifiable chronologies in market expansion by the two segments of franchisors, the year of entry was ranked for each firm.
Consistent with the axiom that firms' early choices for expansion will be countries with low psychic distance (Johanson and
48
Faye S. Mclntyre and Sandra M. Huszagh
Country/Region
Canada
Western Europe
Pacific Rim Including India
Australia & New Zealand
Middle East
Mexico
Central America
South America
Africa
% Active^
% Committed^
83.3
40.0
38.3
23.3
15.0
10.0
78.8
54.4
57.6
45.4
45.5
12.1
24.2
12.1
Average number of markets
with current operations^
6.7
6.7
1.7
2.25
Table 4
Location of International
Operations
9.1
3.36
Numbers indicate tbe percentage of firms in eacb cluster witb units currently operating in eacb market; e.g., 83.3 percent of all francbise systems in tbe Active Involvement stage operate one or more units in
Canada.
Differences significant at p < .0015.
Vahlne 1990), 73 percent of Al franchisors and 59 percent of CI
franchisors chose Canada as the first international market for
expansion. Further, during the early years of market expansion,
Al franchisors appear more likely to select markets with psychic (e.g., Western Europe and Australia) and geographic (e.g.,
Mexico) proximity than CI franchisors.
In addition to current operations, respondents were questioned about their expansion plans. Asked to identify the
country scheduled for the largest number of units to be opened
within the next year, approximately two-thirds of Al franchisors indicated Canada, while CI franchisors had more
geographically diverse expansion plans. Almost one-third of
CI franchisors anticipate that their principal market opportunities will occur in a wide variety of Western European countries and another one-third in East Asian countries, with the
remaining firms indicating either Canada, Australia, or Saudi
Arabia.
The differences in expansion plans may be due in part to the
success of firms' current operations; with favorable growth rates
in established markets, franchisors may elect to pursue a market
penetration strategy. Differences in expansion strategies
between Al and CI franchisors also may relate to the latter
group's scale and experience. Though we realize that statistically significant differences are lacking, comparing the two
groups' characteristics—such as size of international opera-
Internationalization of Franchise Systems
49
tions, and time in operation—may help explain the more
diversified expansion plans of CI franchisors, i.e., the less
experienced AI firms with smaller international operations are
more cautious in their expansion strategies. The numher of franchise systems in both stages planning continued growth suggests that managers apparently perceive that opportunities still
exist for further expansion. While requiring further testing, CI
franchisors may perceive higher market potential in less franchise-developed regions (such as in East Asia and Eastern
Europe) compared to more penetrated markets like Canada.
Certainly whether CI franchisors are able to absorb the greater
risk inherent in expanding to more erratic markets is a proposition worthy of further examination.
The choice of ownership mode by franchise systems categorized by the two stages was the final characteristic evaluated.
CI franchisors have significantly more company-owned units
domestically and internationally (see Table 5). Though not statistically significant, it is interesting to note that CI franchisors
appear less likely to engage in joint ventures and other less-traditional modes of ownership than AI franchisors. Another
interesting insight regarding ownership modes is that CI franchisors have approximately equal proportions of companyowned and franchisee-owned units internationally. This
contrasts with AI franchisors who, on average, own fewer than
one unit internationally versus more than 25 franchiseeowned units. Table 5 displays the contrast in ownership
modes between franchise systems in the two stages.
Table 5
Ownership Modes Used
Worldwide
Number of Units Operated
Under Ownership Mode
Mean
Committed
Differences in
Cluster Means:
t stat. (p-value)
Company Owned
58.0
251.3
2.06 (.021)
Master Franchises
136.4
23.7
1.10 (.137)
Franchisee Owned
397.1
437.3
.25 (.402)
6.8
1.2
.86 (.195)
0.03
.75 (.224)
Joint Ventures
50
Mean
Active
Other Ownership Modes
26.6
Internationally
Number of Units Operated
Under Ownership Mode
Mean
Active
Mean
Committed
Differences in
Cluster Means:
t stat. (p-value)
Company Owned
0.6
49.8
1.47 (.073)
Master Franchises
11.1
16.9
.44 (.331)
Franchisee Owned
25.6
49.3
1.04 (.152)
Joint Ventures
5.5
1.1
.89 (.187)
Other Ownership Modes
1.2
0.03
.72 (.237
Faye S. Mclntyre and Sandra M. Huszagh
Surprisingly few foreign units are operated through master
franchising. A numher of studies conclude that master
franchising is the most preferred approach to estahlishing
international franchise operations (e.g.. International
Franchise Association 1990; U.S. Department of Commerce
1988). It is possible that the self-selection of the sampling
process in this study led to a hias in ownership modes utilized
by respondents. Thus, while the data indicate that use of master franchising does not differentiate degree of internationalization, this finding may he suspect and should be reexamined
in future studies.
Managers of franchise systems will find that well-conceived
expansion strategies are requisite to growth, if not survival, as
the year 2000 approaches. The prospects of domestic market
saturation are increasingly visible among major players as well
as new entrants in franchising. The growing number of failed
units in the fast food category certainly supports this
phenomenon. Findings from our research can provide guidance for strategic analysis of international expansion opportunities. More specifically, the research first provides a scheme
for classifying the franchise system's stage of internationalization. Second, the research appears to confirm that managers
should not view size nor experience as constraints to overseas
involvement. It is striking that traditional predictors of internationalization, which have heen drawn from decades of
research, appear not to distinguish systems as they commit
greater resources to international operations.
^ = =
MANAGERIAL AND POLICY
IMPLICATIONS
••
From a policy perspective, this study has several implications.
First, policymakers must realize that franchise systems do vary
in their stage of internationalization. Further, while different
stages imply different needs for government information and
incentives, policymakers cannot assume that larger and more
experienced firms are necessarily the "targets" for support.
While it is generally accepted that assistance needs change as
firms acquire international experience and expertise (Cavusgil
and Yeoh 1994), our findings suggest that franchise systems
may not he prototypical.
Since much franchise promotion is conducted by franchise
associations, the International Franchise Association and its
"sister" associations in other countries can utilize the findings
of this study to target prospective firms. Associations in traditional markets, such as the Canadian Franchise Association
and the British Franchise Association, might choose to target
AI franchisors, while those in other markets, such as the
Franchise Association of Southern Africa and the Brazil
Franchise Association, may choose to limit their efforts to
firms in the CI stage.
Internationalization of Franchise Systems
51
RESEARCH A G E N D A A N D
CONCLUSIONS
Research on the internationalization of firms has progressed in
theory development and empirical testing during the past two
decades. However, concentration on exporting strategies in the
manufacturing sector has overshadowed the study of international involvement hy other sectors of the economy. The internationalization of franchise systems has been neglected and
demands our attention.
Sullivan's (1994) work provides an avenue for future exploration. To overcome psychometric prohlems associated with
measures commonly used in the literature, he developed a
multifaceted measure that includes three attrihutes of degree
of internationalization: performance (what goes on overseas),
structure (what resources are overseas), and attitudes (what is
top management's international orientation). Though our
study avoids the problems associated with the use of a singleitem performance measure, more thorough measures of internationalization, such as the one developed hy Sullivan, should
he used in future studies.
Future research demands a more thorough empirical analysis
that incorporates franchise systems at all stages of internationalization. This study illustrates the dilemma of including only
systems with identifiahle international operations. Future
researchers should make a deliberate effort to include firms in
the experimental involvement stage, requiring a more exhaustive polling of all franchise systems; this effort must also
include firms in the domestic franchising stage. An additional
area for exploration is the development of a model measuring
the likelihood of international franchising among domestic
systems; we should not assume that international expansion
will always follow domestic market coverage.
Inclusion of franchise systems in the domestic and experimental involvement stages can further explicate the findings of this
study. For instance, prior research indicates significant differences in system size and experience between domestic and
international franchisors (Huszagh, Huszagh, and Mclntyre
1992). Such organizational characteristics may hetter differentiate firms in the first two stages of the internationalization
process, rather than the last two as tested here. Only a
comprehensive analysis of all four stages within one context
will provide a definitive resolution to the dilemma of profiling
franchise systems based on internationalization.
Once we verify that the internationalization process is an
appropriate vehicle for examining the franchising phenomenon, selected streams of the current franchising research
should be reexamined. For example, do governance mechanisms (e.g., Dant and Schul 1992) and use of power and control
(e.g., Frazier and Summers 1986) vary hy internationalization
52
Faye S. Mclntyre and Sandra M. Huszagh
stage? Does the much-debated ownership redirection hypothesis (e.g., Hunt 1973) apply comparably across the four stages?
Future research is also needed to verify what benefits of company ownership exist, e.g., whether operating company-owned
units both domestically and internationally offers experiential
knowledge necessary for progression to the committed involvement stage.
An obvious arena for future research is the use of longitudinal
data. The cross-sectional nature of this study limits our ability
to document that firms do indeed proceed from one stage to
the next and also precludes determination of the explanatory
factors that influence such a move (Anderson 1993). Analysis
of firms' progressions throughout the internationalization
process would assist in identifying causal factors and may provide insights nebulous during a static examination. Given our
findings on the failure of size and experience to differentiate
between the two stages examined, an evaluation of the role of
technology as a possible substitute for these long-accepted requisites to internationalization is in order.
THE AUTHORS
Faye S. Mclntyre is assistant professor of marketing in the School of
Management, Rockhurst College,
Kansas City, MO.
Sandra M. Huszagh is associate
professor of marketing in the
Department of Marketing and
Distribution at the University of
Ceorgia.
There is no question that international expansion of franchise
systems is of increasing significance. This article develops an
international franchise profile that takes into consideration the
idea that various franchise systems may be in different stages
of international development. Though supported by theory
and the empirical evidence presented here, further investigation of the internationalization of franchise systems would be
productive. To generalize about all international franchisors
when, in fact, substantial segments of this population may differ dramatically, can lead to inaccurate conclusions for practitioners and unnecessary divagation among researchers.
Systematic examination of this phenomenon will lead to better
understanding of franchise evolution.
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Internationalization of Franchise Systems
55
Construct: Expected Performance
Alpha = .7524
APPENDIX
Construct, Items, and Alpha
Value
items:
Would you say your company sets the following objectives for foreign
units above, below, or about the same as objectives for domestic units?
Above
Yearly sales volume per unit
1
Total market share (per country)
1
Net profit per unit
1
Return on (your company's) investment . . .1 ,
56
Same
Below
2
2
2
2
3
3
3
3
Faye S. Mclntyre and Sandra M. Huszagh