The effect of franchisor characteristics and host country features on the foreign entry mode. Lessons from the Spanish franchise system lessons from the Spanish franchise system

Abstract

Franchisors have many options when seeking to expand their business into foreign countries. Specifically, they can enter new markets via one of four different ways: 1) direct franchising; 2) master franchisor; 3) equity joint venture; 4) direct investments. This paper aims to analyse the factors that determine this entry mode decision. To achieve this goal, transaction cost theory is used to explain the entry mode choice phenomenon, by using a franchisor and host country level perspective. Additionally, a quantitative approach was applied to a sample of 43 Spanish chains operating 2,532 outlets across 62 foreign nations. The results show that foreign entry mode choice is driven by franchisor characteristics such as international experience, brand awareness, and industry type (product versus service), in conjunction with host country features including geographical distance, uncertainty avoidance, masculinity, political stability, economic development, unemployment rate and efficiency of contract enforcement.