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Cmba Essay

2612 words - 11 pages

International Business & Economics Research Journal – August 2009

Volume 8, Number 8

The Franchising Decision: The Perspective Of The Franchisee In The Hospitality Industry
Ramon Diaz-Bernardo, Instituto de Empresa Business School, Spain

ABSTRACT Franchising is a major trend in the hotel industry. Despite the fact that almost two-thirds of branded hotels in the U.S. are franchised, there is a lack of empirical research on franchising in the hospitality industry. In this article, I reviewed one of the most relevant lines of research in franchising literature, usually referred as creating franchising systems, and we have concentrated on analyzing the reasons and motivations to use ...view middle of the document...

In the hotel industry, the franchising system is also constantly growing. According to Mintel Marketing Intelligence‟s 2005 International Hotel Industry Report, 67% of U.S. room capacity is branded, mainly through franchise contracts. Almost all the big U.S. hotel chains are involved in franchising. Eighteen of the top 20 U.S. hotel brands use franchising, so it has become a hot topic of interest in the hotel industry. The situation is different in Europe where the franchising system is less popular and the hotel chains still prefer to grow via leasing or management contracts instead of franchising. When inquiring about the different behavior of the European and the U.S. hotel markets concerning franchising, our two European experts expressed similar opinions. Mr. Jordi Frigola, Senior Vice President of Jones Lang LaSalle in Europe, explained, “In Europe the level of concentration and branding is very low compared to the U.S. Most of the European hotel chains prefer the leasing contracts and the investors prefer a lease contract with no risk rather than hands-on franchising contracts.” In a similar vein, Mr. Bernardo Cabot, Director of Expansion‟s European Division of Sol Melia, added, “There are three potential barriers to the development of franchising in the European hotel industry: 1) a lack of potential franchisees with both the necessary skills and the financial resources needed, 2) a great concern about the quality standards of the potential franchisees and how to enforce the chain‟s quality standards in the franchisee‟s property, and 3) litigation and other legal issues involved in the franchise contract.” 61

International Business & Economics Research Journal – August 2009

Volume 8, Number 8

In parallel with the rapid expansion of franchising, there is a growing interest among academics and practitioners in studying the franchise system. The literature on franchising has followed three major lines of research: 1) franchising and society, 2) creating a franchise system, and 3) managing a franchise system. In this paper, we will concentrate on analyzing the line of research known as creating franchise systems and, specifically, we will concentrate on franchising from the perspective of the franchisee. We will do so by reviewing the relevant literature on the subject and by comparing what the theory says with the opinions of our panel of experts, as well as with the empirical information collected from public sources of information regarding the hotel industry. THE DECISION TO BE A FRANCHISEE: A THEORY OF FRANCHISE DEMAND AND ITS APPLICATION IN THE HOTEL INDUSTRY As described by Fulop and Forward (1997), a lot of theoretical and empirical research has been devoted to explain why firms franchise. However, few studies have aimed to explore the importance and the advantages of the franchise system from the perspective of the franchisee; that is, the entrepreneur choice of franchise vs. independent ownership – a theory of franchise...

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