How do franchisor policies and industry attractiveness impact franchise timing? Evidence from entrepreneur's top 500 franchisors

Abstract

Purpose

This study provides a robust test of a central question in franchising: which factors influence the timing of adopting the first franchised outlet? Using a novel methodology, the purpose of this study is to examine the factors that accelerated or delayed the opening of the first franchisee outlet for the largest franchise chains in the USA.

Design/methodology/approach

The sample addresses a methodological shortcoming in traditional franchising literature. Using duration analysis, the paper captures the timing of the first franchise outlet for a retail concept. This allows us to capture the antecedents that explain the differences in timing between franchise systems.

Findings

By setting initial investment costs lower, the average time to attract the first franchisee is shorter. However, as franchisee net worth requirements rise, the time to attract the first franchisee is longer. Finally, franchisors tend to defer expansion via franchising in favor of managing their own outlets in resource rich industries.

Research limitations/implications

The dataset is limited to the largest US franchise systems.

Practical implications

This study suggests factors that would cause franchisors to decelerate or accelerate the initial franchise timing decision. Businesses time expansion based on industry size, outlet start‐up costs, and franchisee net worth.

Originality/value

This study provides the first examination of the firm and industry drivers affecting when a firm initiates franchising. This study uses rigorous empirical testing of franchising theoretical predictions using duration analysis.

Citation

Tsang, S. and Finnegan, C.A. (2013), "How do franchisor policies and industry attractiveness impact franchise timing? Evidence from entrepreneur's top 500 franchisors", International Journal of Retail & Distribution Management, Vol. 41 No. 2, pp. 135-154. https://doi.org/10.1108/09590551311304329