Determining the Critical Success Factors of International Franchising:Cases of Foreign Franchisors in East Asia

Abstract

Although franchising has experienced phenomenal growth in the United States (U.S.),it has also proven to be highly popular in Europe,parts of Asia,Australia and New Zealand (Chan and Justis, 1990; Preble, 1995). With respect to Asia, Japan was the first country in the region to be targeted by U.S. franchisors in the 1970s (TDB and Arthur Andersen, 1997).As of March 1995, Japan had 158,000 franchised outlets, which ranked the country as the third greatest number of franchised outlets in the world after U.S. and Canada.Foreign franchisors are attracted to East Asia because it has a soaring middle class, with high disposable income, and more than half of the world's population lives in the region. China alone comprises nearly one-quarter of the world's population and is considered the most under-retailed country in the world (Swartz, 1997). Furthermore, governments in Singapore and Malaysia have recognised franchising as a vital key to stimulate growth in entrepreneurial activities and small businesses (TDB and Arthur Andersen, 1997). The two governments have introduced laws and established organisations and development programs to stimulate franchising in their countries.There remains a lack of research dealing with East Asia franchising as a high proportion of the investigations into franchising to date have been undertaken in the U.S. This means that much of the franchising literature is based on American experience and therefore may not be necessarily relevant to the environmental background of East Asia. Therefore, this paper has made a significant contribution in determining the factors that are critical to the success of international franchising in relation to foreign franchisors operating in East Asia. I hope that these findings would be studied and utilized by international franchisors looking to expand into the region. The study has identified six categories of key success factors namely distance management, contract enforcement, cultural adaptability, host country risk management, marketing approach and partnership management.