What influences franchisors’ choice of modes in entering foreign markets?: An empirical analysis of firm-specific and environmental factors

The choice of foreign market entry modes by franchisors has been a relatively neglected subject to date despite its increasing importance in international business. Based on three distinct perspectives viz., transaction cost economics, knowledge-based framework and internationalization theory, we attempt to explain the determinants of foreign market entry modes for franchisors. We identify the level of franchisor commitment in the local franchising operation as a critical property on which we base in classifying various entry modes for international franchisors. According to this property, we categorized entry modes into three types: master franchising/area development agree- ments, direct franchising/licensing and equity modes in increasing order of franchisor commitment. Firm-specific and environmental factors are hypothesized to influence the choice of entry modes and empirical testing is conducted with data collected from a survey of franchisors from the US and UK. The results indicate that most of the proposed factors are significant in explaining the entry mode choices of international franchisors.