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While markets for certain franchised products and services have become saturated in the U.S. (the fast-food sector, for example), international franchising opportunities have been developing at an unprecedented rate due to the growth of global markets. Many developed countries are experiencing similar trends and are turning to franchise strategies for growth. Despite its recent growth, there is relatively little specific information on the current status, challenges, and future prospects of international franchising. The purpose of this article is to provide such an assessment of the status of franchising in world markets
The Franchising Phenomenon
Franchising has emerged in recent years as a highly significant strategy for business growth, job creation, and economic development both in the U.S. and in world markets (Hoffman and Preble 1991). Franchisors are classified either as product-tradename or as business format franchisors (Arthur Andersen 1992). Product-tradename franchising, which is prevalent in automobile sales, retail gasoline, and soft-drink distribution, uses franchisees to distribute a product under a franchisor's trademark. Business format franchising is designed to have the franchisee replicate, in different locations, the entire franchisor's business concept including the marketing strategy and plan, the operating manuals and standards, and quality control. Restaurants, personal and business services, rental services, and non-food retailing are examples of the 67 distinct business segments where this "package" concept is currently in use.
Business format franchising is predicted to be the dominant form of franchising internationally in the twenty-first century (Hoffman and Preble 1993). While business format franchising has been experiencing rapid growth in the U.S. since the 1950s, the 1980s was a period of rapid international expansion during which some 400 U.S. franchisors increased their overseas units by more than 70 percent, to almost 39,000. The majority of these overseas units were located in Canada, Japan, Europe, Australia, and the United Kingdom.
The Diffusion of Franchise Systems
In recent years, international opportunities have been developing at an unprecedented rate for a variety of reasons: global economic integration taking place as a result of lowering trade barriers in the European Community (EC); the passage of the North American Free Trade Agreement (Canada, Mexico, and U.S.); and a reduction of entry barriers in many former communist countries (Russia, Central Europe, and Eastern Europe). Deregulation of industries within these nations...