INTERNATIONAL EXPANSION THROUGH FRANCHISING: AN ECONOMIC PERSPECTIVE

Аннотация

International franchising has become a prominent strategy for firms seeking global growth, offering a rapid path to scale with limited capital investment. This article analyzes the key economic drivers that make franchising an attractive mode of international expansion and examines the benefits franchisors reap, such as accelerated growth, risk sharing, and efficiency gains. It also discusses the economic challenges and risks franchises face abroad, including cultural and regulatory hurdles, reduced control, and financial vulnerabilities. Drawing on relevant economic theories – notably resource scarcity and agency theory – and using real-world case studies, the analysis highlights how franchising enables firms to leverage local entrepreneurship while expanding globally. The article is structured in a scholarly format with a review of literature and theory, a discussion of drivers and challenges, case examples, and a conclusion. The findings underscore that while international franchising can deliver significant economic advantages in scaling and market entry, success depends on careful management of risksand alignment ofincentives across borders. Keywords: International franchising; economic drivers; resource scarcity theory; agency theory; transaction cost economics; institutional theory; global expansion; capital efficiency; risk sharing; brand recognition; local adaptation; franchisee incentives; cultural challenges; legal frameworks; market entry strategies; McDonald’s case; KFC case; emerging markets; globalization of business. Overview Franchising has emerged as one of the fastest-growing modes of business expansion worldwide. In a franchising arrangement, an independent local entrepreneur (franchisee) operates a business under the franchisor’s brand and business format in exchange for fees or royalties. This model has proven highly effective for international growth: by 2024, nearly 39% of outlets of the top 200 U.S. food franchises were located overseas. Global franchise networks span dozens of countries – for example, the 7-Eleven convenience store chain operates over 85,000 outlets across 19 countries – illustrating the expansive reach achievable through franchising. International franchising allows companies to tap into new markets with comparatively lower investment and risk than establishing wholly owned subsidiaries. It has consequently attracted extensive academic interest from economics, management, and international business scholars. This article examines international franchising from an economic perspective, analyzing the key drivers and benefits that motivate firms to franchise abroad, as well as the economic challenges and risks inherent in this modeof expansion.Relevant economic theories and models –including https://ijmri.de/index.php/jmsi volume 4,issue7,2025 584 resource-based views on capital constraints, agency theory, and transaction cost economics – are reviewed to provide a conceptual foundation. Real-world examples from global franchise brands are used to illustrate how these dynamics play out in practice. The goal is to provide a comprehensive, journal-style analysis suitable for a peer-reviewed economics or international business audience, shedding light on why franchising has become a strategic vehicle for international expansion and what economic factors determine its success or failure in foreign markets. Literature Review andTheoretical Framework Franchising in Internationalization Theory: Several theoretical perspectives explain why firms choose franchising as an entry mode. Dunning’s OLI paradigm (Ownership-Location- Internalization) traditionally focused on foreign direct investment, but franchising represents an alternative internationalization path where firms leverage Ownership advantages (brand, know- how) and Location advantages via local partners, while opting for a less integrated mode (forgoing full internalization) to reduce capital commitment and risk. Early franchising research introduced the resource scarcity theory(also known as resource acquisition theory) which posits that young firms franchise to overcome constraints in financial and human resources. Oxenfeldt and Kelly’s seminal work (1969) argued that new ventures often lack sufficient capital and managerial talent to expand quickly on their own; franchising is a strategy to surmount these shortages by tapping into franchisees’ resources. Franchisees are effectively an inexpensive source of capital, enabling the franchisor to raise expansion funds at a lower cost than other financing methods. This infusion of franchisee capital and effort allows rapid initial growth, which can be critical for achieving economies of scale in advertising, brand recognition, and preempting competitors in new markets. In the words of Thompson (1994), franchising “combines decentralized ownership of physical assets with centralized brand name ownership and operational know-how,” facilitating swift expansion while easing