Examination of key factors influencing international franchisor's entry mode choice in China

Zhu, Mingxia (2008) Examination of key factors influencing international franchisor's entry mode choice in China. Doctoral thesis, Northumbria University.

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Abstract

Market entry strategies of international franchising firms have been extensively researched. However, most of the studies focus on the cases of developed countries rather than developing countries. Since China adopted the open policy in 1978, Foreign Direct Investment (FDI) has grown rapidly and played an increasingly important role in contributing to the 9 percent of economic growth in the last two decades in China. Franchising, as an important entry method, has been adopted by many foreign investors to expand their business in China. Although the Chinese franchising market is still in its infancy, it creates tremendous opportunities for international franchisors. This thesis attempts to determine the factors associated with the international franchising firms' entry modes choices when these international franchisors enter the Chinese market and to find the relationships between these factors and decision of entry mode choice. To achieve these objectives, the positivist has been chosen as the philosophical stance for this research. Consisting with this research paradigm, a structured survey was undertaken as the main research method underlying quantitative research methodology. After a pilot study, 400 questionnaires were conducted by sampling international franchisors in China in the main research. Based on the five developed hypotheses, the determinants of franchising entry mode choice have been tested by using a logit model. The findings of this research reveal five important factors which dramatically influence international franchisors' entry mode choices in the Chinese markets. They are: culture and geographic distance, market operation experience, risk spreading, franchising system development stage and mature of the franchising system. Firstly, this study indicates that the less the cultural and geographic distance between the host and home country, the more likely the international franchising firms is to adopt direct franchising entry mode into Chinese market. Secondly, the richer experience the international franchisor, the more likely the firms is to adopt direct franchising entry mode into China. Thirdly, the higher the rate of the expansion of the franchising system, the more likely the firms is to adopt direct franchising entry mode in China. Fourthly, the more mature the international franchising system, the more likely the firms is to adopt direct franchising entry mode in China. Finally, the more consideration of risk spreading, the more likely the firms is to adopt direct franchising entry mode in China. This study offers a number of distinctive contributions from both academic and practical perspectives. Theoretically, this study has advanced the current literature of international franchising by examining cases in the emerging market of China and added more insights to the mainstream of franchising theories. Most importantly, it provides a guide to assist practitioners deciding their franchising entry modes effectively and offers valuable suggestions for policy makers in their foreign policy development regarding international franchisors' business operations in China. Significantly, this study provides timely information for academics and practitioners concerning the current status of international franchisors' business in the Chinese market.

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