Issue 3, 2012

Nikulin E. D., Shatalov A. I. The Strategy for Business Growth through Franchising: A Trade-Off between the Number of Company-Owned and Franchised Outlets.

The study analyzes the problem of finding the optimal balance between the number of company-owned and franchised outlets that delivers the best financial results for a franchiser. The empirical part of the paper is based on the data on 46 companies of different industrial affiliations that conduct the franchising strategy on the Russian market. The hypothesis of a nonlinear relationship between the proportion of franchised outlets and a company’s return on assets is supported. This result can be explained in terms of two major risks inherent in the franchising strategy that come into play when the franchise proportion increases: the risk of brand disruption and the risk of losing business. On the grounds of the analysis conducted the algorithm for corporate decision-making on the use of franchising is proposed. Keywords: Growth Strategy, Franchising, Franchiser, Company-Owned Outlets, Franchised Outlets, Firm Performance.

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