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38 Key Success Factors of Franchising Systems In the Retailing Sector franchisor with the resources, such as managerial input, local market knowledge, labor and capital, for growth. Franchisors in the retailing sector, particularly emerging ones, are faced with high levels of competition and market saturation. This competitive framework necessitates franchisors to grow rapidly. “When new franchisors enter industries in which they face established competitors, the speed with which they grow to a size at which they can operate at a competitive cost is important” (Shane, 1996a, p. 221). H1: The shorter the length of time it takes the retailer to franchise, the higher its chances of success. Franchising Internationalization www.IndianJournals.com Members Copy, Not for Commercial Sale Downloaded From IP - 115.248.73.67 on dated 30-Nov-2010 The internationalization of franchising systems has received a lot of attention in recent years from researchers and practitioners alike. The general consensus is that franchisors that internationalize their systems can achieve critical scale and be more competitive in the long run (Welsh and Alon, 2002; Alon and Welsh, 2003). Operating a franchise system across heterogeneous locations develops the franchisor’s monitoring capabilities and distance management skills (Alon, 1999). Franchisors that seek franchisees throughout the world expand their potential market of franchisees, appreciating their opportunities for success (Alon and Welsh, 2001). H2: Franchisors that seek internationalization are more likely to be successful. Franchising Strategy: Proportion Franchising While the determinants of the proportion of franchising have been examined (e.g., Alon, 2001), few studies focused on the impact of the proportion of franchising on the firm’s success. Falbe and Welsh, (1998) found that the proportion of franchising is positively related to system quality, brand name, and the level of communication, among other factors. Business belonging to franchisors and franchisees that have a higher proportion of franchising were less likely to fail. The franchisor failure variables included illegal/ unethical conduct, misrepresentation/ dishonesty, market saturation, faddish product appeal, over expansion, and competition from company-owned units. The franchisee variables consisted of unwillingness to follow the system or get involved, misrepresentation/dishonesty, failure to pay vendors on time, inadequate facility maintenance, expanding too rapidly, poor local economic Management & Change, Volume 9 Number 2 (2005)
conditions, overstaffing of facility, inappropriate inventory levels, and overcapitalization. H3: Franchisors that have a higher proportion of franchising units are more likely to be successful. Company-Owned Outlets Ilan Alon 39 www.IndianJournals.com Members Copy, Not for Commercial Sale Downloaded From IP - 115.248.73.67 on dated 30-Nov-2010 The number of company owned units necessary by a franchisor may have an impact on the franchisor’s level of success. The “rule of thumb” often used by franchising practitioners is that a franchisor should at the very least operate two units over three years or three units over two years. Franchisor owned outlets serve many important functions in the franchising system. It allows the franchisor to test new concepts, innovate with its management systems, stay in touch with the customers, and learn from ongoing operations. In a study by Alon (2001), retailers with a larger scale also were able to achieve higher growth rate in the number of outlets in early stages of franchising development, suggesting that company-based outlets are critical for expansion. Franchisors owned outlets also allow the franchisor to respond to environmental challenges during time of adversity, without the bureaucratic challenges which may be mounted by franchisees in the system. H4: Franchisors with a large number of company-owned outlets are more likely to be successful. Age/Experience Falbe, et al. (1998) argued that as firms get older, they become increasingly formalized and standardized, more rigid, less adaptive to change, more selfcentered and detached from the external environment. Their findings surprisingly showed that older franchise systems were more aggressive, used more franchise councils and recognition to promote new ideas, tended to introduce more innovation than younger ones. Other studies of franchising argued that older firms have more resources, are more likely to operate in diverse locations (Alon, 1999). Huszagh, et al. (1992), for example, suggested that experience in site selection, store layout, procurement and operation policies can facilitate cost reductions based on improved know-how. Experience in itself is an indication of success which may provide an edge in the competitive marketplace. Management & Change, Volume 9 Number 2 (2005)
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Page 3: Ilan Alon 37 petitive advantage and
Page 7 and 8: Ilan Alon 41 and credibility, and e
Page 9 and 10: Ilan Alon 43 applicability of the p
Page 11 and 12: Ilan Alon 45 Table 4 Key Success Fa
Page 13 and 14: Fortune (1995) “Trouble in Franch

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