Determinants of firm size in the franchise distribution system : Empirical evidence from the Spanish market

Purpose – The purpose of this paper is to examine three strategic decisions that determine firm size in the franchise distribution system: price policy, the timing decision, and network ownership. Design/methodology/approach – The paper uses data covering 384 franchise chains operating in the catering and fashion retailing sectors for an 18‐year period (from 1986 to 2004). The panel data methodology is applied. Findings – The paper finds that the pricing policy and the ownership structure can be used to attract new franchisees and it also finds empirical evidence of the advantages of early followers. Some differences are found between the two sectors analysed. Additionally, it finds evidence of the use of different strategies by mature and young franchise chains. Research limitations/implications – The focus is only on the fashion and catering sectors in the franchise industry. Although they are the two most important sectors in the Spanish market, this limitation provides researchers with interesting possibilities for further research in other countries and in other sectors. Practical implications – The results may help franchisors to know which strategies can increase their system size. First, franchisors should focus on minimizing their control of the network strategy. Second, franchisors should increase the franchise fee and the royalties as the chain matures to expand their system size. Third, managers who are planning to begin to franchise their businesses should decide to enter at the growth stage of the franchise market in order to achieve greater advantages. Originality/value – This paper highlights the importance of the price strategy and of the entry timing decision in the franchising context in countries where the franchise system is still developing.