TO OWN OR TO FRANCHISE?: THE INTERNATIONAL CONTROL DECISION FOR SERVICE COMPANIES

Franchising, which accounts for a significant share of the U.S. domestic service industry, has also become a major strategic alternative in the international expansion of U.S. service firms. This article attempts to explain the international franchising and control decision by U.S.-based service firms in terms of a theoretical framework that borrows from agency theory and transaction-cost analysis. Specifically, it attempts to answer the following question: Why would a well-established service firm choose to operate in certain countries through a franchising agreement whereas in others it would set up a wholly-owned subsidiary? 1996 Morgan Stanley.