NAFTA AND FRANCHISING - A COMPARISON OF FRANCHISOR PERCEPTIONS OF CHARACTERISTICS ASSOCIATED WITH FRANCHISEE SUCCESS AND FAILURE IN CANADA,MEXICO, AND THE UNITED-STATES

Business-format franchising, which includes the product or service, th e brand name or trademark, and the operating system developed by a fra nchisor, has experienced significant growth over the past few decades. International franchising also is growing at a rapid pace, in part, b ecause of market opportunities that include new trade agreements. The debate over North American Free Trade Agreement (NAFTA) increased the focus on North American franchising. In spite of this attention, there are few, if any, comparative studies of franchising in Canada, Mexico , and the U.S. At the same time that international franchising growth is extolled there is an argument over the extent to which franchising increases business success. A number of studies support the success th esis, however. recently critics claim that franchising does not signif icantly increase survival rates of franchisee-owned units. The objecti ves of this study are, first, to extend the study of franchisee succes s and failure by analyzing franchise executives' perceptions of the im portance of a number of characteristics associated with franchisee suc cess and failure, and second, to examine differences among the executi ves' perceptions of these characteristics based on the location of the franchisor-Canada, Mexico, or the United States. We also analyze the effects of franchise strategy, type of franchise business, and size of the franchise on executive perceptions of the characteristics associa ted with franchisee success and failure. Franchisor executives rated t he relative importance of 39 statements, taken from previous research, that are associated with perceptions of success. Results from a facto r analysis indicate that 30 of the variables load on 5 significant fac tors. Examination of the content of the factors indicates that the fir st factors (system quality), and the second factor (brand name) consis t of variables that directly relate to the core of business-format fra nchising, the quality of the operating system and the brand name of th e franchise. The third factor (local environment) consists of statemen ts that represent general characteristics of the local franchise envir onment. The fourth factor (communication) consists of variables that l ink the franchisee with the franchisor and other franchisees. The fift h factor (franchise activities) consists of variables that represent i diosyncratic characteristics or activities of a franchisee. Franchise executives also rated the relative importance of 16 statements associa ted with franchisee failure. Of these, 6 statements, associated with f ranchisor activities, are combined to form a scale of franchisor failu re, and 10 statements, associated With franchisee activities, are comb ined to form a scale of franchisee failure. The findings indicate that there are significant differences in most of the scales of success an d failure among franchisor executives' perceptions based on country lo cation. In addition there is also a significant effect of franchise st rategy on perceptions. There are no significant differences by type of franchise business or size of the franchisor. This research contribut es to two important areas of research in franchising; the study of per ceptions of the characteristics associated with franchisee success and failure, and international franchising research. The study also has p ractical applications. Knowledge about country differences in perceive d characteristics of success and failure will help franchisors to iden tify aspects of the business system that require increased monitoring and investment. Awareness of country differences will also influence t he selection of relevant training and development. Finally, knowledge of differences in perceptions may assist franchisors in adapting syste ms and policies that are likely to increase the success of their inter national sites. (C) 1998 Elsevier Science Inc.