Franchising Versus Company-Run Operations: Modal Choice In The Global Hotel Sector

Franchising and decision variables

The article in Franchising versus company-run operations: Modal choice in the global hotel sector discusses the various aspects considered by well-established hotels when they face the dilemma of whether to franchise a new hotel in a new geography or actually own the hotel themselves. The article is helpful in drawing the parallels for franchising decisions in service industry and especially pretty apt for the services which include high initial capital investment.

The authors (F J Contractor & S K Kundu) borrow the definition of franchising from Caves & Murphy 1976 at the onset of the article and visualize the prospective franchisee as the sales agent or distributor of the brand owner. The authors are of

Licensing and Franchising. The authors (Y Cao, K Townsend, P Daniel) initially draw out that there is still a lot of grey area and a lot of disagreements amongst the community of scholars as to what should be correct measure of customer satisfaction. Some researchers seem to favor SERVPERF (Service Performance) as a viable metric for measurement of service quality while some seem to lean more towards SERVQUAL (Service Quality). Though none of the groups seem to disagree on the fact that in the end the common denominator for customer satisfaction would customer perception of the service; his expectations and his perception of the service actually

The authors study a restaurant for this purpose. The restaurants have an inherent advantage that a licensed and franchisee restaurant might share the same menu ideas, outlook strategies, and production pedagogy which necessarily makes them more comparable while the management forms, observing systems, hiring methodologies etc make the two different enough to study and identify the underlying causal relationship (if any). The authors in the end then comment on the vital points of differences between franchising and licensing. These differences are microscopically studied under both operational as well as business thought process aspect. The authors comment that franchising might lead to a higher customer satisfaction level irrespective of the metric and the reason being that franchisor usually has better control of the day to day operations in a franchisee. Any deviance from the normal and accepted service level is dutifully noted and corrective actions are taken. The business psyche sees a franchise owner as a vital part of the organization and rather an extension of the organization. On the other hand, licensing of IPRs usually makes for a not so up to the mark customer experience. The reason is that licensors and licensees lack interaction to improvise and augment the customer experience. The