Franchising And Firm Growth

By reviewing the relative literature and describing the actuality in China, this paper raises two questions based on the theory of firm growth, organization theory, transaction theory and agency-principle theory. The first question is, whether in china, the firms taking franchising in expansion are to overcome managerial constraints or not, or why? And the second question is, why haven't some firms taken franchising in expansion, and how do they do to cope with the managerial constraints? Thereby, this study poses a series of open-ended questions for measuring the relation between managerial constraints and firm growth, and takes telephone interview with 23 firms listed in China Top 100 Chain Firms in 2004.The study draws the conclusion that a chain firm provides itself a way to overcome the managerial constraints defined by the Penrose Effect, and therefore have a significantly positive effect on its growth, if it emphasizes franchising in its expansion. But the study also shows empirically that a chain firm itself leans to company-owned form heavily, for that the company-owned form is better for the unification of management and operation, and is convenient for the firm's control on all the retail outlets. Consequently, a chain firm will make its choice between these two forms all through its growth, according to its own conditions and requirements.Based on the research conclusions, and doing a sum-up on the opinions of the interviewed firms, this paper eventually presented several suggestions on the countermeasures against the existing problems in franchising for the firms in China.