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Franchising & Outsourcing Final 1
Transcript of Franchising & Outsourcing Final 1
Franchising & Outsourcing
Business relationship whereby a franchisor permits a franchisee to use its brand name, product, or business system in a specified and ongoing manner in return for a fee.
Purpose of Study
Non-equity-based expansion strategy
Decision making determinants
Let me tell a story
An agency relationship exists between the principal and the agent
Principal – Franchisor
Agent - Franchisee
<Examining the determinants of hotel chain expansion through international franchising>
Principal – Hotel
Agent – Outsourcing company
<An examination of factors motivating hotel outsourcing>
For franchisor, provide an opportunity for hotels to lower the risks and the level of investment to expand
For franchisees, obtain brand-name recognition, economies of scale, and managerial expertise from the franchisors
What have they discovered?
Franchising system in hotel industry
The need for world-wide thinking
Organizational and market conditions
Alon & McKee (1999a)model
Resource-based and agency variables
Size – the only significant variable
- franchise experience
- franchise percentage
Differing entry strategies
- characteristics of transaction
- quality assurance
from Angela, Richard, Stephanie, Jason, Yvonne, Sojin
Nature of Hospitality
Contracting out of business
A third party
“part of the fabric of hotel operation”
the broad range of activities undertaken
the high labor content
the volatile nature of demand for a hotel’s services
Scale of hotel has been changed from 1990s
Trend of developing boutique hotel (<200 Rooms)
in Hong Kong
Outsourcing in Mainland China
Specialist subcontractors can provide a better service
Delegate risk to subcontractors
The activities are viewed as core to the business
Economies of scale can be achieved
Brief about the Article
Outsourcing - TCE
Outsourcing provides greater Flexibility. (Mean 4.39)
Outsourcing can yield significant savings.(Mean 4.14)
Managers like to delegate risk to subcontractors.
They are unpredictable and we like to pass the risk to subcontractors.
A BBC News: Kempinski(Qingdao) & Intercontinental(Qingdao)& Ramada(Zhengzhou) 's SPA suspected of Prostitution
Accommodation operators or scenic site operators who have handed over part of its operating projects or sites to others engaged in accommodation, catering, shopping, sightseeing, entertainment, tourism, transportation and other operations, should bear jointly responsibility over the actual behaviors of the operator in case the business operations cause damages to the tourists.
-----"Tourism Law of the People's Republic of China"
Do you think it will influence outsourcing and franchise in the hospitality industry in mainland China?
Benefits of contracting
Transaction Costs Economics