It is also used selling cars, pharmaceutical, specific products or services and educational services. Though China has the most franchise systems in the world, the scale of their operations is relatively small. Each system in China has an average of 43 outlets, what does the normative approach ask regarding the lifespan? compared to more than 540 in the United States. There is a great deal of potential for further growth, but now the franchising business only accounts for 3 percent of China’s total retail sales, starkly behind the 30 percent in the United States.

Franchising a successful home business does not necessarily promise that you will always be profitable. In fact, even experienced businesspeople can fail with a successful franchise when they do not choose the right home based opportunity. When you start a business from scratch, you spend huge amounts of time trying to operate the business without being successful because you may not have the necessary skills for that particular area. When you purchase a franchise, all the necessary groundwork has been done already.

In many cases, this also involves the franchisee incorporating some of the franchisor’s business activities into their own. However, the franchisee has much more freedom and independence in this type of franchise than they would under a business format franchise. Although residual claimancy and monitoring are promising mechanisms to redce agency problem (Eilsenhardt, 1988; Jensen, 1983; Shane, 1996), their potential effectiveness in the context of franchising is unequal. Dante and Nasr have emphasized that the alignments of incentives, through residual claimancy, is difficult to achieve because there are differences in the perspectives of parties involved in franchising.

For example, McDonald’s started in the US and it had great success over there. But now when it wanted to expand across the world it decided to enter franchising. As a result, it is the taste of McDonald’s that consumers are looking for and by placing different franchise’s across the world, McDonald’s has replicated the same taste all across. Another disadvantage franchisees face is that franchisors generally reserve the option to buy back an outlet upon termination of the contract. As such, they operate under the constant fear of, non-renewal of the franchise arrangement.

Various tangibles and intangibles such as national or international advertising, training and other support services are commonly made available by the franchisor. The United States is a leader in franchising, a position it has held since the 1930s when it used the approach for fast-food restaurants, food inns and, slightly later, motels at the time of the Great Depression. As of 2005, there were 909,253 established franchised businesses, generating $880.9 billion of output and accounting for 8.1 percent of all private, non-farm jobs. This amounts to 11 million jobs, and 4.4 percent of all private sector output.

China currently has 1,900 franchise systems, with 82,000 outlets, growing 49% annually. Nearly 60 industries have applied for franchise operations, including traditional sectors of catering, retailing and individual services, as well as some newly developed fields of education, commercial services, family services and automotive care. In terms of the number of franchisers, the catering industry leads by 35%, while retailing accounts for 30%, laundry 10%, and auto sales, care and leasing 3%. Nearly half of the top 100 restaurant companies are utilizing franchise business models, and their business earnings significantly surpass those of independently operated companies. Franchising is a sui generis contract which bears the characteristics of several explicitly regulated contracts such as; agency, sales contract and so forth.