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Factors of Choosing Franchising as an Entry Mode in Hospitality Industry

Student: Elizaveta Sedova

Supervisor: Irina Kratko

Faculty: Faculty of World Economy and International Affairs

Educational Programme: International Business (Master)

Year of Graduation: 2018

Hospitality sector is a capital intensive industry that is why FDI is a very expensive method to expand abroad, so companies choose non-equity strategies. One of the most favored type of entry is management contract, when the company operates hotel itself, however, it is not always suitable for the market or company's strategy. That is why, firms look for alternatives and choose franchise agreement that transfer the rights to use business format to foreign partner. This choice could be explained by external factors such as market size, cultural differences, geographic distance between host and home countries or firm-specific characteristics. Many hotels choose to follow asset-light strategy and decrease owned properties. The statistics demonstrated that in 2017 the hotel franchise industry's output was about $71 billion and it continued to grow stably. Franchising as an entry mode began to be used in 40s by fast-food companies, such as McDonald's, while hotel companies started to apply it recently. Previous researches did an emphasis on franchising as an expansion strategy in region and did not distinguish it from international markets. Moreover, authors mainly analyzed management contracts and did not focus on factors that influence company's choice of franchising in hospitality industry. The object of the thesis is franchising as an entry strategy. The subject is franchising as an entry mode in hospitality sector. The hypothesis of the paper: Franchising is the most frequently used entry mode in hotel industry due to low financial risks and cultural adaptation. The goal of the research is to determine the factors that influence the choice of franchising as an entry mode in hotel industry. This paper examines popularity of franchising as an entry strategy in hotel industry and aims to identify the main factors, which affect the choice of franchising as an entry mode in hospitality industry.

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