Exploring the Anatomy of Franchising: A Cross-National Examination of US and Finnish Franchise Contract Provisions

  • Mika Tuunanen
Part of the Contributions to Management Science book series (MANAGEMENT SC.)


The present study focuses on describing and comparing the provisions of the franchise contracts and pre-sale disclosures to prospective franchisees in the USA and Finland. A fact that makes the investigation especially interesting is that no franchising specific legislation exists in Finland. Whereas in the USA franchisors are by a directive of the Federal Trade Commission required to publicly disclose key information on their franchise systems. The information is of paramount importance for potential franchisees who need to analyze franchise offering(s) before their buying decision. Two separate samples were developed for the study. The member franchisors of the International Franchise Association and franchisors listed in Entrepreneur Magazine’s “Franchise 500” were sampled for the US data and in Finland the member franchisors of the Finnish Franchising Association were surveyed. The obtained data sets from the two countries were combined and then analyzed statistically to reveal differences and similarities between franchise contract characteristics. It was found that significant differences in franchise contract provisions occur and they have concrete consequences on franchisees’ business operations.


Residual Income Knowledge Asset Franchise System Small Business Management Finnish Sample 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Agraval D, Lal R (1995) Contractual Arrangements in Franchising: An Empirical Investigation. Journal of Marketing Research 32 (May 1995):213–221CrossRefGoogle Scholar
  2. 2.
    Baucus DA, Baucus MS, Human SE (1993) Choosing a Franchise: How Base Fees and Royalties Relate to the Value of the Franchise. Journal of Small Business Management 31(2):91–104Google Scholar
  3. 3.
    Brickley JA, Dark F (1987) The Choice of Organizational Form: The Case of Franchising. Journal of Financial Economics 18:401–420CrossRefGoogle Scholar
  4. 4.
    Brickley JA, Dark F, Weisbach MS (1991) The Economics Effects of Franchise Termination Laws. Journal of Law and Economics 34(1):101–132CrossRefGoogle Scholar
  5. 5.
    Brickley JA, Misra S, Van Horn RL (2003) Contract Duration: Evidence from Franchise Contracts. The Proceedings of the 17th International Society of Franchising Conference. February 14-16, 2003. San AntonioGoogle Scholar
  6. 6.
    Castrogiovanni GJ, Justis RT, Julian SD (1993) Franchise Failure Rates: An Assessment of Magnitude and Influencing Factors. Journal of Small Business Management (2): 105–114Google Scholar
  7. 7.
    Caves RE, Murphy II WF (1976) Franchising: Firms, Markets, and Intangible Assets. Southern Economic Journal 42:572–586CrossRefGoogle Scholar
  8. 8.
    Commission Regulation (EC) No 2790/1999 of 22 Dec. 1999 on the application of article 81(3) of the Treaty to categories of vertical agreements and concerted practices. Official Journal of the European Communities, L336:21–25Google Scholar
  9. 9.
    Combs JG, Castrogiovanni GJ (1994) Franchisor Strategy: A Proposed Model and Empirical Test of Franchise Versus Company Ownership. Journal of Small Business Management 32(2):37–48Google Scholar
  10. 10.
    Dandridge T, Falbe C (1994) The Influence of Franchisees Beyond Their Local Domains. International Small Business Journal 12(2):39–49CrossRefGoogle Scholar
  11. 11.
    Dant RP (1995) Motivation for Franchising: Rhetoric Versus Reality. International Small Business Journal 14(1): 10–32CrossRefGoogle Scholar
  12. 12.
    EFF (2002) The European Code of Ethics for Franchising. Retrieved September 4, 2002, from
  13. 13.
    Elango B, Fried VH (1997) Franchising Research: A Literature Review and Synthesis. Journal of Small Business Management 35(3):68–81Google Scholar
  14. 14.
    Hadfield GK (1990) Problematic Relations: Franchising and the Law of Incomplete Contracts. Stanford Law Review 42:927–992CrossRefGoogle Scholar
  15. 15.
    Hing N (1995) Franchisee Satisfaction: Contributors and Consequences. Journal of Small Business Management 33(2): 12–25Google Scholar
  16. 16.
    Hofstede G (1980) Culture’s Consequences: International Differences in Work-Related Values. London, Great Britain: SageGoogle Scholar
  17. 17.
    Hoy F (1994) The Dark Side of Franchising or Appreciating Flaws in an Imperfect World. International Small Business Journal 12(2):26–38CrossRefGoogle Scholar
  18. 18.
    Inaba FS (1980) Franchising: Monopoly by Contract. Southern Economic Journal (April):65–72Google Scholar
  19. 19.
    IFA (2002) The International Franchise Association Code of Ethics. Retrieved January 3, 2003, from
  20. 20.
    Justis RT, Chan P, Haynes JB (1991) Franchising Disclosure: A Review. The Proceedings of the 5th Annual International Society of Franchising Conference. February 9–10, 1991. MiamiGoogle Scholar
  21. 21.
    Justis RT, Tuunanen M, Chen Y, Castrogiovanni GJ (2003) Disclosing the Activities of Franchisors. The Proceedings of the 17th International Society of Franchising Conference. February 14–16, 2003. San AntonioGoogle Scholar
  22. 22.
    Justis RT, Vincent WS (2001) Achieving Wealth Through Franchising: A Comprehensive Manual to Finding, Starting, and Succeeding in a Franchise Business. Adams Media Corporation, HolbrookGoogle Scholar
  23. 23.
    Justis RT, Vincent WS (2003) Earnings Claims: How Much Money Can I Make? The Proceedings of the 17th International Society of Franchising Conference. February 14–16, 2003. San Antonio, TX, USAGoogle Scholar
  24. 24.
    Justis RT, Judd RJ (1998) Franchising. Dame Publications Inc., HoustonGoogle Scholar
  25. 25.
    Kaufmann PJ, Eroglu S (1999) Standardization and Adaptation in Business Format Franchising. Journal of Business Venturing 14(1):69–85CrossRefGoogle Scholar
  26. 26.
    Koiranen M (1998) Spread of Franchising: A Multinational Comparison Based on the Notions Innovation Diffusion. Asia Pacific Journal of Marketing and Logistics 10(2):50–65CrossRefGoogle Scholar
  27. 27.
    Koiranen M, Hyrsky K (1996) Lift-off: Finnish Business Format Franchising. Franchising Research an International Journal 1(2): 16–21Google Scholar
  28. 28.
    Lafontaine F (1992) Agency Theory and Franchising: Some Empirical Results. Rand Journal of Economics 23(2):263–283CrossRefGoogle Scholar
  29. 29.
    Lal R (1990) Improving Channel Coordination Through Franchising. Marketing Science 9(4):299–318CrossRefGoogle Scholar
  30. 30.
    Leblebici H, Shalley CE (1996) The Organization of Relational Contracts: The Allocation of Rights in Franchising. Journal of Business Venturing 11(5):404–418CrossRefGoogle Scholar
  31. 31.
    Lillis C M, Narayama CL, Gilman JL (1976) Competitive Advantage Variation Over the Life Cycle of a Franchise. Journal of Marketing 77–80Google Scholar
  32. 32.
    Lim J, Frazer L (2002) Introducing Franchising Regulation: An Analysis of the Australian Franchising Code of Conduct. Journal of Marketing Channels 2(10):39–56Google Scholar
  33. 33.
    Martin RE (1988) Franchising and Franchise management. The American Economic Review 78(5):954–968Google Scholar
  34. 34.
    Mathewson GF, Winter RH (1985) The Economies of Franchise Contracts. Journal of Law and Economics 28:503–526CrossRefGoogle Scholar
  35. 35.
    Ministry of Trade and Industry (2002) Cooperation of Enterprises and Franchising — Administration of Contractual Risk and Contractual Guidance (in Finnish). Edita Publishing Ltd., HelsinkiGoogle Scholar
  36. 36.
    Morrison KA (1996) An Empirical Test of a Model of Franchisee Job Satisfaction. Journal of Small Business Management 34(3):27–41Google Scholar
  37. 37.
    Norton SW (1988) An Empirical Look at Franchising as an Organizational Form. Journal of Business 61:197–217CrossRefGoogle Scholar
  38. 38.
    Reynolds PD, Hay M, Camp MS (1999) Global Entrepreneurship Monitor 1999 Executive Report. Kaufman Center for Entrepreneurial Leadership at the Ewing Marion Kauffman FoundationGoogle Scholar
  39. 39.
    Rubin PH (1978) The Theory of the Firm and the Structure of the Franchise Contract. The Journal of Law and Economics 21:223–233CrossRefGoogle Scholar
  40. 40.
    Scherer FM, Ross D (1990) Industrial Market Structure and Economic Performance. 3rd edn, Boston, MA: Houghton Mifflin CompanyGoogle Scholar
  41. 41.
    Sen KC (1993) The Use of Initial Fees and Royalties in Business Format Franchising. Managerial and Decision Economics 14:175–190CrossRefGoogle Scholar
  42. 42.
    Spinelli S (1994) Franchising. In The Portable MBA in Entrepreneurship. (ed) Bygrave WD. John Wiley & Sons. NY.Google Scholar
  43. 43.
    Stadfeild LS (1992) Comment on Proposed US Franchise Legislation: A Search for Balances. Commercial Law Journal 97(4):540–566Google Scholar
  44. 44.
    Stern P, Stanworth J (1994) Improving Small Business Survival Rates via Franchising — the Role of Banks in Europe. International Small Business Journal 12(2), 15–25CrossRefGoogle Scholar
  45. 45.
    Terry A (2003) Franchise Sector Regulation: The Australian Experience. The Proceedings of the 1 st EMNet-conference on “Economics and Management of Franchising Networks”, Vienna, Austria. June 26–28, 2003Google Scholar
  46. 46.
    Thompson RS (1994) The Franchise Life Cycle and the Penrose Effect. Journal of Economic Behavior and Organization 24(2):207–218CrossRefGoogle Scholar
  47. 47.
    Tommila M, Elo H (2001) A Franchise Agreement Does Not Open up Easily to a Franchisee (in Finnish). In: R Granström, Tuunanen M (eds) Franchising in Finland 2002 (in Finnish). Finnish Franchising Association, Lohja, pp 65–67Google Scholar
  48. 48.
    Tuunanen M, Hyrsky K (2001) Entrepreneurial Paradoxes in Business Format Franchising: An Empirical Survey of Finnish Franchisees. International Small Business Journal 19(4):47–62CrossRefGoogle Scholar
  49. 49.
    Tuunanen M (2002a) Franchising Statistics 2002(in Finnish). In: R Granström, Tuunanen M (eds) Franchising in Finland 2003(in Finnish). Finnish Franchising Association, Lohja, pp 32–37Google Scholar
  50. 50.
    Tuunanen M (2002b) An Ounce of Prevention Is Worth a Pound of Cure: National Franchisee (Dis-) satisfaction study. Journal of Marketing Channels 10(4):57–89Google Scholar
  51. 51.
    Tuunanen M (2003) Compilation of Finnish Franchising Statistics. In: Alon I and Welsh DHB (eds) International Franchising in Industrialized Markets: Northern and Western Europe. CCH Publishing Company, ChicagoGoogle Scholar
  52. 52.
    Tuunanen M, Koiranen M (1998) Finnish Franchising in the 1990s and Beyond. In: Virtanen M (ed) Proceedings of the Conference on Growth and Job Creation in SME’s. Helsinki School of Economics and Business Administration, Small Business Center, Mikkeli, (M-80):367–383Google Scholar
  53. 53.
    Webster’s Dictionary (1993) New Jersey: Gramercy BooksGoogle Scholar
  54. 54.
    Windsperger J (2002) Allocation of Decision and Ownership Rights in Franchise Relationship. Journal of Marketing Channels 2(10): 19–38Google Scholar
  55. 55.
    Woll M (1968-69) Sources of Revenue to the Franchisor and Their Strategic Implications. Journal of Retailing 44(4): 14–20Google Scholar
  56. 56.
    World Economic Forum (2002) Global Competitiveness Report 2002-2003. Retrieved January 3, 2003, from

Copyright information

© Springer-Verlag Berlin Heidelberg 2004

Authors and Affiliations

  • Mika Tuunanen
    • 1
  1. 1.School of Business & EconomicsUniversity of JyväskyläJyväskyläFinland

Personalised recommendations