Multinational franchise entry and institutional quality: evidence from Mexican cities

Abstract

Purpose The purpose of this paper is to document the extensive heterogeneity in institutions within countries and investigate which institutional factors are the most relevant for international brands. Design/methodology/approach The paper analyzes the entry patterns of three global fast-food franchise networks in 78 Mexican cities using discrete outcome models and ordered probit in particular. To summarize the quantitative importance of the results, the analysis includes also log-linear regressions with Heckman correction for the city observations without franchise presence. Findings Institutional factors are critical for an international franchisor in the decision to enter a new market. The most important institutional quality proxy for franchise entry is the rate of formal employment. The more the informal employment in a city, the lower the number of franchised stores and the lower the probability of brand presence in the city. Research limitations/implications Only three fast-food franchises are included in the paper, which limits the generalization of the results beyond the sector and Mexico. Another limitation of the methodology of this paper is that the authors estimate the effect of institutions on multinational franchise entry conditioning on market size. The issue here is that if institutions increase gross domestic product (GDP) per capita, then the demand for multinational franchises also increases. Such an effect cannot be captured if we condition on market size in our econometric models. This is particularly important for policy-makers aiming to quantify costs and benefits of reforms but not an important consideration for practitioners who might take institutions as given and are mainly interested in entry strategies that maximize profitability. Practical implications Institutional variables, and not only market factors, are critical to understand the entry decision of global franchisors in Mexico. In particular, the extent of informality is relevant in explaining the store location. It is necessary to understand how managers value the quality of institutions and which dimensions are most important for multinationals. In addition, the analysis should be conducted both at the national and sub-national level, given that within-country heterogeneity is prevalent in emerging markets. Social implications Cities must reinforce and communicate their institutional quality to attract foreign investment by franchises in particular. Originality/value We test several dimensions of institutional quality at the urban level as determinants of multinationals? decision to enter a city in a foreign market. We use novel administrative data at the municipality level and we employ econometric model that takes into account the discreetness of entry data and the fact that there are cities with no franchise presence. We control for sample selection, which comes from the zero number of stores in some city observations in the regressions.

Factors affecting the food security and community welfare of farmer households in Sumatera, Indonesia

“…H4. There is a relationship between food security and community welfare, which is consistent with Laine and Vinnari (2017), , Passarini et al (2017), Kumar (2017), Danquah and Ohemeng (2017), Ram et al (2017), Arruda and Krutkowski (2017), Aluko and Knight (2017), Cheung et al (2017), and Fakos and Merino (2017).…”

“…Based on the publication of the Food Security and Vulnerability Atlas in 2009, 346 districts in Indonesia in 2007 could be classified into six priority groups in relation to the attempt to cope with food insecurity. This classification was based on variables causing vulnerability of absorption and food security by Sharabi (2017), Hu et al (2017), Mody et al (2017), Novak et al (2017), Singh and Singh (2017), Jalles and Andresen (2017), Wang et al (2017), Aluko and Knight (2017), Lin et al (2017), and Andrews (2017); and food security and community welfare by Laine and Vinnari (2017), , Passarini et al (2017), Kumar (2017), Danquah and Ohemeng (2017), Ram et al (2017), Arruda and Krutkowski (2017), Aluko and Knight (2017), Cheung et al (2017), and Fakos and Merino (2017). None of those previous studies had comprehensively investigated the relationship between food availability, accessibility, and absorption and food security and their effect on community welfare, especially in Indonesia.…”

Effects of brand-related and market signals on franchisees’ entrepreneurial decisions: a multi-country panel data analysis

“…In the specific case of franchising, institutional quality also affects the decisions of potential franchisees (Fakos and Merino 2017;Lafontaine et al 2016;Wiese 2017). Fakos and Merino (2017) affirm that in Mexico, a lower institutional quality means a lower number of franchised outlets, thereby reducing the likelihood that the brand develops its presence in that country.…”

“…In the specific case of franchising, institutional quality also affects the decisions of potential franchisees (Fakos and Merino 2017;Lafontaine et al 2016;Wiese 2017). Fakos and Merino (2017) affirm that in Mexico, a lower institutional quality means a lower number of franchised outlets, thereby reducing the likelihood that the brand develops its presence in that country. In a study of countries at different stages of development, Lafontaine et al ( 2016) observed a higher perceived risk of the guarantee of investment in countries with a low institutional quality.…”

Relationship between maternal, household, and socio-economic characteristics and household food security in Aceh, Indonesia

“…(1) Maternal Characteristics and Household Food Security by Wojciechowska-Solis and Soroka (2017), Coppola, et al (2017), Camilleri and Neuhofer (2017), Agolla and Lill (2017), Pesantes andDocumet (2017), Savelli, et al (2017), Koutsothanassi, et al (2017), Khare and Pandey (2017), Callado and Jack (2017), Rafay, et al (2017), andSharabi (2017), (2) Household characteristics and household food security by Sharabi, (2017), Hu, et al (2017, Mody, et al (2017), Novak, et al (2017, Singh and Singh (2017), Jalles and Andresen (2017), Wang, et al (2017), Aluko and Knight (2017), Lin, et al (2017), and Andrews, (2017), (3) Socio-economic characteristics and household food security by Laine and Vinnari (2017), Coppola, et al (2017), Passarini, et al (2017, Kumar, (2017), Danquah and Ohemeng (2017), Ram, et al (2017), Arruda and Krutkowski (2017), Aluko and Knight (2017), Cheung, et al (2017), and Fakos and Merino (2017). No previous study has comprehensively studied the relationship between maternal characteristics, household characteristics, and socio-economic characteristics and household food security, especially in Aceh, Indonesia.…”