Latin American franchise internationalization: The impact of institutional environment

• Author: Mario Henrique Ogasavara,Felipe Mendes Borini,Pedro Lucas de Resende Melo
• DOI: http://doi.org/10.1002/tie.21975
• Date: 01 March 2019
• Published date: 01 March 2019

AREA PERSPECTIVES: LATIN AMERICA

Latin American franchise internationalization: The impact

of institutional environment

Pedro Lucas de Resende Melo

1,2

| Felipe Mendes Borini

2

| Mario Henrique Ogasavara

2

1

Universidade Paulista, São Paulo, Brazil

2

ESPM, São Paulo, Brazil

Correspondence

Pedro Lucas de Resende Melo, Universidade

Paulista, R. Dr. Bacelar, 1212, 4th floor,

04026-002, São Paulo/SP, Brazil.

Email: pedro.melo@docente.unip.br

We analyze the internationalization of Brazilian franchise chains in Latin America. A total of

119 observations verify international commitment in each country in relation to institutional

environment factors and how they are moderated by chain size and industry. The results show

that despite all institutional aspects having a significant effect, their explanatory power

depends on chain size. Larger franchise chains usually choose countries with better institutional

aspects in terms of contract compliance and business freedom, even if the efficiency of busi-

ness conditions in these countries are not the best in Latin America. In this study, were used

public data from international organizations that report on the ease of doing business, level of

corruption, political risk, and legal regulations. Specifically, it contributes by using institutional

theory in franchising in order to understand the process of chain internationalization originating

from emerging markets. Our results, in part, contradict the idea that the origin disadvantage is

always an advantage of internationalization.

KEYWORDS

country analysis, emerging markets, entrepreneurship, franchise chains, franchise

internationalization, institutional theory

1|INTRODUCTION

The internationalization of franchise chains had as its precursor North

American franchise chains directed toward the developed markets of

Europe, Canada, Australia, and East Asia. In the current decade, due

to growth in emerging markets, a second wave of internationalization

of North American chains in these markets has been present

(Aliouche & Schlentrich, 2011; Baena, 2012; Dant & Grünhagen,

2014;). The inverse path has also occurred; that is, franchise chains

from emerging countries have sought to expand into international

markets (Alon, 2004; Castrogiovanni & Vozikis, 2000; Dant, Perri-

got, & Cliquet, 2008; Grünhagen, Dant, & Zhu, 2012; Grünhagen,

Witte, & Pryor, 2010; Wang, Zhu, & Terry, 2008; Welsh, Alon, &

Falbe, 2006). As a result of this late internationalization and, in partic-

ular, country of origin, the study of these chains is seen as worthy

research (Dant & Grünhagen, 2014). Predominant franchise theories

are based on American franchises (Dant, Grunhagen, & Windsperger,

2011); however, franchise chains from emerging countries have dif-

ferent historical, economic, social, and cultural perspectives and com-

petitive contexts to American franchises, instilling a need for new

theoretical lenses (Dant & Grünhagen, 2014; Dant et al., 2011).

Institutional theory and national culture theory have the potential

for academic exploration when understanding the internationalization

of franchise chains originating from emerging countries (Jell-Ojobor &

Windsperger, 2014; Merrilees, 2014), especially for understanding

entrepreneurship in emerging markets (Alon & Rottig, 2013; Goyal,

McCord, & Kappor, 2017). As the emerging context differs from the

developed, the success of strategies in international markets stems

from a considerable understanding of the institutional environment of

these countries (Elango & Lahiri, 2014; Goyal, McCord, & Kappor,

2017; Kogut, 2003; Peng, Sun, Pinkham, & Chen, 2009). The literature

recognizes differences in behavior in formal and informal institutions

of emerging and developed countries (Kamoche & Harvey, 2006;

London & Hart, 2004; Meyer, 2004; Ramamurti, 2004). As emerging-

market firms face more institutional difficulties in their home markets,

they can capitalize on this disadvantage by turning it into a nonlocal

capability (Rugman & Verbeke, 2001) and gain advantages when oper-

ating in other emerging markets with institutional barriers (Cuervo-

Cazurra, 2006; Cuervo-Cazurra & Genc, 2008; Ghemawat & Khanna,

1998) and institutional gaps (Khanna & Palepu, 2010).

Given the concept that using disadvantage as a nonlocal capabil-

ity in order to exploit other emerging countries, franchises should be

DOI: 10.1002/tie.21975

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