Why Franchising Is Becoming So Dominant

Franchising has become an ever-present feature of the American economic landscape. One-third of the U.S. gross domestic product flows through franchises, and they employ one out of every sixteen workers. But how did franchising come to play such a dominant role in the American economy?

Three factors seem to have fueled the growth of franchising. First, there are people who have some sort of business on a small scale, say, a restaurant or a bakery, and they have designs to expand to a national market. Franchising affords an opportunity for the aspiring entrepreneur to reach a national market in relatively short order, with little capital outlay, and with minimal risk. While there have probably always been people with grandiose ideas, the business owner today can work with a specialist franchise consulting company to take his or her idea or product and make it "franchiseable." These franchise consulting companies essentially sell a "franchise package" that includes the legal requirements to franchise, marketing plans to sell franchises, and business format plans that take an idiosyncratic and unique business and standardize it. Even services that seem to be impossible to standardize, like a haircut, are widely franchised through essentially this process of desire on the part of the entrepreneur, and means through a consulting specialist.

A second factor that increases the dominance of franchising is demand by individuals to be their own boss, to operate a business, or to otherwise work independently. These people believe that owning a franchise will allow them to achieve that goal. The idea of owning a business seems to be a fairly persistent demand in the American economy, and there is a rich sociological tradition, from Eli Chinoy's Automobile Workers and The American Dream to Nicole Biggart's Charismatic Capitalism, that documents the aspirations and realization of that demand. Franchising Dreams follows within that broader sociological tradition. Also, it is interesting to note that demand for franchise units increases in inverse proportion to the health of the economy. When the economy is roaring franchise demand is down, but when the economy languishes-because of corporate layoffs, corporate downsizing, or other factors--franchising becomes more attractive.

A third factor that drives franchising is consumers who either prefer to purchase goods and services from franchised outlets, or are at least not averse to doing so. Franchised outlets are ubiquitous in the economy-they are located in the strip malls, in small towns, suburbs, urban areas, in fact, one can hardly escape franchising. As long as these three factors exist and remain strong, franchising will continue to grow.

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©Copyright, 2006, Peter Birkeland, Ph.D. For more information visit my site.