The Choice Between Management Contracts and Franchise Agreements in the Corporate Development of International Hotel Firms

Abstract

This study examines the choice between management contracts and franchise agreements in the corporate development of international hotel companies. The fact that contractual modes of corporate development are quite prevalent in the hotel sector world-wide, in combination with the lack of research in that direction, suggests the gap in this field. This study attempts to fill this void by developing a theoretical framework in order for further empirical research to reveal important findings regarding the factors that influence the choice between franchise agreements and management contracts as a means of non-equity hotel development. It has been suggested that management contracts should be viewed as a more hierarchical form of organisation in terms of the degree of control the firm can exercise. Additionally, a more robust theoretical discussion has been provided, combining both transaction cost theory and agency theory on the decision for corporate development in the hotel industry. Finally, important factors have been identified, which influence a hotel company's choice between management contracts and franchise agreement in its corporate development, followed by propositions, therefore, set out a guideline for further empirical studies.