Franchising as a form of divestment: An Italian study

Abstract The focus of this article is on divesting in-house trade activities into franchising operations. Conventional wisdom and assets analysis would suggest that firm growth objectives could only be attained through investments, whereas a divestment—usually seen as an asset shrinking—will necessarily determine a reduction of the strategic scope of the business. Similarly, franchising is usually regarded as a means for fast expansion of the franchisor's retail network, characterized by a low capital investment and a high level of control on marketing policies. However, companies often carry out divestments by changing the form of control on retail operations, from ownership to contractual relationships (i.e., franchising). In this study, empirical findings highlight circumstances under which franchising is used as a form of divestment, and that show how divesting assets and substituting them with contractual relationships can lead to a variety of strategic achievements and can help coping with environmental contingencies, such as needs for growth and competitive restructuring.