Evaluating foreign market entry mode theories from a hotel industry perspective

This is a qualitative examination of the theories of new institutional economics (NIE) in the context of choosing between franchising and management contracts in the international hotel industry. In-depth semi-structured interviews were conducted with eight high-level hotel executives. The primary objective of this study is to empirically examine which of the predominant theories of NIE are the most appropriate for examining the specific choice between franchising and management contracts when internationalising a hotel or hotel chain. Transaction cost economics and the resource-based view emerged as the most appropriate theories, according to the executives interviewed. Moreover, several other important considerations were suggested by the respondents, including the size of the organisation, the importance of intangible assets and the level of investment into these assets. Finally, host country factors, such as legal and political risk, as well as the availability of capable local partners, were suggested as important considerations.