Introduction

Numerous small and medium-sized enterprises (SMEs) throughout the twenty-one Asia-Pacific Economic Cooperation (APEC) economies are operated as business format franchises. Two forms of franchising are widely recognized. In product franchising, a franchisor supplies branded products or services to a franchisee (seller), but does not control all aspects of how the franchisee conducts the retail business. The other form, business format franchising, is more allencompassing. It involves a franchisor creating a retail business, testing it, and resolving any problems, then documenting every aspect of the business and, finally, advertising for franchisees to purchase and operate franchised clones. The franchisor sells its franchisees a licence, typically for a fixed term. Franchisees then invest their own time and finances in establishing legally independent, but functionally dependent businesses, under the franchisor's brand while following the rules set out by the franchisor. The focus of this chapter is on business format franchising.

This model of franchising is increasingly popular, and has become ever more versatile and sophisticated since the mid-twentieth century. Franchising currently exists along a spectrum, from being a widely studied, highly regulated, and pervasive business model in countries such as Australia and the United States, to an unregulated, data-poor, fledgling activity in countries such as Papua New Guinea.