Expansion strategy of international hotel firms

This paper examines the expansion choice between 'hierarchical' and 'market' modes of development decision of international hotel companies. It develops a theoretical framework, combining both transaction cost economics (TCE) and agency theory (AT), to identify the country- and firm-specific factors that influence the choice among franchising, management contracts, and company ownership. The robustness of framework is supported by the empirical results using cross-sectional data of new development for international hotels. It suggests that the most influential factor on the development decision is the degree of proprietary content and idiosyncratic knowledge embedded in the service provided. The higher the market segment of operation, the higher the specialised skills and managerial expertise required for hotels to operate according to standards; therefore, the more likely a hierarchical mode will be used for their development.