What is the economic impact of service franchising investment?

Economic development is a challenge to small communities across the world. A central question that arises is how to stimulate a remote and small economy. One method is to allow local entrepreneurs to open service businesses. The problem with this approach is that the skill base and training in opening and managing businesses is often missing fi-om the community and from the people who most need it. Franchising may help in this respect. This article aims to empirically asses the economic impact of three franchisingrelated industries using a small city in Upstate New York as a case study. Franchising has long been touted as a method of development for small economies. Franchising brings to a local economy a wealth of expertise and a system of doing business that may not be available otherwise. While these intangible effects have been discussed in the literature and by the International Franchising Association (Shay, 2002), no known study to date attempted to empirically assess these impacts across various industries. Alon (2004) conceptually analyzed the socio-economic benefits and costs of franchising from a global perspective. According to his analysis, among the economic impacts are job creation, output creation, tax revenue creation, economic clustering, economic modernization, entrepreneurship development, labor force improvements, as well as increases in innovation, competition, and efficiency. Economic development in remote local economies is most daunting due to the lack of national economic integration. Often few industrial linkages exist between the remote local economy and key national industries and, thus, economic growth stems from transient travelers and tourists. Industries that facilitate the exchange between locals and tourists can boost local economic development by bringing in income from outside the region and integrating the local economy. For the purpose of this chapter, we examine three industries in which franchising takes a role: eating and drinking places, hotels, and management consultants. The first two are directly related to tourists and travelers while the last is related to facilitative industries for businesses in general. We chose these industries because of their variance in terms of needed capital, infrastructure, and labor skills. Franchising examples in the eating and drinking sector include Denny's Inc., Friendly's Restaurants, and Arby's; in the hotel sector Super 8 motels. Day's Inns Worldwide Inc., and Howard Johnson Int. Inc.; in the management consulting sector Express Personnel Services, Labor Finders, and Management Recruiters. The industry specific influence on a local economy is important as it allows city planners to target the industries that have the maximum economic impact in terms of output and employment. We then discuss the methodology of IMPLAN in detail explaining to non-specialists about input-output analysis and multiplier effects. This is followed by a case study of three industries in one small city, discussions, conclusions, and future research.