Page 356 - Encyclopedia of Business and Finance

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Fraudulent Financial Reporting

facing other service sectors. Franchisers must comply with ECONOMIC IMPACT OF
the same local requirements as other businesses, and the FRANCHISING
franchise agreements must comply with local contract law, In 2005, the total number of franchise establishments in
antitrust law, and trademark and licensing laws. Aside the United States totaled 767,483. This means that nearly
from language and cultural differences, many of the prob- 3.2 percent of all US businesses operate as a francise.
lems of conducting business in foreign countries are the These franchises are also responsible for providing more
same as those involved in the United States. The success than 9.7 million jobs in the economy, with an annual esti-
or failure of foreign franchising will depend in large meas- mated payroll that totaled close to $230 billion. Accord-
ure on the soundness of the franchiser’s domestic market ing to the International Franchise Association, franchised
position and on the franchiser’s ability to provide the nec- businesses provided more jobs than durable-goods manu-
essary expertise to others in another part of the world. facturers. These include franchises in industrial equip-
Some franchises popular in the United States actually ment/machinery; communications; lighting and other
started in another country. For example, Molly Maid electrical equipment; trucks, cars, planes and other trans-
started in Canada in 1980 and came to the United States portation equipment; lumber and wood products; furni-
four years later. ture/fixtures; and computers.
SEE ALSO Marketing
FRANCHISING TRENDS
All trends indicate that franchising will continue to BIBLIOGRAPHY
expand both domestically and internationally, creating Blair, Roger D., and Lafontaine, Francine (2005). The economics
great opportunities for existing and new businesses; devel- of franchising. New York: Cambridge University Press.
oping new entrepreneurs, new jobs, new products, new Hoy, Frank, and Stanworth, John (Eds.) (2003). Franchising: An
services; and providing export opportunities. Rising per- international perspective. New York: Routledge.
sonal income, stable prices, high levels of consumer opti- Kaufman, D. (2004, August). New study reveals an extraordi-
nary economic reach. New York Law Journal, p. 3.
mism, and increased competition for market share are
turning many companies, both small and large, to fran- Kotler, Philip, and Armstrong, Gary (2006). Principles of market-
ing (11th ed.). Upper Saddle River, NJ: Pearson Prentice
chising. Education will play an important role in the
Hall.
future of franchising, as both high schools and colleges
Moore, Lisa (1991, June 10). The flight to franchising. U.S.
increase the number of courses that are taught in market- News & World Report, pp. 78–81.
ing, business management, and entrepreneurship. In addi-
Pride, William M., and Ferrell, O. C. (2006). Marketing concepts
tion, changing patterns in American demographics, and strategies (Rev. ed.). Boston: Houghton Mifflin.
coupled with the increased number of women in the U.S. Bureau of the Census. (2006). Statistical abstract of the
workforce, are influencing the number of new franchises United States. Washington, DC: Author.
each year.
Furthermore, shifting demographic patterns and the
use of new technology have intensified competition Patricia A. Spirou
among franchise companies. These factors have increased
the number of mergers and acquisitions in the franchising
system, and it was expected that this merger/acquisition FRAUDULENT
trend would persist for several years. Creativity and imag-
ination in the treatment of goods and services are the FINANCIAL REPORTING
focus of most business ventures today. Education, com- The equity and credit markets (capital markets) in the
puters, and the ability to work with and manage people United States have long been considered to be among the
will be profitably used by emerging businesses. All these most efficient in the economically developed world. One
developments suggest that franchising will be one of the reason for the efficient operation of these markets has
leading methods of doing business as the first decade of been the public availability of creditable financial state-
the twenty-first century progresses, even in an environ- ments by those using them as a basis for their investment
ment of mixed signals in the economy. These signals and credit decisions. A potential significant threat to the
include the economic trend of consumer demand for serv- efficient functioning of these markets is the incidence of
ice-sponsored arrangements, which are currently the fraudulent financial reporting.
fastest growing type of franchise. Examples include Fraudulent financial reporting is intentional or reck-
Snelling and Snelling Inc. (employment service) and less conduct, acts, or omissions that result in materially
H&R Block (tax services). misleading financial statements. Confidence in the opera-

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