Benefits of Inner Strength for Franchise System Expansion

For every franchise system, making the leap from the unknown to the common place requires a strategic plan for growth. The exogenous market perspective holds that evaluating market conditions is central to defining promising outlet locations as there are direct economic effects on performance. The endogenous firm perspective and the social network approach together provide an inner strength perspective on interconnected firms; this perspective holds that access to resources offered at a certain spot determines site attractiveness, rather than location-specific market factors. Using a sample of 201 German franchisees, this study tests hypotheses that explore which perspective dominates location decisions in practice and clarify the relevance of the decisive criteria for outlet performance. Results show that location decisions rely on both perspectives, yet franchisee performance depends more on inner strength factors. We also find that expansion is better served by following a geographically dispersed cluster approach than by growing steadily from a baseline site.