Pioneering Asian Franchise Brands: Pho24 in Vietnam

Pho24 is Vietnam's largest and most rapidly growing franchise system. In this research, a case study approach is used to study the franchising strategy employed by the organization to achieve rapid growth in Vietnam and internationally. Key people in the organization were interviewed, including the founder/franchiser, franchisees, and company employees. Data were collected over a 12-month period from the organization's operations in three countries: Vietnam, Australia, and Singapore. The findings indicate that cultural and legal contexts heavily influence the franchiser's philosophy. Traditional explanations of franchising, such as resource constraints theory and agency theory, only partially explain the motivations for franchising. An alternative hybrid model of franchising—an Asian partnership model of franchise brand management—is adopted to improve control and collaboration between the franchiser and franchisees.     

Franchising at the Bottom of the Pyramid (BOP): an alternative distribution approach

Bottom of the Pyramid (BOP) markets provide distinct marketing challenges to firms either serving these markets or intending to enter these markets. BOP markets have often been criticised for having weak supporting infrastructure such as inefficient or non-existence of distribution systems which hinder firms' ability to distribute products to consumers. Franchising is one distribution strategy which firms can use to enhance distribution at the BOP. Using findings from research conducted in Zimbabwe, this article demonstrates how firms can use franchising as a distribution strategy to facilitate distribution of products to those at the BOP. Both consumers and firms derive benefits from the use of franchising. Firms face distinct challenges in using this strategy and need to re-invent the way they do business.     

Internationalization of South African Retail Firms in Selected African Countries

African markets are complex environments for foreign multinationals. The continent, which has recently attracted significant attention for its rich potential and growth prospects, presents a multitude of challenges for the South African retailers leading the charge of retail expansion. This qualitative study seeks a deeper understanding of the contextual challenges experienced by these firms in other African markets, and how they have managed this process. It further engages how these firms build networks with local stakeholders and how they overcome information deficits. This study confirms the rich variety of capabilities and approaches developed by South African retailers operating across the continent, as opposed to a single standard approach. The research has further confirmed that these firms typically use SA Inc. as a country specific advantage in their expansion, leveraging off their inter-firm networks and personal exchanges to gain a better understanding of African markets and their consumers.     

“Conflict-performance assumption” or “performance-conflict assumption”: Insights from franchising

Franchising is an organizational governance form where relational and formal contracts complement each other and where franchisor and franchisees together may obtain better performance than working alone. Although relational contracts may adapt to changing environments, they are not as efficient in ambiguous settings. In franchised stores, liability for low performance is not always clear. Indeed, franchisor and franchisees work in close collaboration, and, therefore, this ambiguity on causes of low performance may lead to conflicts. The franchising literature, as far as we know, has addressed practitioners' concerns regarding performance on one side, and conflicts on the other side, but no study has exclusively focused on low performance and the emergence of conflicts. Our research contributes to the franchising literature by filling this relative gap and, contrary to “conflict-performance assumption” (Pearson, 1973; Duarte and Davies, 2003) held in the broader context of distribution channels, we consider low performance to be a cause, rather than a consequence, of franchisor/franchisee conflicts. This empirical study deals with franchising in France, the leading market in franchising in Europe and the third largest in the world. We used a qualitative approach based on 44 in-depth interviews with 27 franchisors and executives/high-level managers of franchise chains, as well as 17 franchisees from various industries to get a dual, and so more complete, assessment of franchising practitioners' views of performance-related conflicts. Our research findings show that franchisees, as independent small business owners, give priority to financial results compared to other goals and they are driven to continuously improve the performance of their store(s). When expectations are not met, franchisees sometimes blame franchisors because they are interdependent in their success and liability is not straightforward. As a collaborative team, franchisors and franchisees may benefit from minimizing conflicts and preventing them with the careful selection and management of franchisees that share franchisor's values and have internal locus of control.     

Convert to Compete: Competitive Advantage through Conversion Franchising

This paper offers an in–depth treatment of conversion franchising, where new franchisees are added to a franchised system by recruiting existing independent entrepreneurs or competitors' franchisees. The first part of the paper examines conversion franchising as a source of competitive advantage. This discussion leads to the articulation of four propositions. The second part of the paper looks at the empirical results of our study of 72 North American franchisors. Seventy–two percent of these firms use conversion franchising in their domestic markets, and 26 percent use conversions in international locales. The propositions relating to a franchisor's decision to use conversions based on increased levels of experience, economic resources, and to a lesser extent skills/knowledge, all were supported. These results lend support to the literature indicating that resources and skills serve as sources of competitive advantage. Implications for research and practice are discussed.     

Franchising growth and franchisor entry and exit in the U.S. market: Myth and reality

Franchising has been and continues to be a very popular way to do business for a number of retailers and service businesses. However, the type of franchising that has been growing the most, namely business-format franchising, has not grown at the kind of phenomenal rates that the trade press often suggests. Since the Department of Commerce (DOC) canceled its publication Franchising in the Economy, we no longer have access to census-type data on franchising in the U.S. However, looking at the period during which the DOC did publish these data, one finds that the number of business-format franchisors is highly correlated with the number of units in these chains. Thus, we use data from recent issues of various franchisor directories to assess the number of franchisors in the U.S., and infer from this how business-format franchising has grown in the U.S. We find that business-format franchising has been growing over the last decade at a rate that is, at best, commensurate with the growth of the economy as a whole.We believe that the confusion about the extent of growth in franchising arises, in part, from the fact that many new firms enter into franchising each year, leading to the notion that this way of doing business is growing tremendously. However, we show that many firms also exit from franchising each year, for a net growth rate much below the entry rate.This paper shows that franchising is not a panacea for entrepreneurs, whether franchisor or franchisee. From the franchisor's viewpoint, the high rate of exits suggests that many firms fail despite franchising, and many others choose to stop franchising after trying it for a few years. Clearly, these firms have found that franchising is not right for them. Furthermore, the results show that the characteristics of the chain at the time it becomes involved in franchising, as described in the main franchisor directories—such as the royalty rate, the advertising fee, the franchise fee, the amount of capital required, and the sector of operation—have little capacity to explain “survival.” The main variable that affects “survival” among those that are typically reported in franchisor listings is the number of years that the franchisor has been in business before starting to franchise. Hence our results suggest this is one dimension in which franchisors can make decisions that affect the probability that they will be successful in franchising. Although we are unable to explain most of the variance in outcome, the results mostly imply that other, less easily observed or quantified characteristics of the chain and the franchisor, such as maybe the “innovativeness” of the product, the amount of support provided to franchisees, the financial backing of the franchisor, etc., likely influence “success” the most, and thus, are worth investigating further.From the perspective of franchisees, the amount of exit found here suggests that in the majority of systems, franchisees cannot expect that their franchisor will be around for the whole duration of their contract—which averages about 15 years according to the Department of Commerce. This does not mean that the majority of franchised businesses will find themselves in an “exiting” system—a small minority of very well-established franchisors accounts for the majority of franchised businesses, and these are likely to remain successful for years to come. But entrepreneurs buying franchises from less established systems are likely to face franchisor exit, either failure or departure. This paper confirms that franchisees should thoroughly investigate the franchise system they want to invest in, going beyond the information about royalty rates, advertising rates, rankings, etc., found in franchisor directories, and toward more product, market, and other less easily accessible information about the chain.     

Global Expansion:

The strategy of franchising has become an important vehicle for growth among a wide variety of businesses. Fast-food restaurants have been the most successful category of franchising and are the focus of this study. The industry environment is examined first, followed by a look at some of the primary motivations for these firms going abroad. After common patterns of foreign entry are detailed, the standardization issue is examined. Since the transfer of fast-food franchise system packages to foreign markets has been proven to be quite variable, it is projected that these companies will continue to provide a valued service to an ever larger global consituency in the 1990's.     

Why franchise companies expand overseas

Business format franchising is becoming an increasingly international activity. From 1971 to 1985, U.S. franchisors added foreign outlets at a rate of 17% per year, almost twice as fast as they added domestic outlets (Aydin and Kacker 1990). As a result, by 1990 more than 350 U.S. companies had more than 32,000 franchised outlets overseas. By 2000, 60% of all franchisors in the United States are expected to have outlets overseas (Hoffman and Preble 1993).This study examines the 815 largest U.S. franchisors to understand what capabilities encourage them to expand overseas. It finds that the key capability that predicts the intent to expand overseas is superior capability to reduce franchisee opportunism. Franchisors who seek foreign franchisees have developed a greater capability to bond against and monitor potential franchisee opportunism. The data show that these differences are consistent across all industries in which franchising takes place.The results of this study indicate that foreign entrepreneurs can identify the American franchisors most likely to expand overseas by looking at their pricing structure and their monitoring capabilities. The easy identification of characteristics from which to find American franchisors will help to reduce the search costs of potential foreign franchisees. This reduction in search costs will make the establishment of international franchise relationships less expensive.This study also provides guidance to franchisors interested in expanding overseas. The results show how franchisors can structure their franchise relationships to reduce potential franchisee opportunism. This ability to reduce franchisee opportunism will make it easier for franchisors to enter high-growth foreign markets using the franchising business mode.This study also has implications for researchers. It suggests that international business research examine further the mechanisms by which firms make contractual modes of international business work. Whereas many firms may internalize international market transactions under conditions likely to lead to market failure, the large number of franchisors who use franchising as an international expansion mode despite conditions of market failure suggests that more attention be paid to mechanisms that companies can use to reduce the probability of failure of international contractual transactions. By helping to explain how franchisors monitor foreign franchisees or bond them against opportunistic behavior, this study suggests that the international business literature develop a more complex understanding of the workings of international business transactions than the simple choice of internalization or contractual entry modes.     

Organizational Expansion to Underserved Markets: Insights from African Firms

Although scholars have highlighted the need for firms to explore and exploit market opportunities in underserved markets to achieve superior performance, emerging‐market firms’ strategic choices and constraints in such environments remains an underexplored area. Drawing on insights from the intra‐Africa air travel sector, we uncovered that the intense competitive pressures on inter‐African routes has intensified both exploration and exploitation activities on the intra‐African market as firms seek to mitigate the competitive effects. We also found that the firms’ exploitation activities have been punctuated by a number of firm‐specific and institutional factors. The theoretical and managerial implications of these findings are discussed. © 2014 Wiley Periodicals, Inc.     

Entrepreneurs or Investors: Do Multi‐unit Franchisees Have Different Philosophical Orientations?

Although multi-unit ownership has become the dominant form of franchising in the United States, the motivations for either franchisor or franchisee to participate in these agreements continue to be the subject of debate. This study looks at the issue from the perspective of the franchisee. It is argued that some multi-unit franchisees, especially those operating as area developers, are likely to enter the field viewing their franchise as an investment, while others, especially those operating as sequential multi-unit operators, are likely to view their franchise as an opportunity to fulfill more personal, entrepreneurial ambitions. A study of multi-unit franchisees of both types found that both were equally investment-oriented but that the sequential multi-unit operators were more likely to seek fulfillment of entrepreneurial goals. Implications for practitioners and for future research are discussed.     

Towards a framework for the study of franchising as an operating mode for international retail companies

In recent years franchising has become a popular operating strategy for companies competing in the global marketplace. In particular, international retailing companies have increasingly been adopting franchising as a marketentry mechanism. While this growth in the popularity of franchising has led to increased research interest in the topic, there has only recently been a recognition of the need to consider franchising within the wider context of retailer internationalization activity. This paper attempts to provide a framework for the study of franchising as a strategy for retailers expanding into international markets. The discussion examines key findings to date from the established literature on international franchising concerning the motivations underlying internationalization, the internationalization process itself and the operating problems encountered. It is argued that a careful examination of findings from the international franchising literature can provide further development of retail internationalization conceptualization.     

The Franchise Fulcrum: The Legal System's Contributions to Research about Power and Control in Business Format Franchising

Franchisors’ need for power over their franchisees and control of their brands underpins their apparent opportunism. Through Australian and United States examples, we identify how the legal system's levers facilitate examination of opportunism within franchising. We suggest that the balance of power and control within franchising is ever changing. We suggest that all legal systems provide rich and often overlooked data for business researchers investigating franchise relationships. They should be accessed to help franchising stakeholders frame research propositions and to understand and meet twenty-first century challenges such as those posed by Gen Y and online retailing.     

Survival patterns among newcomers to franchising

This study examines survival patterns among franchisee and nonfranchise small firms and establishments that entered business during 1986 and 1987. Aspiring entrepreneurs purchasing franchises choose this path to small business entry, in part, because they expect to improve their chances of survival during the turbulent early years of operation. Evidence to date has been mixed: some studies conclude that franchising is a low-risk route to small business ownership, while others suggest that independent start-ups are more likely to remain in operation than franchises.This study utilizes two distinct methodological approaches to investigate franchisee survival patterns. The first approach demonstrates that franchise units have better survival prospects than independents, and the second approach demonstrates that young firms formed without the benefit of a franchisor parent are more likely to remain in operation than franchised start-ups. Reconciliation of these seemingly inconsistent findings is explored.Survival measurement is heavily influenced by the unit of analysis in franchising. Firm-specific data show different patterns than establishment-specific data when young franchise units are tracked through time. Analysis of establishments owned by corporations is undertaken for restaurants opened nationwide in 1986 and 1987. Using Census Bureau data describing corporate-owned restaurant establishments that reported payroll to the IRS in 1987, 52,088 young establishments were identified; 22.5% were franchises. Comparison of the franchisee and independent restaurant units indicated that independents were more likely to cease operations by 1988 than franchises.The fact that franchisee establishments had a better survival track record than independent restaurants does not, however, demonstrate that aspiring entrepreneurs improve their survival prospects by purchasing a franchise. In fact, 84% of the new franchise establishments under consideration were units of multi-establishment corporations, and few of these corporate parents were new businesses. Envision a corporation in operation for 15 years that owns 20 McDonalds restaurants; in 1987 they opened their twenty-first unit. The findings of this study indicate that this twenty-first unit has excellent survival prospects, more so than either an independent start-up or a franchisee opening a restaurant for the first time. New franchised restaurant units, overall, may be a safe investment, although simultaneously, the newcomer opening a franchise may face a high-risk situation.The analysis then shifts from establishments owned by franchisees to young firms (not establishments) started in 1986 and 1987 as proprietorships, partnerships, or S-corporations. Among these young firms, franchisees are found to have lower survival rates than independent start-ups, and these differences persist when various firm and owner traits are controlled for statistically. Retailing is found to be a particularly difficult field for young franchised firms: risk of firm closure is high and mean profits are negative. The most common route into retailing entailed purchasing an operating franchise unit from its previous owner, that is, an ongoing franchise. Over 53% of the young franchised retailing firms started in 1986 and 1987 were ongoing operations. By 1991, only 52.4% of these firms were still operating with the owner of record present in 1987.The findings of this study indicate, on balance, that purchase of a franchise is unlikely to reduce the risks facing a new business start-up. This does not imply that the multi-establishment franchisee adding another new franchise unit to its existing chain of operations faces a high-risk situation. Rather, the high risk facing the franchisee newcomer is partially rooted in the fact that so many of the newly-opened units in mature franchising niches are owned by multi-unit franchisees that have greater experience and resources than newcomers who are attempting to enter the industry.     

Franchising in Europe: Exploring the Case of Spain with Self‐organizing Time Maps

Economic crises affect both the organizational side and the brand side of the franchise. Using self‐organizing time maps, this study examines how franchise brand behavior influences decisions by potential franchisees in Spain. The findings confirm that franchising offers an alternative to the business turnaround strategy, which firms apply when faced with adverse changes in the environment such as those caused by the economic crisis in Spain. Results show that all franchise brands within the same sector behaved similarly, except for brands in the catering sector, which displayed varying responses to the economic changes. The authors discuss the implications of these results for future franchisees.     

Brand equity heterogeneity among strategic groups in service franchising

Independent franchisees work cooperatively with service franchisors to strengthen the franchisor's brand name. However, agency theory predicts that franchisor inputs such as brand names and operational routines might be harmed by franchisees' free riding. In addition, previous literature has addressed the issues of strategic group emergence and performance differences between groups in recent decades. Thus, this study builds upon an emerging symbiotic view of franchising behind agency theory and incorporates a strategic groups level of analysis to investigate whether franchisees have strong incentives to maintain standards as franchisor seeking market penetration. By investigating potential brand equity differences among service franchisors for Taiwanese telecommunications service chains, this study found that different strategic groups exist in service franchising chains. From replication testing, the current results demonstrate that service franchising brand equity heterogeneities exist among franchisors within and across strategic groups. Therefore, this study broadens agency theory's explanation of service franchising.     

The choice of master international franchising – A modified transaction cost model

This study develops and tests a novel transaction cost model of master international franchising. Based on data from international franchise firms headquartered in six countries, we show that master international franchising is the franchisor’s preferred governance mode under the following conditions: large bilateral franchisor’s and franchisees’ transaction-specific investments, high institutional uncertainty and high behavioral uncertainty. Our model extends the literature by presenting a modified transaction cost model of master international franchising that investigates the bonding effect of bilateral transaction-specific investments and environmental uncertainty as determinants of the franchisor’s choice of international governance mode. In addition, by using primary data from international franchise companies, our study contributes to the transaction cost literature in international business and international franchising that is mainly based on secondary data.     

Franchisee-based brand equity and performance

This study focuses on the perceptions of franchisees and analyzes the influence of brand equity on franchisee performance. The factors that constitute brand equity are also assessed. Factor analysis was used to generate valid and reliable scales based on a sample of 205 Portuguese franchisee firms, and structural equation modeling methodology was then employed in the analysis. The results show franchisee-based brand equity (FBBE) to be a multivariate factor with strong influence on performance. This study contributes significantly to the literature by showing the perspective of franchisees toward franchising. It also has implications on the adequacy of corporate strategy in achieving performance.     

When sergeants can outrank generals: Person-organization fit and the performance of franchisees as agents of their franchisor

We introduce a person-organization fit perspective to explain how franchise organization characteristics shape the link between franchisees' individual attributes and their performance as agents of their franchisor. Showcasing this idea, we develop arguments to suggest why the links between franchisees' agent performance and their prior industry and educational experiences are contingent upon the franchise organization's entrepreneurial orientation, centralization, and formalization. The results from multilevel analyses using the data of 276 franchisees from 47 franchise organizations largely support our ideas. We discuss the theoretical and practical implications of our study for franchising and beyond.     

Brand and performance signals in the choice of franchise opportunities

When choosing a franchise chain, potential franchisees must incorporate into their decision process the signals of franchise chain quality being sent to the market by the franchisor. Some of these signals along with potential franchisees' choices of franchise chain are analyzed. The results show that brand value and franchisee performance were the key signals used by Spanish franchisees during the period 2002 through 2008, when deciding to open a franchise outlet. The aim of this study was to contribute to strengthening the relationship between entrepreneurship and franchising in Spain from an empirical viewpoint.