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.     

Survival of new firms in the Brazilian franchising segment: an empirical study

This paper investigates the survival patterns of Brazilian franchising firms for the period 1994–1999. First, we considered the (percentage) survival of newly created franchisors in the following years. Survival functions were obtained by means of the Kaplan–Meier estimator for the selected sectors and they indicated sharp declines in the survival rates over time but with differential patterns across sectors. Finally, an econometric analysis based on the Cox proportional hazard model considered the explanatory variables pertaining to size, age and support regarding the legal aspects, location choice and training. The evidence indicates that the supports provided by the franchisor have a positive impact on the probability of survival of new firms, whereas there is partial evidence favoring a positive effect of firm size on survival.     

Conflict management capabilities in franchising

Conflicts are common in franchising, however, they become dysfunctional above a certain threshold. Our aim is to understand how conflict management processes and, in particular, problem solving, persuasion, bargaining and politics, are developed and implemented within franchise chains and how they contribute to franchisors’ organizational capabilities. We do so through a qualitative study based on 44 in-depth interviews with franchisors and franchisees operating in France. Our main findings show that the implementation of these conflict management processes over time and with various franchisees nurture conflict management capabilities of franchisors.     

Social franchising: A systematic review

Abstract

Social franchising is starting to garner more interest among researchers and practitioners as a replication approach used to help address a growing array of societal issues in both developed countries and emerging economies. While there has been a proliferation of experimentation with social franchising that is occurring on the global stage, the knowledge base remains fragmented. A comprehensive review of the empirical and practitioner literature has not been done. This article fills the void by reviewing the past decade of literature and will be of interest to governments, non-governmental organizations (NGOs), philanthropists, social impact investors, corporations devoted to social goals, and other key players who support the scaling up or replication of ventures that strive to address societal ills by creating pathways to health and prosperity.     

Ethical implications of business format franchising

Franchising in the business format sector accounted for approximately 35 percent of retail sales in the U.S. in 1991. Consequently, the franchising industry has a clear ethical responsibility to the public. At the same time, there exists an ethical obligation of the two major factors in the industry — the franchisor and the franchise — toward each other. Because the franchise agreement, which is the basis of the relationship, is originated by the franchisor, an asymmetrical distribution of power often exists, resulting in opportunistic behavior by the franchisor. In other cases, questionable or unethical practices by franchisees likewise result in conflict. This paper examines some of the basic areas of the franchise relationship which result in conflict, and discusses the situation analysis in business format franchising, which shows promise for reduction of conflict and unethical behavior for the future.Gordon Storholm is Associate Professor of Marketing at St. John's University, New York, N.Y. He is an active member of the Society of Franchising and has published several articles in the franchising field. He has contributed to this Journal and has several years' experience as a consultant in the Franchising and Marketing fields.Eberhard E. Scheuing is Professor of Marketing at St. John's University, New York, N.Y. He is Director of the Business Research Institute and has published several books and articles in the marketing field. He is widely recognized as a leading authority in the field of ethics in service quality.     

Structural and strategic dynamics in franchising

In this paper we examine the changes in ownership patterns of franchise systems as they mature. We compare the predictions made by three alternative theories within the context of the fast food industry. Signaling theory predicts that franchise systems will move toward a greater reliance on franchised outlets as systems mature, while resource acquisition theory (or as it is sometimes known, ownership redirection thesis) predicts a tendency in the opposite direction. A third theoretical perspective, tapered integration or plural forms, suggests a tendency toward maintaining a steady state of mixed distribution. Results indicate that although franchisors value the benefits of the mix of ownership types and do maintain that mix over time, there is some evidence of a greater tendency to permanently convert existing franchised outlets to company-owned outlets as fast food systems mature and gain greater access to resources.     

Restaurant franchising and top management team

The primary purpose of this study was to investigate how top manager attributes account for the implementation of risk-averse strategy by applying a conceptual framework based on upper echelons theory. We selected franchising as a representative risk-averse strategy based on resource scarcity, agency, and risk-sharing theories. We chose the top management team (TMT) as a proxy for the upper echelon to examine the theoretical argument. The study period was from 2000 to 2013, and 29 restaurant companies were included in the research. Related data were derived from EXECUCOMP, COMPUSTAT, Annual 10-K, and publicly accessible resources (e.g., LinkedIn and Business Week). Feasible generalized least squares and random effect regression models were used to analyze the data. The results suggested that the formal education levels of top managers negatively affected franchising implementation, whereas the tenure of TMT members positively influenced restaurant franchising.     

International franchising in China with Kodak

According to Kodak, China poses unparalleled opportunities for low‐cost production and marketing of products to the world's largest nation. According to the company's estimate, China will become the largest market in the world for photographic products and services within the next ten years. This article reviews Kodak's operations in China and presents an interview with a local franchising manager in Shanghai—the largest city in China. It provides a unique glimpse into the inner working of the organization's franchising activities in China. © 2001 John Wiley & Sons, Inc.     

Introduction: Special issue on franchising

Franchising research has benefited greatly from the interest that franchise contracts have generated among economists. The application of industrial economics in general, and agency theory and transaction cost analysis in particular, to franchising has been truly enlightening. Significant insight has been provided by both economic modeling and empirical work.     

Multi-unit franchising: Growth and management issues

Entrepreneurs in a number of retailing sectors have eschewed the creation of company-owned chains and have embraced franchising as a preferred method for growing their businesses. There have been two leading reasons proposed for this preference. First, that franchisees provide the financial capital necessary for expansion, and second that franchisees manage the outlets better than company employees would if the unit were company owned. Interestingly, although many entrepreneur/franchisors confirm the relevance of the capital acquisition argument in their decision-making, theoretical analysis has discounted its importance. Instead, researchers have focused on the incentives of employee store-managers to misrepresent their ability and their effort as the dominant impetus behind franchising. Misrepresentation by employees as to ability and effort imposes costs and inefficiencies on the entrepreneur's chain. Arguing that franchising solves these problems by having the stores managed by persons with claims to the profits, these researchers have, by and large, rejected the capital acquisition argument for franchising in favor of this incentive-based rationale.Within this view, multi-unit franchising presents a curious anomaly. Multi-unit franchising, either through the incremental expansion by the franchisee one unit at a time or through the rights to open multiple units contained in an area development agreement, creates a collection of mini-chains within the franchise system. These mini-chains are operated by employee store-managers. Of course, they are employees of the franchisee, but they are employees nonetheless, and as franchise researchers have traditionally argued regarding the entrepreneur's employees, they will have incentives to misrepresent their ability and effort. Moreover, multi-unit franchising is ubiquitous.If multi-unit franchising is at odds with the incentive rationale for franchising, and it has a positive association with the growth of franchise systems, it must be providing the entrepreneur with some other benefit. In this study, we argue that the benefit it provides is access to capital. Through a study of fast-food franchise systems, we demonstrate that the more a chain engages in multi-unit franchising (i.e., the greater the proportion of multi-unit franchisees it has), the faster it grows, even faster than franchise systems generally. Moreover, we show that the level of commitment franchisors feel toward continuing to franchise is negatively related to the average number of units per franchisee and negatively related to their ability to obtain financial capital elsewhere. In other words, although multi-unit franchising helps an entrepreneur grow his or her business by providing increased access to capital, store level incentive problems get increasingly troublesome as franchisees get more and more units. It would appear, therefore, that capital acquisition is a relevant reason for engaging in franchising after all.     

Agency and institutional influences on franchising decisions

While the franchising literature has typically relied on agency theory, efficiency considerations may not fully explain decisions to expand through franchising or company ownership. In this study, I re-examine franchising decisions using insights from institutional theory. The key tenet of institutional theory is that decisions are influenced by isomorphic pressures arising from the environment. Economic rationales such as the achievement of efficiency are thought of as less pervasive concerns. I begin by investigating whether institutional theory explains variance in franchising decisions beyond what is explained by agency theory. Then, I explore the extent to which institutional considerations moderate the relationships between agency considerations and franchising decisions. Hypotheses are tested on a unique database of 132 French franchise chains. Empirical results suggest that successful competitors' use of franchising explains variance in the focal chain's use of franchising beyond what is explained by the importance of local managerial inputs and the threat of franchisee opportunism. In addition, the threat of franchise opportunism is less strongly related to the focal chain's use of franchising when successful competitors have a high proportion of franchised outlets. Overall, findings from this study suggest that researchers should supplement agency theory with institutional theory to adequately explain franchising decisions.     

Retail franchising: an intellectual capital perspective

Retailers appear to have found franchising to be a valuable means by which to develop their businesses, both domestically and abroad. In the UK franchising accounts for approximately one-third of all retail sales (Franchise Survey, 2003). This paper explores the implications of franchising on the intellectual capital (IC) development and knowledge management (KM) for retail organisations, given that for retail organisations asset intangibility is a particular feature. As such, this paper breaks new ground in engaging currently topical concepts from leading-edge debates in the management literature (IC and KM) to examine franchising in service sector businesses.The paper should hold considerable interest for, not only academics interested in franchising per se, but also business researchers examining fields such as innovation and intangible asset growth.     

Toward a relational perspective of franchising chains

In many professional and services industries, firms try to scale up their operations by reproducing practices in new locations through franchising arrangements, especially business format franchising. The classic but still prevailing explanations for franchising related phenomena, especially the initiative of franchising, the propensity to franchise, and the franchise performance, are mostly based on two orders of reasons (or a combination of them): franchising is either explained as a means to deal with resource scarcity or (and) as a mechanism for franchisor and franchisee to align incentives between themselves. However, empirical studies have shown limited support for both such claims, especially in face of the so called plural form, where proprietary and franchised units of the same franchisor co-exist. It may also be argued that the traditional literature on franchising has assumed a high level of homogeneity within and between franchising “networks,” possibly due to the perception that they tend to be “dominated” by a high level of standardization and replication of practices, both operative and relational. However, learning processes in such “networks” have recently been brought in as an attempt to capture other mechanisms that may underlie their operation and sustainability. This article seeks to explore a third perspective to look at franchising “networks,” by drawing from the literatures on capabilities and industrial networks. Seen from this perspective, business format franchising may involve more than the mere replication or exploitation of a recipe, especially if we take into consideration the partly idiosyncratic nature of both the relationships between actors and their capabilities and intentions. Within this perspective, variety preservation, and not only uniformity, may be recognized by participants as relevant for the performance of the franchise chain. In other words, variety may reflect the need for the refinement of the “package” throughout time, in more than one ways, together with the gradual development of the network and the learning experiences that take place in that context.     

An organizational capability perspective on multi-unit franchising

Previous research on multi-unit franchising (MUF) has primarily focused on agency and transaction cost perspectives. The present study develops and tests an organizational capability (OC) model of the franchisor’s choice of MUF. According to the OC view, the franchisor gains a competitive advantage by exploration and exploitation of firm-specific resources and capabilities. We hypothesize that, if the franchisor expects to obtain a competitive advantage resulting from higher exploration and exploitation capabilities when using MUF as opposed to single-unit franchising, the franchisor will more likely choose MUF as a governance mode of the franchise system. Based on empirical data from the German and Swiss franchise sectors, the results of the regression analysis support these hypotheses. Our main contribution to the franchise literature is the development of an OC model of the franchisor’s choice of MUF that complements the existing organizational economics ?explanation of MUF.     

In search of corporate governance in franchising

Abstract

A firm’s governance structure and business model might explain the firm’s failure or success. Franchising is a business model that has not received much attention within the corporate governance (CG) literature even though it obviously brings several unique CG challenges. Therefore, we review articles at the interface of CG and franchising. We identify and thematize the literature in four focus areas, each with a different relationship to CG: 1) traditional CG, 2) governance challenges unique to franchising, 3) governance modes, and 4) contracts. We find that the literature largely ignores the traditional view of CG when examining many aspects of franchising. We also find that the franchising literature covers governance topics when discussing governance modes, which provides a basis for developing CG theories. Altogether, our findings open a promising avenue for future research that incorporates CG into studies of franchising.     

International multi-unit franchising: an agency theoretic explanation

In spite of its considerable popularity, multi-unit franchising has been considered an anomaly from an agency theory perspective. This paper addresses this anomaly by attempting a comprehensive agency theoretic explanation of international multi-unit franchising. Although past agency theoretic examinations have mostly focused on single-unit franchising, a closer examination of the international context, which is characterized by significant geographic and cultural distance between franchisors and franchisees, suggests that multi-unit franchising may be more appropriate. This paper examines several agency problems inherent in multi-unit franchising. These include: bonding, adverse selection, information flow, shirking, inefficient risk-bearing, free-riding, and quasi-rent appropriation. Consideration of each of these problems using agency theory perspective leads to the suggestion that multi-unit franchising might address agency problems better than single-unit franchising in the international context.