International Franchising Practices in Mexico: Do Franchisors Customize Their Contracts?

The contracting practices of franchisors outside their domestic market have received little attention in the empirical literature on franchising to date, largely because of lack of data. We exploit a novel data set that allows us to describe the contracts offered by a number of US and Canadian franchisors operating in Mexico and also compare them to contracts employed at home. Our analyses reveal a series of stylized facts that we hope will prove useful in guiding future empirical and theoretical research on contracting and especially on cross-border contracting practices. These are as follows: (1) The overwhelming majority of franchisors seeking franchisees in Mexico offer exactly the same contract to potential Mexican franchisees as that employed in the home market; (2) Among those franchisors that already have established outlets in Mexico, nearly half use the exact same fees in Mexico and at home; (3) The majority of those franchisors that make changes only alter the fixed fee component of the contract; (4) There is no evidence that franchisors use franchising more or less in Mexico compared to home as an alternative to royalty rate customization—in fact, the extent of franchising (versus company-owned units) of these firms in Mexico is not different systematically from that observed in their domestic market or worldwide; and (5) There is no evidence of increased customization over time—if anything, the evidence suggests increased similarities in contracting practices over time.     

特许经营模式在我国便利店行业中的应用动机简评

特许经营在现实环境中的应用动机一直是理论研究的热点,也是了解特许经营中国本土化进程的重要问题。本文以便利店行业为例,结合便利店行业中存在的盈利模式,通过2003-2009年的发展数据对比,发现中国特许经营模式在便利店行业实践中未能使知识产品复制质量达成应有效益,并通过分析指出特许经营模式在实践中客观上承担了许多模式内在要求之外的功能,特许人借助特许经营使其非价值链条收益得以放大,带动体系走上规模—收益放大—体系进一步扩张的滚动循环之路,成为便利店企业能在市场环境尚不成熟和激烈的业态竞争格局中发展的重要力量。     

Brighter prospects? Assessing the franchise advantage using census data

This paper uses Census microdata to examine how starting a business as a franchise rather than an independent business affects its survival and growth prospects. We assess factors that influence the decision to become a franchisee and use various empirical approaches to correct for selection bias in our performance analyses. We find that franchised businesses on average exhibit higher survival rates than independent businesses; but importantly, the difference is small compared with claims in the trade press. The effect is also short lived: conditional on surviving a year or two, we no longer find survival (or growth) differences. We then explore two potential sources for this small survival advantage, namely franchisors’ screening process and the benefits arising from the brand and business know‐how provided by franchisors. We find evidence that both of the sources contribute to the franchising advantage.     

Overestimation and Venture Survival: An Empirical Analysis of Development Commitments in International Master Franchising Ventures

Many international master franchising contracts include "development commitments," clauses specifying a number of units that master franchisees must develop in exchange for exclusive rights to an assigned market, typically their entire home nation. I analyze 142 contracts with development commitments signed by US fast food franchisors and their master franchisees. Several empirical regularities emerge from the analysis: First, the development commitments are large and rarely completely fulfilled. Second, a robust negative relationship exists between survival and development commitment size. Further, ventures with larger commitments exhibit a lower level of investment still productive at the end of the development period. Various explanations for these regularities are considered.     

Home-grown middle eastern franchises: prospects for the future

This research explores the local factors that drive the competitiveness of Middle Eastern food service franchises in international markets. The literature on franchising is largely concerned with the success and competitiveness of Western franchises in global markets, with little information on the Middle East. This is despite its relevance as a major franchise market, with an economy shifting towards oil-alternative businesses. When referenced, the region is depicted solely as a host to foreign franchise operations, overlooking the opportunities of local businesses to adopt franchising as a strategy for international expansion. A qualitative case study methodology is applied to prominent food service franchises from Lebanon and the United Arab Emirates. The cases highlight real experiences of success and failure in specific regional and international markets, and suggest that culture contributes to international competitiveness. Implications for future research are discussed.

     

特许经营资源的开发探讨

通过分析特许经营模式的发展历程，认为国内企业特许经营资源丰富，并提出了重视我国企业特许经营资源开发工作，将为增强企业的市场扩张能力，拓展中小企业的经营方向，丰富个体经营者投资领域提供广阔的发展空间。     

Franchise network restructuring: Pressures,constraints and mechanisms

Franchised businesses operate on the basis of granting individual franchisees trading rights to serve territories or market areas on either an exclusive or a non-exclusive basis. The design of these territories is generally undertaken during the roll-out phase of the franchise. However, these territories and market areas may become sub-optimal over time, necessitating restructuring. However, if the franchisor has granted exclusive rights to a territory then this is likely to involve a breach in the franchise contract. In cases where existing franchisees do not have exclusive territories they may nevertheless make a legal challenge to the creation of additional franchises on the grounds of encroachment. This paper – which is based on a study of 40 franchisors in the UK – examines how franchisors go about network restructuring in constrained and non-constrained situations. Franchisors typically did not act on their legal rights, echoing findings of earlier franchising studies which reveal a divergence between contractual rights and operational behaviour. This focus on network restructuring also provides new perspectives on the reasons for ownership reversion and the growth of multi-unit franchisees.     

The franchising business model: an entrepreneurial growth alternative

The franchising business model is widely and increasingly used by entrepreneurs seeking growth through geographic expansion. Thus, continued research efforts are needed to help entrepreneurs make wise choices as to whether the franchising business model is appropriate for them. To help promote such research, we reviewed the literature on reasons for franchising and outcomes of franchising. Based on that review, we drew conclusions as to future research directions likely to be fruitful. Specifically, we recommend that researchers (a) continue adding theoretical diversity to franchising research, (b) build large-scale, longitudinal databases, (c) test or control for implicit and explicit assumptions, (d) pay more attention to micro-level considerations within franchise networks, and (e) compare franchising with alternative business models suitable for geographic expansion.     

Proposing new variables for the identification of strategic groups in franchising

The identification of strategic groups in the Spanish franchising area is the main aim of this study. The authors have added some new strategic variables (not used before) to the study and have classified franchisors between sectors and distribution strategy. The results reveal the existence of four perfectly differentiated strategic groups (types of franchisors). One of the major implications of this study is that the variables that build a strategic group vary depending on the respective sector the network operates in and its distribution strategy. This fact indicates that including sector and distribution strategy is absolutely necessary to achieve good classifications of franchisor types.     

Human Capital Intangibles and Performance of Franchise Networks: A Complementary View between Agency and Critical Resource Perspectives

This article examines the impact of human capital intangibles on the governance structure of franchise networks (i.e., proportion of franchised outlets) and the joint impact of human capital intangibles and governance on the performance of franchisors. Agency theory focuses on the free‐riding hazard and the costs associated with franchising in the context of high human capital intangibles. The critical resources theory highlights the weakness of company ownership and the advantages of using franchising in this context. Tests of the hypotheses derived from these theoretical frameworks indicate that these complementarily explain the governance structure and financial performance of franchise networks. Copyright © 2013 John Wiley & Sons, Ltd.     

Time will tell: interaction effects of franchising percentages and age on franchisor mortality rates

Drawing from franchising and organizational ecology literatures, we hypothesize that franchising provides benefits to franchisors by addressing issues of adverse selection, moral hazard, holdup, obsolescence, and senescence. We assert that, over time, these benefits increase such that the more a franchise chain utilizes franchisees rather than company-owned outlets, the greater the franchising benefits accrue to the franchisor. We test our propositions by studying the mortality rates of 393 franchise organizations in the U.S. automotive products and services sector over the 21-year time period 1985–2005, using proportional hazard analysis. We find that older franchise chains with higher percentages of franchised units have lower mortality rates than older franchise chains with lower percentages of franchised units. We also find that younger franchise chains with higher percentages of franchised units have higher mortality rates than younger franchise chains with lower percentages of franchised units.     

The extent,motivation, and effect of tying in franchise contracts

Tying in franchise contracts has been the subject of considerable antitrust litigation and theoretical analysis. Tying can enhance efficiency by increasing standardization and reducing monitoring costs, or it can be used with market power for price discrimination. In this paper, I report on the extent of tying among restaurant franchisors and test whether it is motivated by efficiency or market power considerations. The results show that the use of tying is not affected by market share or outlet share in various industry sectors, but it is affected by equipment required and by business strategy. The results are weakly supportive of efficiency and not supportive of market power. Copyright © 2000 John Wiley & Sons, Ltd.     

Entrepreneurial signaling to attract resources: the case of franchising

Why firms and individuals reveal information is the subject of considerable theoretical research, but little empirical work has been possible due to a lack of suitable data. In this paper we examine why entrepreneurs selling business opportunities (franchisors) reveal information regarding potential profits (termed earnings claims). Empirical analysis shows that: first, contrary to theory, only a small percentage of franchisors claim; and, second, the franchisors that do claim have lower costs or are responding to competition. In particular, the prediction of theoretical models from economics that resource providers will not transact if information is not disclosed is not supported; resource providers can and do make significant investments even when entrepreneurs refuse to disclose information. Copyright © 2009 John Wiley & Sons, Ltd.     

Whither franchising? The case of Avis Europe PLC

This case study of Avis Europe PLC examines the diminished role of franchising in the vehicle leasing firm's achievement of market dominance in Europe. Market maturity, industry consolidation, adoption of centralised, efficiency‐oriented technologies, and strategic alliances are the principal factors in accounting for the decline in the reliance on franchisees for local entrepreneurship and market expansion. Though many theories of franchising find at least some support in this study, the life cycle or ownership redirection explanation proves particularly compelling. Copyright © 2004 John Wiley & Sons, Ltd.     

Outlet ownership in franchising systems: an agency based approach

Building on prior agency theoretic explanations of the franchisor–franchisee relationship, this paper introduces the franchise system manager in the traditional dyadic channel. This allows us to link the franchisors internal agency problems of providing incentives to managers to their external agency problems of acquiring and extracting rents from franchisees. I find preliminary empirical support for this approach in a structural equations model estimated on a franchise system data set. I then develop and analyze an agency‐theoretic model with agency tradeoffs. An explicit rationale for mixed ownership in franchising emerges from the model, where the share of company owned outlets is endogenously determined as the tradeoff between franchisee rents and managerial compensation. Copyright © 2002 John Wiley & Sons, Ltd.     

Retail Contracting and Organizational Form: Alternatives to Chain Affiliation in the Motel Industry

Most of the existing empirical literature on franchising investigates the share of company-owned versus franchised establishments within large retail firms. This literature typically has not considered the decision of a business owner to operate an independent business or to become a franchisee. This paper empirically analyzes what determines whether independent ownership or affiliation is observed, using data on the affiliation status of 2,293 motel establishments located throughout the United States. Heterogeneity in the underlying economic environment helps explain affiliation choices at the establishment level. The results also suggest that failure to consider independent establishments may explain the puzzling negative correlation between risk and vertical integration commonly found in the empirical franchising literature .     

Effects of brand-related and market signals on franchisees’ entrepreneurial decisions: a multi-country panel data analysis

This paper analyses the influence of market and brand-related signals on franchisees’ decisions when choosing a franchise brand with which to open an outlet for the first time. Panel data methodology was used to analyse a sample of 1277 chains operating in Spain, Mexico and Peru between 2004 and 2013. The results show that market signals prevail over brand-related signals. Within brand-related signals, franchisees first seek information relating to the brand’s sector and then seek information relating to the brand’s value. Franchisors should match the content of the signals they send to the market to the true characteristics of the franchise. Franchisors should also endeavour to ensure the country where they operate has general and franchise-specific legislation that fosters business activity by both franchisor and franchisee. The use of institutional quality as a signal in a multi-country study represents a significant contribution to the literature on franchising.

     

Network or Independent Business? Entrepreneurs' Human,Social and Financial Capital as Determinants of Mode of Entry

When establishing a new business, entrepreneurs can decide to join a network of independent business partners rather than choose the alternative of independent business ownership. In this study, we use a probit model on a large database to study the human, social, and financial capital of French entrepreneurs who join franchising and comparable forms of networks. Results confirm that initial levels of human and social capital are significant determinants of network membership. We also show that an increase in the proportion of the project financed by debt increases the probability of joining a network. Copyright © 2014 John Wiley & Sons, Ltd.     

以“模式无定”来创新特许经营

在选择商业"模式"上,不能局限于、不是刻意或片面地去追求某种所谓的"纯正"模式,而应该以某商业模式为基础或中心,取长补短地糅合各种商业"模式"之长,而规避其各自之短,这才是特许经营的正确之道。     

International entrepreneurial orientation and regional expansion

Abstract

This study examines how behavioral elements of international entrepreneurial orientation (i.e. product innovativeness, risk-taking, proactiveness, competitive aggressiveness, and autonomy) increase variability in scope of regional market expansion, and the international marketing channel management conditions under which this occurs. Results from an empirical study in a developing market show that not all behavioral elements of international entrepreneurial orientation (IEO) increase scope of regional expansion. The study specifically finds that scope of regional expansion is fostered when high levels of product innovation intensity, risk-taking, competitive aggressiveness, and autonomous behaviors are aligned with a stronger channel management capability. Conversely, the regional expansion values of product innovation novelty and proactiveness are cancelled out when channel management capability levels are high.