Examining strategic and economic development implications of globalising through franchising

This paper addresses the strategic and policy implications of franchise system expansion overseas. The study is based on survey data of 76 Mexican buyers of US franchise systems and information provided by seven directors of national franchise associations from both industrialised and developing countries. Globalisation, economic liberalisation and advances in communications provide strong incentives for franchising firms to seek access to foreign markets. This work delineates the conditions that favour, and that work against, international expansion of franchise networks from the perspective of franchisors, local franchise buyers and policy makers. The study questions the commonly held notion that franchising is consistent with successful firm strategies and the economic development goals of governments.     

Foreign ownership strategies of UK and US international franchisors: An exploratory application of Dunning's envelope paradigm

In industries dominated by franchising as the dominant mode of entry there is a tendency that franchisors pursue different ownership strategies. We test ownership strategies of international franchisors using Dunning's ‘envelope’ Ownership, Location and Internalization (OLI) paradigm. The ownership choices of international franchisors’ foreign market entry based on the strategic intent of exploitation and exploration are well explained by Dunning's ‘envelope’ OLI paradigm. Our results show that the dynamic L advantages (perceiving foreign locations as a source of learning), the static O advantages (nationality of the firm) and static L advantages (the role of foreign applicants) have a significant influence on the selection of foreign entry strategy by international franchisors.     

Towards a Strategic Model of Global Franchise Expansion

This paper develops the first global index of international franchise expansion that ranks countries according to their attractiveness to US-based franchise firms. A quantitative model combining insights from academic research and business practice generates a ranking of 143 potential expansion target countries according to their risk/opportunity profiles. The rankings suggest that countries with large markets and strong political and legal systems (large European countries, and Canada, Japan, and Australia) are the most attractive for US-based franchisors, while the small, unstable African countries are the least attractive. China (and the other BRIC countries—Brazil, Russia, India) though attractive from a market opportunity perspective, is nevertheless not highly ranked due to their significant risks and large cultural and geographic distances. This study reaffirms the importance of a strategic approach to international franchising decisions, underscores the importance of properly assessing the relative importance of key determinants in internationalization decisions, highlights the importance of a comprehensive and systematic assessment of the various risks in international franchising decisions, shows the usefulness of quantitative modeling in international franchising, and advocates the development of effective risk management methods in order to cope with rapid changes in the global marketplace.     

A strategic groups approach to the franchising–performance relationship

Although franchising is a pervasive organizational form, little is known about its performance consequences. Prior studies have not found a direct performance effect, suggesting a need for alternative approaches. Drawing upon agency and resource scarcity theories, we develop the idea that strategic groups exist among franchisors and that performance differs among the groups. Using a sample of 65 restaurant chains, three strategic groups were found. The strategic group most influenced to franchise out of resource scarcity exhibited poorer performance than the other two groups. Results indicate that important, but nonlinear, relationships exist among franchising, its antecedents, and performance.     

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.     

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.     

Perceived vs. Actual Benefits Operating as a Fast-Food Franchisee

Abstract

The franchising form of business is experiencing rapid growth. The authors conducted a survey of 355 fast-food franchisees to determine-from two time perspectives-the benefits of operating as a franchisee, compared to independent business ownership. The franchisees' initial thoughts were obtained prior to affiliating with a franchiser, then, subsequently, as experienced franchisees. Their responses are valuable to franchisors and prospective franchisees.     

Barriers to Franchising in Saudi Arabia

Franchising has rapidly grown in Saudi Arabia since 2005, yet a small number of the large companies dominate the market with mostly foreign brands. Therefore, the aim of this study is to investigate the barriers that Saudi small and medium enterprises and startups face when striving to become franchisors or franchisees. These barriers are investigated through the use of semi-structured interviews with people who belong to the franchise community either as administrators, franchise committee members, franchise developers, franchisees–franchisors, or prospective franchisees and franchisors. The results of this study show that there are several barriers standing against using franchising as a mode of expansion and investment by small and medium enterprises and startups, such as lack of legal, financial, institutional, marketing, development, and educational services support, and other key factors related to international franchisors' preferences and domestic franchising.     

Franchisor strategy and firm performance: Making the most of strategic resource investments

A key decision for entrepreneurs in many retail and service firms is whether, and how much, to use franchising. If the decision is made to franchise, the actor may assume one of two “identities” or tactics: (1) the “chain builder,” who uses a blend of company and franchised outlets, and (2) the “turnkey,” who sells business opportunities but does not own any outlets. To benefit from their chosen strategy, franchisors must put resources in place to support it. We argue that franchisors use the chain building strategy to strike a balance between standardization and innovation by building resources that foster trust and encourage knowledge sharing with franchisees. In contrast, for turnkeys, a valuable set of operational routines is the critical strategic resource. To better appreciate how franchisors choose between the chain builder and turnkey strategies, we gathered survey information from 263 franchisors. Via this data, and as described herein, we learned that franchisors perform better when they invest in resources that best support their selected strategy.     

Corporate sustainability in action

Recent developments in management have highlighted the need for research on corporate sustainability strategies at the value chain level and in particular in the context of franchising. Although franchising is a widespread phenomenon, there is little empirical evidence of how companies approach the issue. By employing a multi-method research approach, this study explores the importance that franchisors assign to sustainability and the way they deal with it. Our findings show that franchisors adopt three main different sustainability strategies, with an increasing relevance of social sustainability as an enabler of environmental sustainability. The study sheds some light also on the interplay between the franchisor–franchisee relationship features and the company's approach toward sustainability. Preliminary propositions are presented as a starting point for further research in this area.     

Wholesaler Strategy in Response to Channel Restructuring

Abstract

The paper examines the strategies pursued by market wholesalers in the face of major changes in external operating conditions. It concludes that more recent theoretical approaches to strategic analysis which emphasise capabilities and resource base provide better explanations of observed behaviour than approaches which define typologies of generic strategies.     

Internationalising cultural products: the Ouroboros strategy and the case of visual kei

ABSTRACT

Scholars have developed a vast literature that helps firms internationalise products and brands. Yet, there is comparatively limited work that examines the internationalisation strategies of cultural products. Through a case study of 31 visual kei rock bands, this study sheds light onto the patterns, objectives, and timing of internationalised cultural products. The results suggest that visual kei musicians adopt one of two internationalisation strategies: “standard internationalisation” or the “Ouroboros strategy.” Standard internationalisation is a linear strategy, where the objective is market growth through the acquisition of consumers in international markets, and where internationalisation can occur as early as the introduction stage of a product’s life. The Ouroboros strategy is a nuanced strategy where the pattern of internationalisation is circular, the objectives include market expansion and cultural goals, the target markets are both foreign and domestic consumers, and where internationalisation occurs in the growth and mature stages of bands’ life cycles.     

A longitudinal study of franchisor failure according to Altman’s Z model

Purpose: The foremost objective of this study is to obtain segments/clusters of franchisors that are more likely to fail. A second aim is to evaluate the influence of the usual variables of the franchise contract on the solvency of franchises.

Design/methodology/approach: This study set up a database with information collected from several Spanish franchising yearbooks and franchisors’ websites to establish the census of Spanish franchisors. This article worked with a census of the franchises operating in Spain from 2001 to 2011. Latent class regression analysis is used.

Findings: This research found four segments or classes of franchisors with regard to their failure pattern. In addition, this article defined the most influential variables in the franchisors’ risk of failure. The relationships between the variables that define a franchise contract and the Z scores of Altman’s model have been extracted. The dependent variable has been the Altman’s Z model and the independent variables are those that define the franchise contract.

Research implications: This methodology offers potential franchisees a new criterion for assessing the franchise chains they are investigating, taking into account their risk of failure. This allows franchisees to better highlight those franchisors that have a lower crash risk and avoid the damage incurred by the closure of the chain. The information provided for franchisees should be accessible, usable, and suitable to help franchisees to choose the best franchise systems in which to invest. This methodology is of course very useful for franchisors, because they can comprehend their financial situation and how they could manage the franchising variables in order to improve their solvency.

Practical implications: All the segments are solvent, except Segment 3. The distinguishing feature of this segment is that over 64 percent of the firms are retailer chains. In addition, more than 20 percent of the franchises from our database are in financial danger, and this is the group where the number of service companies is lower.

Originality/value: This research is unique in two ways. First, this study presents a new methodology in this field that allows researchers to use the historical-financial data of franchisors, and the information of the franchise contract to predict franchisor failure. Second, this article helps franchisees to make their own decisions on the basis of the franchisors’ level of risk of failure. Third, this research offer a theoretical contribution about franchisor failure, this topic is scarcely treated by academic literature.     

International Market Entry Strategies of Emerging Market MNEs: A Case Study of Qatar Telecom

ABSTRACT

Drawing on existing theoretical perspectives and previous research, this study essentially investigated the strategic motives, location choice, and international entry mode strategies of emerging market multinational enterprises based on a case study of a telecom company, Qatar Telecom (Qtel) from the Gulf Cooperation Council. Using empirical findings from the semi-structured interviews, this study has clearly indicated that the main strategic motivation behind Qtel's internationalization was essentially opportunity seeking in terms of enabling market development and generating higher return on investment. Although Qtel used different entry strategies depending on the characteristics of host country markets, the company is more in favor of mergers and acquisitions than greenfield investments.     

Unleashing the dynamics of product-market ambidexterity in the pursuit of international opportunities: Insights from emerging market firms

Extending the current debate surrounding ambidexterity, this study examines how emerging market firms pursue international opportunities by leveraging the dynamics of strategic ambidexterity in product and market domains. The investigation draws on longitudinal and multiple sources of data from four Chinese multinational firms. Two follow traditional or incremental internationalization pathways, whilst the other two pursue rapid or accelerated internationalization. The study offers a more dynamic perspective to help understand the evolving nature of ambidexterity with respect to the routes of strategic product and market development options. In particularly, the findings reveal that incremental internationalization is characterized by structural ambidexterity combining product exploitation with market exploration at the initial stages, whereas accelerated internationalization is best explained by market exploration and exploitation (or market ambidexterity) when first entering foreign markets. Moreover, firms were found to maintain strategic priorities through structural and punctuated ambidexterity across product and market domains at later stages of internationalization. This study contributes to the dynamic perspective of strategic ambidexterity for seizing international opportunities among emerging market firms.     

US-Based Franchise Systems

Abstract

This study assesses both firm and relationship characteristics that may differentiate US-based franchisors that have internationalized operations from those that do not. Multiple discriminant analysis is used and shows that both firm and relationship characteristics are important discriminators. Not surprisingly, international franchise systems are larger and exhibit lower levels of solidarity. A surprising finding, however, is that international systems exhibit lower levels of opportunism, in spite of greater geographic and cultural proximity. Interestingly, a number of firm characteristics (number of domestic units, number of franchised versus company-owned units, firm age, and experience with franchising) and relationship characteristics (flexibility, trust, behavioral transparency, and effectiveness) were not significant discriminators between domestic and international franchisors. Implications of the findings and directions for future research are provided.     

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.     

Franchise management capabilities and franchisor performance under alternative franchise ownership strategies

Franchising is a key entrepreneurial growth strategy, but a well-known downside is franchisee free-riding. Drawing upon alliance capabilities research, we describe franchise management capabilities and suggest that they are one way franchisors reduce free-riding and thus enhance performance. We also submit that these capabilities are especially helpful for “plural form” franchisors who own outlets in parallel with franchisees. Using a sample of 229 franchisors, we show that franchise management capabilities relate positively to franchisor performance among plural form franchisors. For “turnkey” franchisors who franchise all, or almost all, outlets these capabilities relate indirectly to performance through lower opportunism and improved brand reputation. Franchise management capability is therefore an important new theoretical construct linking franchising to franchisor performance.     

Retailer use of a professional social media network: Insights from franchising

The adoption and use of a professional social media network by franchise chains is the focus of this paper. We draw on resource-based theory, institutional economic theories of incentives and externalities and multidisciplinary literatures on franchising, innovation adoption and interorganizational communication to link (i) franchisor characteristics and partnering strategies to the adoption and use of a professional social media network and (ii) the extent of use of this network by a franchisor to the number of followers of its network page. Hypotheses are empirically assessed using data on 500 US franchise chains from Entrepreneur’s Annual Franchise 500 for 2011, content analysis of LinkedIn pages for 317 franchise chains in 2011 and number of followers in 2015. One key finding is that franchisor adoption of LinkedIn is positively influenced by franchise chain size, franchising fees and franchisor marketing communications and negatively affected by franchise concept complexity. A second important finding is that, among franchisors who adopt LinkedIn, the extent of use of LinkedIn is positively impacted by franchise chain size, franchising fees and negatively affected by franchise chain age. A third notable finding is that the number of followers of a franchisor’s LinkedIn page in the short term is positively impacted by the extent of information about franchise chain and recruitment. A fourth key finding is that the number of followers in the longer term (2015) is positively impacted by whether the franchisor had a presence on LinkedIn in 2011 and, for these franchisors, by the number of followers in 2011.     

Franchisee Selection for Social Franchising Success

Franchisee selection is a major input for franchising success. In this article, we argue that franchisee selection criteria do not differ between social and commercial franchising. They may be even more relevant for obtaining social franchising success. We discuss criteria for franchisee selection and present details of our multiple case study research to support the argument. Our study finds that evolved social franchisors do adopt similar selection criteria as commercial franchisees. In addition, constraints faced with franchisee selection among commercial franchisors are reflected also among social franchisors. We contribute to franchising literature by extending commercial franchisee selection criteria to social franchisee selection. A major managerial implication of this research is that existing franchising professionals could easily assist new social franchisors in developing their social franchisees. Future research could be study criteria weights and methodology adopted for making final selection. A new research direction could involve studying if selection criteria would differ based on (a) social cause and (b) franchisee location.