Monitoring Policy and Organizational Forms in Franchised Chains

Franchising is nowadays a prominent way to organize the distribution sector. While previous literature suggests that monitoring issues are a critical determinant of organizational choices, it is rather silent on the optimal monitoring strategy once the organization of the chain is set. In this article, we analyze the monitoring policy of chains with both franchised and company-owned units. We develop a model in which a chain monitors its outlets under asymmetric information on local demands and managers’ efforts. We show that partial monitoring (i.e., when the franchisor monitors only a subset of its outlets) represents an optimal monitoring policy. Second, we identify the units that should be monitored. Finally, we discuss the impact of information technologies and outlet location on monitoring policy and how it may affect the proportion of franchised and company-owned units within the mixed chains.     

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.     

Effects of restaurant franchising: Does an optimal franchise proportion exist?

Franchising has significantly affected the US economy, contributing to a rapid growth of its retail sales. To identify whether franchising influences a restaurant firm's financial performance, this study investigated (1) the profitability and intangible values of both franchise and non-franchise restaurant firms and (2) the effect of the combination of franchised and company-owned outlets of restaurant firms (i.e., franchise proportion). The results of this study showed that (1) franchise firms had significantly higher profitability than non-franchise firms and (2) the relationships between franchise proportion and firm profitability and intangible value were curvilinear (inverted U-shape), verifying the existence of an optimal franchise proportion. The results propose a possibility that restaurant franchisors could maximize their profitability and intangible value with an optimal franchise proportion when other variables held constant, implying that it is important to pay attention to the franchise proportion together with other management strategies.     

Internationalization and exposure to foreign currency risk: An examination of lodging firms

Corporate internationalization has often been linked with exposure to risk arising from foreign currency valuation. The theory of economic exposure, however, postulates that when demand and activities are sensitive to purchasing power parities, the value of domestic firms can also be influenced by exchange rates. Suspecting that domestic lodging firms are subject to foreign currency risk, the current study applied a cash-flow model in order to quantify the operating exposure of US lodging firms against currencies that significantly account for visitors to the U.S. Heckman's two-step estimation was subsequently used to examine the effect of internationalization on estimated exposure coefficients. The results indicated that domestic firms are more likely to sustain foreign currency risk, as multinationals may be capable of diversifying away the risk. The higher foreign sales ratio of lodging firms led to greater foreign currency risk, while the increased degree of operational hedging and franchising mitigated the foreign currency risk of multinational lodging firms.     

An analysis of franchisees’ satisfaction with support provided by franchisors in foodservice industry

ABSTRACT

This study validated the scale originally developed in Taiwan for measuring satisfaction of foodservice franchisees with support provided by franchisors in mainland China. Data for validation were collected by means of a questionnaire distributed to foodservice franchisees in Shanghai and Xiamen, China respectively, and analyzed through confirmatory factor analysis. The findings showed that the proposed measurement scale is applicable across the two regions with acceptable model fit indices. In addition, this study examined the differences of franchisees’ perception on support provided by franchisors in Taiwan and China. The findings in this research not only advanced scholarly understanding and theory in franchising but also provided useful insight for foodservice stakeholders seeking to expand their market by franchising in these two regions.     

International hotel development: A study of potential franchisees in China

Franchising is a strategic partnership formed by the franchisor and the franchisee, and consequently partner selection between the franchisor and the franchisee is critical to the long-term success of a franchise. However, the literature has primarily taken the viewpoint of franchisors, but failed to explore the perspective of the potential franchisees. As China represents a significant growth opportunity for international hotel franchisors, this study examines the perspective of China's domestic hotel operators regarding franchising and analyzes a mix of factors that may affect such perspective. The study of 182 Chinese hotel general managers shows that China's hotel practitioners have considerable interest in franchising and are knowledgeable about the concept as it pertains to hotels. The findings indicate that the length of work experience and educational background of Chinese hotel operators may influence their franchising preferences. Hotel chains that have strong brand awareness, supportive centralized reservation systems, and offer relatively high returns on investment at relatively low franchise fees, are most attractive to potential Chinese franchisees.     

Governance structures in the hotel industry

This study investigates alternative governance forms in the hotel industry. Agency theory maintains that the need for control over service quality, financial risk, and the market environment affect the choice of governance form. Prior agency research emphasizes alternative governance structures that principals employ, given local market conditions, agent incentives, and risk preferences. The study augments the established principal-agent perspective with a discussion of entrepreneurial motivations to join hotel alliances. The study analyzes the choice between independent ownership and affiliation with a voluntary chain as well as the choice between integration and franchising. Data analyses from 650 hotels indicate that the hotel size, amenities, population, and distance to headquarters influence governance.     

Corporate Social Responsibility in franchise chains: Specificities,insights from French franchise chains’ CSD,and avenues for future research

Although franchise chains are increasingly committed to environmental, social, and societal transitions, only a few researchers have focused on Corporate Social Responsibility (CSR) in the specific case of franchising. The aim of our paper is to discuss the specificities and challenges of CSR in franchising, explore how franchisors report on their sustainable practices, and emphasize subsequent directions for future research. In order to do so, we focus on the Corporate Social Disclosure (CSD) practices of twenty-two retail and service franchisors operating in the French market where regulations of non-financial information disclosures exist for large companies. Our findings show that these franchisors disclose rich and diversified information about their CSR activities. However, franchisors’ disclosures can vary significantly, especially depending on their chain size and whether they are subject to reporting regulations. Our research contributes to the literature on CSR in franchise chains, as well as the practice.     

Contractibility and ownership redirection in franchising: A property rights view

This paper offers a property rights theoretical interpretation of the ownership redirection hypothesis advanced by Oxenfeldt and Kelly [Oxenfeldt, Alfred R. and Kelly, Anthony O. (1968). “Will Successful Franchise Systems Ultimately Become Wholly-owned Chains?”, Journal of Retailing, 44, 69-83]. In a nutshell, couched in resource dependence theory, the ownership redirection hypothesis argues that successful franchise systems will eventually become corporate owned systems because of the reacquisition of franchisee units by the more powerful, and resource-flush franchisors. We argue that the structure and dynamics of ownership patterns in franchising networks depends on the contractibility of the franchisor's system-specific assets and the contractibility of the franchisee's local market assets. Under the property rights view, ownership redirection will result from an increase in the contractibility of the franchisee's local market assets (local market information, financial resources, and managerial capabilities) and the resultant increase of the franchisor's bargaining power during the contract period. We extend the franchise literature by arguing that informational, financial and managerial resource constraints are only relevant for the change of ownership structure if they are noncontractible. This hypothesis is evaluated using data collected from the Austrian franchise sector. The empirical results are largely supportive of the hypothesis.     

What to Expect After the Honeymoon: Testing a Lifecycle Theory of Franchise Relationships

This research examines the evolution of interorganizational relationships in a franchising context. Using U-curve theory, we develop three hypotheses and contrast them with traditional lifecycle theory. Three groups of constructs are affected by lifecycle: cooperation variables, dependence variables, and relationship variables. Four distinct stages emerge, with highest levels of variables in the honeymoon stage, lower levels in routine and crossroad stages, and increasing levels in the stabilization stage. Franchisors should strive for “stability on high levels” before operational realities influence the franchisees. Franchisees’ intermediate lifecycle phases are most critical for the system, since opportunistic behavior and switching are most likely.