Given that the economic motives of franchisors and franchisees are not totally aligned, trust is an important issue in franchise relationships. Franchisors typically are the dominant partner and this may make franchisees feel vulnerable to their franchisors’ actions. For this reason it is important that franchisees trust their franchisors. This chapter summarizes and reviews literature on antecedents of franchisee trust as knowledge on such antecedents can help franchisors in improving the management of their franchise relationships. However, a major conclusion of this chapter is that knowledge on antecedents of franchisee trust is still fragmented. The chapter therefore ends by discussing several avenues for future research.
Fiori A. Zafeiropoulou
The inability of the public sector to satisfy social needs such as poverty alleviation, social inclusion of disadvantaged groups and unemployment, have redefined the relationship between governments and citizens by making the latter play an active role as providers of the welfare state. Citizens, through their entrepreneurial activity, have been pulled into the third sector leading to the emergence of new organizational forms including social enterprises, social franchises and various types of social cooperative ventures and social interfirm alliances. This chapter provides a description of the concept of social franchising identifying its main characteristics and distinguishing it from business format franchising. Information on the process of formulating a social franchise, and lessons learned from various case studies are set out and a model for approaching the formation of social franchising from the lenses of systems theory and social network theory, the SoFraM – Social Franchise Model – is proposed. The model recognizes that the behavior of actors and organizations in the social economy sector is influenced by the properties and dynamics of elements coming from the political, social, organizational and individual level. Based on this approach a number of research questions are suggested which should lead to a deeper understanding and interpretation of the dynamics of the formation of social franchises.
Karine Picot-Coupey, Jean-Laurent Viviani and Paul Amadieu
Building on the exploration–exploitation–ambidexterity perspective as a broad theoretical framework, the overall objective of this chapter is to contribute to a better understanding of the impact that different mixes of organizational forms have on performance in a retail setting. Four organizational forms are considered: (1) the plural form; (2) the dual form associating company-owned stores and shop-in-shops; (3) the dual form associating franchised stores and shop-in-shops; and, finally, (4) the combined form associating company-owned stores, franchised stores and shop-in-shops. These organizational design–performance relationships are tested on a sample of 170 French fashion retail networks. The results show that (1) none of the pure or dual forms tended to generate better financial performance than any other; (2) combining company-owned units, franchised units and shop-in-shops tends to generate better financial performance compared to dual and pure forms, up to a certain point.
Frank Hoy, Rozenn Perrigot and Andrew Terry
This chapter begins with an overview of the significant role that the franchise model plays in the global economy. Despite the number of enterprises, volume of revenues generated, and jobs created, franchising has received relatively little attention in scholarly publications and in educational programmes. Prior literature reviews are cited, highlighting subjects that have received some attention. Brief previews of the other chapters in the Handbook are provided. The chapter and the entire Handbook are offered as encouragement for further research into franchising.
Following the Leegin (2007) and Khan (1997) decisions, the consequences of the legalization of both minimum and maximum resale price maintenance (RPM) were expected to be significant on franchising, dealer networks, or any distribution system where retailers were free to establish their prices independently of supplier dictates. Most importantly for RPM, the legalization allowed the supplying firm to terminate an offending retailer. RPM is considered a ‘vertical control’ of retailer pricing, and given this additional authority, could increase its use as a substitute for vertical integration by the supplier. Internationally, the United States is alone with regard to its acceptance of RPM, and other nations should take interest since this is a notable shift toward supplier authority and its lack of significant outcomes. This chapter briefly reviews the background cases regarding RPM, models the gross margins relevant to forward integration and RPM, and provides data on four different industries where combinations of franchisees, independent retailers, and company-owned stores coexist to provide market coverage. Propositions regarding the conditions where RPM would be anticipated are stated.
Farhad Sadeh and Manish Kacker
Mechanisms and rationales for revenue sharing have been the subject of many theoretical and empirical studies on contracting. Franchisors typically derive economic profits (for the rights they grant to franchisees) through revenue sharing contracts. Franchising is a popular form of retailing in a wide range of product and service markets, plays a significant role in many developed economies and is a rapidly growing form of retailing in a number of emerging markets – therefore it is a suitable context for research on revenue sharing contracts. There is an extensive body of research that examines factors influencing the fee structure of franchise contracts and the relationship between the different components (fixed initial fees and ongoing fees that are typically expressed as a percentage of franchisee revenues) of this fee structure. There are two competing perspectives on the latter – one school of thought views the fixed and ongoing fees as being negatively related, since they are considered as twin parts of a mechanism deployed by a franchisor to share risk and extract franchisee profits, ensuring that franchisees just receive a normal profit on their investment; the other school of thought (based on arguments drawn from property rights theory, a combination of signalling, screening and transaction cost theory, brand effects rationales, allocation of channel functions and the implementation of the equity principle, and the existence of positive franchisee rents) posits that the two components are not related or positively related. The divergence in these perspectives calls for a comprehensive empirical examination of the relationship between initial and ongoing fees in franchise contracts. However, there appears to be no integrative quantitative review or meta-analysis on this topic. Therefore, the chapter contains a meta-analysis to aggregate results from empirical studies, synthesize insights from prior research and test its hypotheses. Results from the meta-analysis (based on 26 studies with different samples and a total sample size of 22,676) reveal a small but significant positive correlation between royalty rates and franchise fees.
Magali Chaudey and Muriel Fadairo
Compared to the governance issue, performance has received little attention in the franchise literature. Based on the articles published in economics and management journals with an international scope, the chapter presents in the first place research focused on financial or accounting variables. In addition, several works develop a non-financial and more qualitative approach of performance in franchise networks. These are presented in a second part of the chapter. The chapter concludes with recent focus, including ethics or social objectives, and suggests avenues for future research.
Andrew Terry, Cary Di Lernia and Rozenn Perrigot
The regulation of franchising presents real and significant challenges. Although most countries currently rely on underlying commercial laws of general application to all business activity to regulate their franchise sectors, there is a trend towards franchise-specific regulation to address the information and power imbalance that characterise the typical business format franchise relationship. While there is broad agreement that prior disclosure is the appropriate strategy to address the information imbalance, there is less consensus on the appropriate strategy to address the power imbalance. Good faith – an explicit obligation of most civil law jurisdictions, but not a principle of general application in common law jurisdictions – is increasingly proposed as an antidote to opportunistic conduct. This chapter addresses the development of good faith in civil law and common law jurisdictions and reviews current developments and research in relation to the efficacy of good faith as the appropriate tool to deliver equity and balance to the franchise relationship.
Brinja Meiseberg and Thomas Ehrmann
Dual distribution, or ‘the plural form’ of organization (the coexistence of franchised and company-owned outlets in franchise chains) is an essential strategic response to cope with the franchising ‘imperatives’ of managing system growth, concept control, local responsiveness, and systemwide adaption. Accordingly, the topic has received considerable scholarly attention. However, much of the literature is based on theoretical perspectives and empirical evidence derived from the North American experience and previous studies have, almost exclusively, been single-country investigations. In consequence, past research underscores the need for understanding plural structures through the lens of data-driven multi-national investigations. The chapter explores country-specific idiosyncrasies of the plural form phenomenon across three continents based on recent data from 3,078 German, Australian, and South Korean franchise chains. It strives to integrate the empirical findings on observed similarities and differences across countries with central theories and paradigms in franchising research. Thereby, the chapter provides an exploratory contribution to empirically grounded investigations into the plural form of organization.
Anna Watson and Lola Dada
The role of entrepreneurship in franchise systems has been a complex issue. This chapter aims to provide a better understanding on this issue by focusing on the entrepreneurial tensions that exist in franchise systems and the associated coping mechanisms for minimizing these tensions. It draws on a range of classic and emergent theoretical explanations, which are substantiated with empirical evidence. The chapter highlights notable contributions in this research area and offers directions to guide future studies in order to provide clarity on the entrepreneurial paradoxes in franchising.