Doctoral Student at Faculdade de Economia, Universidade do Porto (original) (raw)

An Analysis Of Three Confronting Theories To Explain Franchising Supply

In this article, we have analyzed one of the most relevant lines of research in the franchising literature-the creation of a franchising system. Three confronting theories are reviewed and presented in this paper to explain the franchising phenomenon; namely, the resource scarcity theory, the agency theory, and the plural from theory. The conclusion of our analysis is that probably none of them is able to explain the full franchising occurrence, but each theory explains different parts of the franchising phenomenon, so they should be perceived as complementary theories. THE DECISION TO FRANCHISE: A THEORY OF FRANCHISE SUPPLY n impressive amount of theoretical and empirical research has been conducted to explain why firms choose to distribute their product or service offerings through franchise channels. The franchisor's decisions to franchise vs. own the business discusses the franchisor choice of franchise (market) vs. company ownership (hierarchy) — in essence, a theory of franchise supply. Hunt (1977) assured that, for potential franchisors, ―franchising held out the promise of the American Dream, the dream of making it big‖, and this idea of ―making it big‖ is one of the main reasons that owners of franchising companies argue for using the franchise system. No doubt, franchising helps rapid growth, but it also involves a loss of control over the business. In many industries, we see chains that extensively use franchises competing with chains that never franchise, and it seems that both alternatives can work and succeed, so why use franchising? And what are the rationales for using franchising instead of growing through company-owned units? The classic literature on this subject, all of which is strongly rooted in economics, can be grouped into two different theories to explain why a company decides to franchise-the Resource Scarcity Theory (Oxenfeld and Kelly, 1969; and Norton, 1988) and the Agency Theory (Brickley, Dark, and Weisbach, 1991; and Lafontaine & Kaufmann, 1994). More recently, another competing theory has emerged which seeks to explain the prevalence of the franchise system on the basis of the organizational characteristics that differentiate it from other forms of ownership-the Plural Organization Theory (Bradach & Eccles, 1989; and Bradach, 1997). In what follows, we will look at the treatment received by each of these competing theories in the literature on franchising, trying to find a common ground and reconciliation between them. RESOURCE SCARCITY THEORY: FRANCHISING TO GAIN RAPID ACCESS TO FINANCIAL RESOURCES Franchising is a cheap and fast way to grow because the franchisee supplies the franchisor with one of the basic resources to develop a business-money. The franchisor faces a need for growth to achieve economies of scale and market share, particularly in the early stages of the operation when they usually face a scarcity of financial resources to fund the growth. The franchisee not only contributes to the franchisor with fees and royalties, but also finances the investment to start the operation and provides the ongoing capital required to continue the operation. So, franchising appears to be the best solution when there is a need to grow fast and when the franchisor needs to gain access to financial and human resources at a low cost. Caves and Murphy (1976) stated that the A

Franchising multifaceted form of entrepreneurship

International Journal of Entrepreneurship and Small Business, 2007

The present study takes an entrepreneurship viewpoint toward franchising. To create a theoretical framework, past franchising literature was reviewed and prior studies considering franchising as entrepreneurial activity were analysed. The literature analysis showed that prior franchising studies have rarely regarded franchising as a form of entrepreneurship. Likewise, theories explaining the birth, growth and survival of franchising are rather distant from entrepreneurship. However, recent franchising enquiries have taken an approach that comes closer to entrepreneurship. Franchising is a rapidly growing form of business in several countries around the world. This increasing importance in the global economy demands further scholarly research into the phenomenon.

Handbook of Research on Franchising

2017

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.

Franchising-Paradigm of the Enterprise in the 21st Century

Franchising as a specific form of business is one of most interesting and perspective forms of doing business in the 21st century. The present circumstances on the market touched by the crisis require (expected in 2021) the permanent looking for the certainty for the enterprises. One of it is franchising. It concerned the classical closed vertical distribution system, which is managed on contractual basis and one of the system members, named franchisor, connects some levels in the production-distribution chain. His partner is a franchisee. Both partners are searching for the optimal level of correlative relationship. It is a dynamic commercial system, which represents a modern form of cooperation between the enterprises. Franchising is regarded as a progressive marketing strategy. It is one of few forms of entrepreneurship without stagnation in the crisis period, as well.

Franchising: A Review and Avenues to Greater Theoretical Diversity

Journal of Management, 2004

As franchising has increased its visibility and impact on the business landscape, it has attracted the attention of a wide variety of researchers from different academic backgrounds. We draw together much of this research by juxtaposing the two key theories used to explain franchising, resource scarcity and agency theory, with the empirical findings regarding three key franchising constructs-franchise initiation, subsequent propensity to franchise, and franchise performance. We suggest that research emphasis needs to shift toward understanding why firms initiate franchising and how franchising impacts different types of organizational performance. We also find that extant research can benefit from additional theoretical diversity and thus we offer new propositions grounded in three theories not yet widely applied to franchising.