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“A Futuristic Research Agenda For The Field Of Franchising”

Abstract

The author of this article is Rajiv P. Dant. The author mainly reviews and summarizes
the franchising system from the North American perspective. The author focuses on the quick
changes taking place in the North American franchising system and suggest the researchers to
adopt new methods of investigation in the field of franchising. He also suggests the
researchers to go beyond the North American context for data and original theoretical
development and also to investigate new phenomenon related to franchising.

Introduction

Franchising, an American invention, offers an exclusive set of benefits to the

entrepreneurial activity. According to the article, it is an association in which franchisee
entrepreneurs collaborate with their franchisor entrepreneurs to create economic value chain
(Dant, Perrigot, and Cliquet 2006). It has further mentioned that, no doubt franchising is one
of the world’s fastest growing retailing, most of the franchising research is focused on single
country investigation (that is United States). According to the article, modern franchising was
invented in U.S. and forms one of the biggest component of U.S. economy. It explains this
fact using data taken from world franchise council. The article states that, in United States,
currently there are over 1500 franchising chains, with more than 7,60,000 franchisees and
employing more than 18 million people. Approximately 10 percent of the U.S. private sector
economy is generated from franchising related business (Dant, Perrigot, and Cliquet 2006;
Reynolds 2004). Mr. Rajiv has further explained this theory with the example of fast food
industry in United States. U.S. court upheld, that the legitimate owners are the franchisors,
rather than franchisees. According to this article, franchising is one-sided investigation i.e.
from the franchisors point of view. The article further explains this theory with the use of
facts and figures. It has also commented on the cross cultural application of this theory. The
author advises to go beyond the context of North America to investigate the developmental
stage of franchising.
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The article also reflects on the DARK SIDE of the long term relationship of the
partners in franchising. The article further mentions the absence of investigating the
franchising phenomenon from the customers perspective. Further, the author has also
explained the inverse relationship between autonomy and dependence in the franchise
industry. Overall, the article focuses on the international aspects of franchising, structures and
strategies of franchising, and cross culture evaluation of franchising.

Review

In this article, author Rajiv P. Dant discusses on various theories relating to

franchising that are questioned. The etic-oriented franchising theory (Niblo and Jackson
2004; Berry 1969), about the cross cultural and emic generalizability was questioned.
Ownership redirection theory (Lafontaine 1993; Gallini and Lutz 1992), and resource
constraints theory (Oxenfeldt and Kelly 1968; Pfeffer and Salancik 1978), were
phenomenologically questioned.

According to the author, the concept of franchising is an American invention, which

offers various benefits to the entrepreneurs involved in the franchising chain (i.e. the
franchisee–entrepreneurs and the franchisor–entrepreneur). He puts forth that, although
franchising is world’s fastest growing form of retailing (Dant, Kacker, Coughlan, and
Emerson 2007), the franchising research has not been focused worldwide. Most of the
franchising research has been focused on single-country investigations, i.e. the United States.
As mentioned in the article, franchising, being the biggest component of the U.S. economy,
employs 1/7th of labour force of the country, amounting to more than $500 billion of the U.S.
private sector payroll. This huge labour force helps generating excess economic output of
$1.53 trillion or approx 10% of U.S. private-sector economy (Dant, Perrigot, and Cliquet
2006; Reynolds 2004).

Most of the research investigation in the field of franchising is done on the fast food
industry. As put by Mr. Rajiv, franchisors are the owners rather than franchisees in the
franchise businesses. Therefore, franchising is based on investigation of franchisors. The
author says that it is important for the researchers to ask the basic questions relating to
franchising. The basic questions can be:
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(1) Does the rules of agency theory (Jensen and Meckling 1976) or the resource
constraints theory (Oxenfeldt and Kelly 1968; Pfeffer and Salancik 1978) apply to
different cultures of the countries like Iraq, Israel, Russia, China, or India;
(2) Can the franchising pattern of North American fast-food industry be comfortably
implemented to other franchising sectors like construction, banking, or
manufacturing;
(3) Do the franchisees and the franchisors have same view regarding the benefits and
failure of franchise?

Currently, there is no specific answer to these questions. The general answer is

‘We just don’t know’.

The author has further discussed that, in the context of franchising industry United
States is speedily approaching its maturity state. Therefore, this could be the important reason
for examining franchising phenomenon beyond the North American contexts where a number
of controversial issues still continuous to be dominant due to lack of developed legal system
related to franchising. Countries in which the franchising system is still in its developmental
stage, cultural imperatives proves to be the barrier in the franchisor-franchisee relationship.
Citing the example of ownership redirection that followed in Spain franchising industry and
the United States franchising industry approaching maturity, the author suggests the
researchers to go beyond the North American context of franchising for investigation. In
other words, the author suggests the researchers to go beyond the North American context of
investigation if they want to study the early stage of franchising (i.e. evolutionary or
developmental stage).

Further the article ventures into examining the different phenomenon formulated by
various authors to explain the new theoretical frameworks of ownership redirection from the
perspective of property rights (Windsperger and Dant 2006; Baker and Hubbard 2004;
Maness 1996; Hart 1995; Hart and Moore 1990). According to Mr. Rajiv, authors are
beginning to examine research questions by comparing the different theories rather than
confining single theoretical frameworks, for example: the strong inference test (Barnes 1977;
Bloor 1976) of ownership redirection thesis against signalling theory (Lafontaine 1993;
Gallini and Lutz 1992), and resource constraints theory (Oxenfeldt and Kelly 1968; Pfeffer
and Salancik 1978). The tapered integration or plural forms framework (Bradach and Eccles
1989; Harrigan 1984) against each other (cf., Dant and Kaufmann 2003).
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Figure1

The Trichotomy of Franchising Domain

FRANCHISOR FRANCHISEE/OUTLET CUSTOMER

Source: DANT

According to the author, it’s proved that the franchising domain is a trichotomy consisting of
franchisor, franchisee and customer (figure 1). Still the major emphasis is focused on
franchisor-based studies. Even the franchisee-based studies exists but there is complete
absence of the customer-based studies. There is no examining of the franchising phenomenon
from the customers perspective. It means, the author has very little or no idea about the
customers taste, preference and habit or what the customer feels about the value added
aspects of the franchising. For this purpose, the author demands answers to some questions
such as:

(1) Are the consumers really satisfied with the homogeneity of product offered in
franchisees or do they demand more varieties?
(2) What is the psychographic profile of the customer groups that like or dislike
the franchising industry?
(3) How can consumers help in shaping the product assortments offered by franchises?
(4) Are the strategies of successful franchise operations doomed to be “push” oriented
systems or are undergoing “pull” oriented systems in franchising?
(5) Does the consumers indeed choose the brand before supporting a specific franchised
Outlet?
(6) Is customer’s shopping behaviour configured by the visits to franchised outlets? And
(7) Are the patterns followed true cross-culturally (i.e. in different countries)?
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Figure2

The Correlation between Key Relationship Marketing

Variables and Performance Over Time

4.5
4
3.5
3
2.5
2
1.5 BAR 1
1 BAR 2
0.5 BAR 3
BAR 4
0
t t n s e
us en tio ue nc
Tr itm ic a Va
l
de
m un ed pen
m m ar e
Co m Sh l D
Co ua
ut
M

Source: Hibbard et al. 2001.

Further, the article discusses on the bandwagon effects related to franchising. Mr. Rajiv says
that, while opening new ways for investigation of franchising, the researcher should always
consider the bandwagon effects related to some of the dominant paradigms. For instance,
relationship marketing (RM) should be carefully examined before exploring new grounds for
investigation. He also advises authors to study the negative effects of relationship marketing
(as shown in figure 2), (cf., Grayson and Ambler 1999; Gruen, Summers, and Acito 2000,
Hibbard et al. 2001; Moorman, Zaltman, and Deshpande 1992), he also suggests to consider
the “Dark Side” argument associated with RM. The author says that, the above mentioned
researchers together believe that the partner’s high level of interaction, trust, objective
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orientation, etc, diminishes in the long run. A negative attitude questioning “What have you
done for me?” arises among the long term partners. Many a times, a partner suspect that his
trust is being taken advantage of, thus resulting in spoiling of relationship. Figure 2 represents
the relation between relationship marketing components and their performance. In figure 2,
each of the bar on the x-axis represents five year time span and the y-axis represents the
correlation between the RM variables and their performance. Hence, the implications of the
earlier mentioned evidence are (as shown in figure 2), variables like trust and commitment
which may work out in the short term, but after a certain lapse of time, they would begin to
fall drastically. In short, according to the author, the relations can be well maintained in the
short term. As mentioned by the author, the moral for the above is: carefully examine the
bandwagon effects for their applicability to specific franchising research contexts.

Figure3

The Interrelationships between Autonomy and

Dependence

Autonomy & Dependence

Autonomy

High Low

Contemporary
Reality Traditional View
High

N=103 N=22

Dependence Marginal
Traditional View Relationships

Low N=28 N=21

Source: Dant and Gundlach (1999)

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The author further discusses on the relationship between the dependence and
autonomy. He says that these two factors i.e. dependence and autonomy are inversely related
to each other (Pugh et al. 1969; Warren 1967; Thompson and McEven 1958). For instance, if
there exist high level of dependence in a franchising relationship, then the relationship is only
possible to survive if the autonomy is low on the part of the franchise partners.

The author explains the theory of franchising relationship in context of dependence

and autonomy with the help of a diagram. In figure 3, N is a variable representing the values
of cell entries, which show results associated with cluster analytic results which were not
covered by Dant and Gundlach (1999) based on a franchising database. In other words, where
the relationship between franchisee autonomy and dependence is popularly held as inversely
linked, there, on the other hand, largest group comprised of franchisees who rated their
relationships with their partners as characterized by high dependence as well as high
autonomy i.e. N=103 (as shown in fig 3). As shown in fig 3, it can be observed that the
smallest group comprised of franchisees, rated their relationship with their partner as
characterised by low dependence as well as low autonomy i.e. N=21. This particular context
of franchising is experienced by the franchisees. This suggests that, very rarely one party is in
an advantageous position over the other party placed by asymmetries to create unilateral
dependency structures. Much likely situations are that asymmetries favouring one party are
counterbalanced by asymmetries favouring other party. This in turn leads to arising of high
levels of resource and domain-specific autonomy relationship, and simultaneously high levels
of dependence perceptions on other resources and domains.

In Conclusion:

As mentioned above, franchising industry is an invention of North America, it is one

of the biggest component of the economy of United States. Franchising industry provides
employment to the huge population of U.S. It generates a huge economic output of around
10% of the total of U.S. private sector economy. Therefore, franchising industry can largely
contribute to the economic development of the country. Fast food industry has been the major
area of investigation for franchising in United States.
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Though there are three parties involved in franchising i.e. franchisor, franchisee and
consumer, the major emphasis for investigation is given to the franchisor’s point of view.
Investigation from a customer’s or patron’s perspective is totally neglected. As franchising is
world’s fastest growing form of retail industry, then to, only one country is considered for
investigation rather than focusing the research worldwide. According to the author,
franchisors are the owners in the franchise business. That may be the reason why, major
investigation is done from franchisor’s perspective and franchisee or consumer’s perspective
is ignored. The new researchers have the opportunity to investigate in other countries where
franchising is still in its developmental stage and investigate from customers perspective.

At present, the franchise business in United States is highly developed and it is

speedily approaching the maturity state. Therefore, the researchers should look forward to
investigate their research in other countries where the legal system relating to franchising is
still in its developmental stage and where they can find the evolutionary or developmental
stage of franchising for their investigation.

There are also some dark sides of relationship marketing in context of franchising. A
franchisor-franchisee relationship may work out in short term, but in the long run, trust and
commitment among the partners diminishes. A negative attitude generates among the
partners. They start thinking that his/her trust is taken advantage of. This makes them more
sensitive to short term costs and benefits.

The theories of dependence and autonomy are always inversely related to each other.
But in this case, it is found totally opposite. The largest cluster comprised of franchisees who
rated their relationships with their partners as characterized by high dependence as well as
high autonomy. Also, the smallest cluster comprised of franchisees who rated their
relationships with their partners as characterized by low dependence as well as low
autonomy.

References:

1. Dant, Perrigot, and Cliquet 2006;

2. Dant, Perrigot, and Cliquet 2006; Reynolds 2004;
3. Niblo and Jackson 2004; Berry 1969;
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4. Lafontaine 1993; Gallini and Lutz 1992;

5. Oxenfeldt and Kelly 1968; Pfeffer and Salancik 1978;
6. Dant, Kacker, Coughlan, and Emerson 2007;
7. Jensen and Meckling 1976;
8. Barnes 1977; Bloor 1976;
9. Bradach and Eccles 1989; Harrigan 1984;
10. Dant and Kaufmann 2003;
11. Grayson and Ambler 1999; Gruen, Summers, and Acito 2000, Hibbard et al. 2001;
Moorman, Zaltman, and Deshpande 1992;
12. Dant and Gundlach (1999);
13. Pugh et al. 1969; Warren 1967; Thompson and McEven 1958;