Introduction And Literature Review

On

Understanding the factors affecting entrepreneur to choose between franchising

and independent business

For

Project-Part-1

Business Research Management

Semester V – BBA Program

Prepared By:

Rishaan Nadkarni (19131096)

Sagar Jain (19131107)

Yash Kothari (19131133)

 Introduction

Concept of Franchise – (How did the concept of franchise evolved)

 In the Middle Ages, franchising was used to refer to the act of granting someone a privilege
or right. The notion of franchising has developed over time, first appearing in the 1860s when
the Singer Company established a network for sewing machines. The current age of
franchising began in the 1950s, when Ray Kroc, a milkshake machine salesman, discovered a
drive-in restaurant owned by the McDonald brothers in San Bernardino, California. Ray Kroc,
who was impressed by the busy parking lot and delicious French fries, purchased the rights to
franchise the business and went on to establish one of the most successful companies in
history. (Seid, 2006)

 There are several reasons for franchising, many of which are comparable to what they are
now, as business development is hazardous and necessitates significant cash and human
resource expenditures to manage the sites.

 Franchising is not a novel idea, nor is it an industry or business; rather, it is a concept in

which the franchisor provides operational assistance, intellectual property, and training to
franchisees. The franchisee operates the franchised unit as part of their business, but under
proper supervision and with the franchisor's brand name and pays compensation to the
franchisor.

 Today, franchising is one of the world's fastest growing business models. It is also possible to
define franchising as a system of marketing goods, services, and technology that is based on
ongoing collaborations between legally and financially separate and independent
undertakings, namely the franchisor and its individual franchisees, in which the franchisor
grants its individual franchisee the right to conduct a business in accordance with the
franchisor's concept.

 Franchising blends decentralised physical asset ownership with centralised brand name
ownership, easing the problems experienced by newer company chains. Growth is required,
which includes product promotion and advertising, and nearly all of the services and physical
output given by the franchised firm aid in preventing a competitor's entry into the market.
There are several reasons why someone should choose a franchise. Some of the most
important reasons are that franchising reduces the risk element connected with owning a
business, allows for rapid development with little money, and leads to long-term profit.

 In this era of cut-throat competition benefit of providing franchise to third party is to

expand their brand name and to stay ahead of their competitors. Franchisee is an
independent their party partner which is provided with the grants and rights of the
products and techniques of the parent firm. Franchising is the best way in which an
entrepreneur can operate their own business. (Jashaliya, n.d.)
 About Agreement between both the parties

 The term ‘franchise’ means an agreement between two parties under which
manufacturer grants, right to sell the former product or services of a particular firm in
a specifies locality is included with all the terms and conditions. The firm which
grants permission is called ‘Franchiser’ and the person or enterprise to which the
permission are granted are called ‘franchisee’. This agreement includes all the Terms
& Conditions applicable.

 The terms and conditions widely vary from agreement to agreement. But generally,
the agreement involves continuous interest of franchiser in site selection, staff
training, financing, marketing, and promotion in franchisee business till it is
established properly. Franchiser also allows use of his brand name and trademark and
operation process. In return the franchiser must work under certain rules and specified
conditions.
 Industry Insights

Global Insights

 Global franchising is a smart strategy to decrease reliance on domestic demand while

expanding new, future revenue and profit centres across the world. Extending a brand
internationally through franchising is low risk, needs little investment, and has
enormous upside potential for scaling capabilities.

 The advantages of a Global Franchise are as follows: Global franchising may provide
international master franchise owners in addition to accessing new overseas markets
with extra clients. These folks are generally nation natives who understand the
country's political and bureaucratic difficulties considerably better than any foreigner.

 Foreign master franchise owners pay a large upfront price to purchase a certain
geographical region or, in some cases, an entire nation in which they operate as a
micro or sub-franchise firm, selling franchises, collecting royalties, educating owners,
and supervising all other associated concerns. They can even unlock units on their
own. In general, a set number of franchises must be defined in order to have the
exclusive right to apply the business model throughout an entire nation.

National Insights

 As described by Warsi(2018) the main benefit that franchise industry participants

enjoy is that the business concept and products/services are already established. It is
far easier to run a turnkey organisation, and the owners may even provide training and
financial planning assistance to prospective franchisees. This is just one of the reasons
why the sector has been so successful all around the world, especially in the Indian
subcontinent.

 The franchise management model first appeared in India in the 1990s, with the onset
of the liberalisation era. This technique was initially implemented for company
expansion by a few educational institutions and IT enterprises and grew slowly at
first. However, the franchise market in the country presently includes several well-
known brands operating under this model in various cities.

 While the industry is still in its infancy in India when compared to other trades,
growth has been rapid — at a rate of 30 percent per year. “The franchise market in
India is presently projected to be about USD 47-48 billion,” says Gaurav Marya,
Chairman of Franchise India. And, based on current developments.
  In India, franchising is expanding at a rapid rate. It has grown at a rate of 30-35
percent over the previous four to five years, with projected total revenue of INR 938
billion. The sector now generates about 1.8 percent of Indian GDP and is expected to
contribute around 4 percent by 2022. India, being a growing country, offers enormous
potential for franchising businesses. With a large population of the younger
generation. (Dunseith, 2017)

 There are around 600 franchisors dispersed across industries such as education,
healthcare, professional services, food and drinks, and so on. There are around 40,000
franchisees with yearly revenues ranging from Rs8000 to Rs10000 crores. According
to estimates, franchisees' total investments exceed Rs5000 crores, and franchised
firms directly employ over 300,000 people.

 General Motors, Ford, and Coca-Cola were early entrants into the franchising
business. In the late 1950s, well-known franchisors such as McDonald's and KFC
entered the market. Franchising, as a method of company development, was unknown
to most people in India until the 1990s, when extremely well-known brands like as
Bata, Apollo hospitals, Titan watches, and NIIT began to go into franchised
businesses. (Franchise India, 2007)

Reason behind the Exponential Growth Rates in Franchising in Indian Market

The simple business model states that franchising provides is a big reason why the industry is
expanding at such a rapid pace all over the world. However, there are also other reasons why
it has become such a great success and one of India's fastest-growing sectors: -

 Lower Rate of Failure: - Franchises have a lower failure rate than other start-up
initiatives because the business model has previously been worked out. Existing
loopholes have been filled, and there is a proven model of what works and what does
not - making franchisees more enthusiastic and confident in investing in such
enterprises.

 Demand for Franchised business: - The expanding purchasing power of the Indian
middle class, along with increased brand awareness, has produced a substantial
market demand for multinational companies that primarily sell through the franchise
system. Furthermore, as a country of over a billion people, the Indian market delivers
massive sales simply because the quantity of consumers is so large.

 India has a large market: - Because of the high demand in India, international
investors and brands, primarily from the United States, see the country as a large and
 advantageous location to establish franchised shops. The franchise model also works
in a variety of industries such as food and beverage, beauty, healthcare, and many
more, allowing a wider number of firms with various products and services to
establish successful franchise operations across the country. “India, as one of the
world's fastest-growing nations, provides excellent prospects in this developing
business model,” says Chackochen Mathai, founder and CEO of Franchising
Rightway.

 Privatization in sectors: - Consumers are no longer forced to rely on a single service.

With the privatisation of everything in India, from education and healthcare to
telecommunications, there has been a steady increase in both the entry of
multinational brands and national retail chains. And, with it, the potential for
franchising has grown. As an example of a successful instance of privatization, Ferns
n Petals and Guardian Pharmacy are just a few examples.

 ‘Indianisation' of products and services: Understanding the client segment and

catering to their unique requirements is a critical component of any successful
business, which is why franchised shops in India have amassed such a large consumer
base. Most major companies in the nation, including McDonald's, Domino's Pizza,
and even hotel services, have tailored their offers to the Indian palate. With India's
demographic makeover, which includes a growing middle class with more disposable
cash, there is a continuous increase in the number of customers for branded items and
franchised names.

 First-time entrepreneurs: According to reports, the Indian franchise sector is being

pushed by young individuals who are choosing franchising as their first business
endeavour. These new entrants prefer to be franchisees because of the low risk and
well-established concept, which provides virtually immediate advantages and
commercial flexibility. In reality, around 35% of Indian franchisees are first-time
company owners, which contributes significantly to the sector's growth in India.

(Kumar S. , 2018)
 India’s Famous Franchise
India, being a developing country, has one of the world's fastest expanding economies. Along with
this, India's GDP is steadily increasing year after year. India has already established itself as the
world's second largest franchise market. According to KPMG India, the main industries with the best
chances of success in franchising in India are: 1) retail, 2) food and drinks, 3) health, beauty, and
wellness, 4) consumer services, and 5) education and training. (Prasad Uniyal, 2008)

The food and beverage sector is one of the most important factors that is prospering in the franchising
industry. With an increasing number of people choosing to dine out and spending more on food
goods, this sector has dominated the Franchising Industry as compared to other sectors such as
apparel and lifestyle, education, and so on.

The food and beverage industry is available to all types of people who may begin with franchising in
many categories based on an individual's budget. Fast food, health food, pizza, sandwich shops, ice
cream parlours, smoothies, juice bars, cookie shops, candy outlets, and bakery franchises are some of
the popular food and beverage franchising possibilities. This category is one of the most secure ways
to begin with the franchising business strategy. (Marya, 2019)

Some of the most profitable and well-known franchise in India are as

follows:
Marisol, (2021 )

1) Patanjali: It is a well-known Indian brand with a turnover of more than 200 crores. This
company's products include a variety of herbal and ayurvedic goods. Aside from that, it offers items
in the fields of beauty and wellness, health care, personal care, culinary products, and much more.

2) Dominos: One of the most well-known pizza businesses in the country, with over 500 locations in
various Indian states. It is present in over 120 cities across India.

3) KFC: KFC was founded in the United States in 1939. It operates in 115 countries and has over
20,000 branches worldwide.

4) Amul: The Amul franchise company is highly successful in India because of the quality it
provides, and there is also very little marketing necessary because people are familiar with Amul.
Apart from that, the investment is little, which is why many individuals choose Amul Franchise.

5) Cafe Coffee Day: It has been in business for over 140 years and is Asia's largest coffee
enterprise. The investment necessary to start a franchise is about Rs 10 Lakhs.

6) Baskin-Robbins: This is an American ice cream and frozen goods chain. It is present in over 50
countries and has over 7000 stores.

7) Subway: It is a 1974 American restaurant franchise that sells nutritious salads and sandwiches. It
has a global presence in over 102 countries and is one of the fastest growing franchises.
8) Pizza Hut: It began as a franchise in 1959 and is well recognised for its Italian American cuisines
such as pizza, spaghetti, garlic bread, and a few side dishes as well as desserts.

9) La Pinoz: It has almost 250 stores throughout India. It is one of the greatest pizzerias in town.

10) Taco Bell: Taco Bell is America's largest Mexican fast food restaurant brand, with over 600
locations in 17 countries.

11) Dr.Batra’s Clinic : India’s leading chain of homeopathy clinics , provides treatment of
numerous diseases such as asthma, acne , hair treatments , allergic , and much more . They
have successfully provided safe and natural therapies to more than million patients globally
(Top Franchise, 2021).

12) First Cry : It is one of the most established kids and baby brand which deal in kids’ apparels and
accessories. This business has excellent potential as the investment is less and the profits are pretty
high. They provide premium quality clothes for kids at a lower price, plus they also give you the
option of buying online.

13) Lenskart : It is one of the most established kids and baby brand which deal in kids’ apparels and
accessories. This business has excellent potential as the investment is less and the profits are pretty
high. They provide premium quality clothes for kids at a lower price, plus they also give you the
option of buying online.

(singh, 2021 )

Challenges faced by using the franchised way of Business:

 Before deciding to buy a franchise, an individual should be aware of all the
advantages and disadvantages of franchising for particular firm. No doubt franchising
is a money- making business but it also depends on the reputation and image of the
firm. (Stephen, 2021 )

 Always operate inside the system: There are many people who find it tough to work
within a system and to follow directions from the franchisor. They must run their
businesses in accordance with the franchisor's instructions and modifications, which
limits their ability to innovate.

 Coordination with the franchisor: When someone starts a franchised firm, he or

she gets into a long-term arrangement with the franchisor. Franchisees must keep
themselves up to date by visiting the company's headquarters, reading as much as
they can about the franchise, and conversing with other franchise owners.
  False beliefs: Many people, hoping for immediate success, try to buy a franchise
after observing the success of other franchisees. They do not recognise their efforts,
and franchising, like other companies, needs sufficient time, money, and initiative.
Being realistic and understanding what is necessary to manage a franchise should be
known well in advance.

 Managing a franchised business: Many individuals who are not excellent with
people and who lack management abilities to operate a business should seek suitable
support and direction from franchisors if they are experiencing difficulties while
running a franchise.

 Public perception of quality and consistency at each franchise: When the public
experiences poor service at one franchise location, they assume that the other
franchise will similarly provide poor service. As a result, bad performance by fellow
franchisees might harm the franchise firm.

 Ongoing Royalty Payments: In addition to the expense of holding the franchise

space, we must pay royalty to the franchisors for using their name, and the franchisee
must suffer the cost of and contribute to marketing and promotion as determined by
the franchisor.

(Hecht, 2019)

Advantages of franchising for the franchisee

The franchisee is a third-party purchaser of the franchisor's trademark rights (the owner of the
brand). In exchange for the right to use the brand, the franchisee pays the franchisor an initial
franchise fee as well as ongoing franchise fees for marketing, royalties, and other expenses.

There are numerous benefits to franchising for the franchisee, including: (franchise.org)

 Business assistance

Depending on the structure of the franchise agreement, a franchisee may receive a complete
business operation, complete with all the necessary equipment, supplies, and marketing plan.

Even though other franchises may not have everything that a franchisor needs, all franchises
have the knowledge and wisdom that a successful entrepreneur needs to run a successful
business. This is especially true for people who are just starting out on their own.

 Brand recognition

Brand recognition is a big benefit that franchise owners receive when they start their own
business. Therefore, many people start their own businesses from scratch.
Franchises are known for their established customer bases. With a recognizable brand, people
will automatically associate with the ideal business.

 Lower failure rate

Franchises have a lower failure rate than sole proprietorships. This is due to the support and
advice provided by the franchise network.

With proven franchises, you can be confident that the products and services that you'll be
offering will be in demand.

 Buying power

Another benefit of franchising is that it allows you to order supplies and products without
being limited by the size of the network.

Availing bulk purchasing allows a network of franchises to save on goods and services. This
saves the parent company money and helps minimize its overall expenses.

 Profits
Franchises, on average, make more money than individually owned firms. Most franchises have well-
known brands that attract many clients. Profits increase because of this popularity. Even franchises
with a high franchise fee require a high initial investment to obtain a good return on investment.

 Lower risk
Starting a business takes a lot of courage. This is true whether a business owner is starting
their own company or buying a franchise. When you open a franchise, the risk is lower.
The franchise network is one of the reasons franchise owners incur less risk than independent
business owners. The majority of franchises are owned by well-known firms that have
successfully tested and validated the franchise's business model in several markets. This
reduced risk may make it easier to obtain financing, including the finest SBA franchise loans,
to help you launch your company.

 Built-in customer base

Finding consumers is one of the most difficult tasks for any new business. Franchises, on the
other hand, come with a well-known brand and a loyal customer base. Even if you're building
the first franchise location in a small town, chances are that potential customers have heard of
the brand through television ads or travel to other cities.

 Be your own boss

Being your own boss is one of the most appealing aspects of owning a business. You get to
be your own boss while still obtaining help from the franchise's knowledge base when you
launch a franchise business.
Owning a business is difficult, but being your own boss allows you to set your own hours,
have control over your career, and maybe work from home.
A franchise allows you to be your own boss without taking on the risk of starting your own
company.

(Lauckner, 2020)

Disadvantages of franchising for the franchisee

While there are numerous benefits to franchising, it would be delusional to assume there
aren't also drawbacks. Let us explain further.

 Restricting regulations
While a franchise allows a franchisee to be their own boss, they do not have complete control
over their business and must consider the franchisor's perspective when making choices.
The most bothersome disadvantage that most franchisees have is having to abide by the
franchise agreement's restrictions. The franchisor has some control over most of the franchise
business and the franchisee's actions.
The franchisor can control any of the following components of the firm, depending on the
franchise agreement:
 Business location
 Hours of operation
 Holidays
 Pricing
 Signage
 Layout
 Decor
 Products
 Advertising and marketing
 Resale conditions
These restrictions are put into place to maintain uniformity between the different franchises
and the overall brand, but they can also be frustrating and feel limiting for the franchisee.

 Initial cost
While the franchise fee provides many benefits to the franchisee, it can also be expensive,
especially if you're joining a well-known and profitable business. While this frequently
results to higher profitability, it can be difficult for a small business owner to come up with
the necessary funds.
Even if you choose a low-cost franchise, you'll most likely have to put in a few thousand
dollars up front. While this may appear to be a disadvantage of franchises, it is vital to weigh
the potential against the initial investment and strike the right balance for your business. Also
keep in mind that there are franchise financing options to help you with your initial
investment.

 Ongoing investment 
There are extra, ongoing costs that are particular to franchises, in addition to the initial
investment required to launch your company. The franchise's ongoing costs should be
specified in the franchise agreement. Royalty payments, advertising expenditures, and a fee
for training services are all possible expenses.
When determining whether to create a franchise, keep these recurring costs in mind.

 Potential for conflict

While having a support network is one of the benefits of owning a franchise, it also comes
with the risk of conflict. Any close business relationship, especially one in which there is a
power imbalance, carries the risk of the parties not getting along.
While a franchise agreement outlines both the franchisee and the franchisor's expectations,
the franchisee has little power to enforce the agreement without a costly court struggle. The
closeness of the business relationship between franchisor and franchisee is ripe for conflict,
whether it's due to a lack of support or simply a clash of personalities. Before getting into
business with a franchisee, a franchisor should screen all possible franchisees, and as the
franchisor, you should take advantage of this opportunity to acquire a sense of the
franchisor's personality and management style.

 Lack of financial privacy

A lack of privacy is another downside of franchising. The franchise agreement will almost
certainly state that the franchisor has complete control over the franchise's financial ecology.
Franchisees may view the lack of financial privacy as a negative of owning a franchise; but,
if you embrace financial guidance, it may be less of an issue.

(Bhasin, 2019)

The Pros and Cons of Independent Small Business Ownership vs. Franchising
 Following Your Passion

According to Nexterus(2020) while the desire to be your own boss motivates many people to
start a small business, 39 percent cite pursuing their own passions as the top incentive.
If following your own passion is your primary motivation, consider the pros and cons of both
independent ownership and franchising. Independent ownership, for example, may be a
preferable option if you wish to fully develop and promote an innovative product. In fact, if
you have a truly novel idea, whether it's a unique craft beer or a novel cleaning process, an
independent structure is almost certainly the only way to get it off the ground.

In a franchise, there will be few possibilities to innovate. Franchises are picky about their
products, so you'll have to make and sell any of the franchise's goods and services in
accordance with the franchise's rules and regulations.
If, on the other hand, your passion is to deliver a well-known product or service to your
community that is offered by a franchise, a franchise can help you realise your goals.
 Personal Autonomy

The desire to be one's own boss encompasses a wide range of desires, one of which is simple
personal autonomy. You might want to oversee everything, from which computer to buy to
what time the office opens in the morning. If you're raising a family, you may also wish to
incorporate personal or family time into your workweek.

If you manage your own firm, you may be able to achieve true personal autonomy. In
franchising many aspects of the business will be controlled by franchises, from hours of
operation to equipment and ingredients used. They'll decide on the style of your marketing
materials and how your personnel are trained.
While franchisees may have more personal freedom than non-franchise employees, such
freedom will be limited.
 Support for Business Success

All new businesses require assistance, which can include everything from advice and
mentoring to knowledge of best practises and examples of solid business plans.

In all these areas, franchises give solid business support. Because it makes good commercial
sense for the home office, they are heavily involved in your success. They also know what
new franchisees need to do to follow a tried-and-true formula for success. Everything from
profit and loss targets to marketing calendars will be provided.
You will be accountable for building and maintaining your success in an independent
framework, on the other hand. If you believe you can (or already have) do this, you may
choose to consider independent ownership over franchising. A franchise, on the other hand, is
likely to be the superior option if you'd prefer to have consistent assistance that you don't
have to generate on your own.

 Small Business and Franchise Success Rates

Small businesses, as many people are aware, have a rather high failure rate. Although 80% of
students complete the first year, nearly half of them fail by the fifth year.

There is evidence that franchises have a higher possibility of success because franchisees
support the success of their company. They have a tried-and-true strategy. All a franchisee
must do is follow the success formula.

However, many analysts believe that the subject of independent vs franchise ownership has
less impact on long-term profitability than the industry in which the company works, the
product, and the overall business climate. As a result, your chances of success are determined
by these elements as well as your decision. Finally, before starting any type of business, you
should research these elements to determine your chances of success.
 Development Requirements

It takes time and work to launch an independent business. You'll need to make sure your
product or service is available and that you have a place to make it. A company plan, a
mission statement, short- and long-term goals, and multiyear financial predictions will all be
required. Profits and expenses will have to be forecasted. It's possible that you'll have to make
judgments about your company's structure.

If these tasks interest you, that's fantastic! A self-employed business is a fantastic option.
A franchise, on the other hand, may be a preferable option if the time and effort appear
onerous or time-consuming. Most of the work has already been completed. Franchises are
enterprises that are ready to go. The home office makes choices on a variety of variables after
you've finished the paperwork and met the financial requirements.
 Financial Requirements
Money is usually required to start a business, but the amount varies greatly.
Depending on the product or service and its requirements, individual enterprises can launch
for Rs 100,000 or even less. However, the costs of launching a successful franchise can go
into the millions of Rupees.
(Financial, 2021)
 Need for proposed study
 The purpose of this study is to identify the different number of factors affecting the
decisions of an entrepreneur to make his choice between an independent business and
a franchise. Some of the factors are as follows:
 Psychological
 Socio-economic
 Demographical

 These factors will help us to identify the corresponding behaviours of an Individual

decision towards a franchise model or an independent way of doing business. This
study is set out to explore the variables and the magnitude of the change the variables
bring.

Objective of the study

 Independent Businesses can be an alternative to a franchise business, it is very important to
look at the factor that encourages the individuals to opt for a independent business (Venture)
rather than a franchised business.

 The main reason behind this research is to analyze the factor that encourages the
individuals to opt for an independent business (Venture) rather than a franchised
business.

 The role of Innovation plays a very important role as we often find that independent
business have far more greater innovations than the franchised business.

 This research is also done to understand the various factors affecting an individual
perception towards franchised business and to know that is it really advantageous to start a
innovative venture rather than opting for a franchise.

Academic Studies
The theoretical support structure of franchising and independent business was examined with
a particular focus on franchisees, independent business, and innovation. The literature review
specifically addresses factors which encourage individuals to choose franchise activity rather
than independent business. The term entrepreneur equally applies to both the independent
business as well as the franchise business.

Alon(2007) explored the variables affecting an individual perception towards independent

business and franchise. Moothilal( 2008)suggested that prior experience, growth objectives,
motivation, risk directly affects the intention of an individual to choose franchise over
independent business ,variables such as the innovation attitude of the entrepreneur and
personal characteristics must also be considered in determining the choice between an
independent business and a franchise . Burnick(1969) Investigated that the impact of
perception of obtaining greater advantages in franchise plays a significant role for
individual’s choice. Moothilal( 2008) also found independence and autonomous control as
entrepreneurship factors. Paswan(2007) founds that paid employees recognizes franchisees as
being entrepreneurial in nature seeing the independence attached to own a franchise.

Dyer( 1994) Suggested that there are many factors that influence the choice of a business
model, some of which are personal, family, social considerations. Matthews(1995) Found
that personal factors which are associated with an individual’s choice for independent
business also include gender, work experience, and psychological values such as autonomy.
Tuunanen(2001) believed that entrepreneurial behaviour includes risk taking propensity and
innovation attitude whereas Price(1997) believes that successful franchise systems are built
on a standardized way which excludes innovation and creativity of the franchisee and the
franchisor has established rules and guidelines which franchisee should follow to maintain
the integrity. Aldrich( 1986) Suggested the social factors also affects the decision as social
ties are already created by the franchisor which are passed on to the franchisee, whereas for
an entrepreneur it is necessary to create a social network with the help of family networking
and acquaintances.

Boles( 1996) has found that the role of work and family conflict also plays a major role in
determining individual’s decision for independent business. Work and Family conflict
pressure arises when there is not a proper harmony between an individual’s role at work and
in the family (BEUTELL & GREENHAUS, 1985). Buzza & Mosca( 2009)Found that the
second independent business a person owns is more apt to be successful than his first venture
as one tends to make decisions without proper knowledge or total lack of experience.

A, (1975)Found the entrepreneurial event model in which the author determines three
dimensions that affects entrepreneurial intention, specifically “perceived desirability,”
“perceived feasibility,” and “propensity to act “. These three dimensions are determined by
the social and cultural factors.
Contributing to both A(1975)entrepreneurial event model and AJZEN(1991) theory of
planned behaviour, kolveried(1996) suggested three antecedents to the status choice ;the
individual’s attitude towards self employment ,the perceived social norms surrounding that
choice ,and the perception of behavioural control .

Theories and models

AJZEN( 1991) Theory of planned behaviour is a theory designed to predict and explain
human behaviour in specific contexts. There are three key attitudes that predict the Intentions:
a) Perceived behavioural control, b) social norms, c) attitude towards the act (Brazeal &
Krueger, 1994). Various behaviour specific factors which are part of the framework of theory
of planned behaviour are discussed below:

 Intentions and the perceived behavioural control

The individual's purpose to do a specific behaviour is an important component that forms part
of the idea of planned behaviour. Individual intentions comprehend the motivating elements
that affect a behaviour; they are an indicator of how hard people are willing to try, of how
much work they want to expend in order to accomplish the behaviour. There is a direct link
between the strength of intentions to execute the behaviour and the likelihood of
performance. A behavioural purpose can only be carried out when it is under voluntary
control if a person selects whether or not to do a behaviour Some behaviours' performance is
mostly determined by non-motivational variables such as the availability of necessary
opportunities and resources such as time, money, skills, and the cooperation of others. These
variables reflect people's genuine power over their behaviour. If a person has the necessary
resources and opportunity, he or she should be able to succeed. (AJZEN, 1991)

 Social Norms

Subjective norms, which refer to perceived social pressure to do or not execute the behaviour,
are the second determinant of theory of planned behaviour. Social norms are our ideas of
what significant people in our life would think about us starting a business (Grebel, 2007).
Potential entrepreneurs have a broad network of references, which includes family and
friends. Kolvereid (1996) discovered that culture influences the community as a whole, where
their actions imply scepticism. Thus, social norms play an important role in influencing
entrepreneurs' decisions to start their own businesses. AJZEN (1991) discovered that the
more ambiguous the social norms about behaviour, the higher the perceived behavioural
control and the stronger the individual's propensity to do the behaviour.

 Attitude towards behaviour

Beliefs are developed regarding the object of the attitude. According to JACCARD
(1981), people create ideas about individuals by connecting them with other qualities
and events. In the instance of an attitude toward a behaviour, each belief connects the
behaviour to a certain outcome or some other feature. According to AJZEN (1991),
we learn to favour behaviours that we believe have mainly desirable effects and to
acquire unfavourable attitudes toward behaviours that we believe have largely bad
consequences.
Shapero Model of the “Entrepreneurial Event”

According to Shapero's theory, human behaviour is driven by inertia until something disturbs
or displaces that inertia. Displacement is usually negative (e.g., job loss), but it can also be
beneficial (e.g., an inheritance). Displacement results in a behavioural shift, and the decision
maker selects the best choice available from his or her enacted set of other possibilities (Katz,
1992)

KAUFMANN (1999) discovered that the relative "credibility" of alternative actions (in this
example, to this decision maker) as well as some "propensity to act" affect the eventual
behaviour (without which the decision maker may not take any significant action).
"Credibility" requires that the behaviour be considered both desirable and practicable. Thus,
the entrepreneurial event necessitates the capacity to form a business, which necessitates the
credibility and desire to act that existed before to the displacement.

Brazeal and Krueger (1994) investigated the evidence that perceptions matter. He gives
examples of significant life events (such as job loss, migration, and so on) that result in
significant increases in entrepreneurial activity. Individuals' perceptions of the scenario
remained unchanged. The potential to be an entrepreneur was undeniably evident, but it went
unrealized. Some sort of displacement was required for that potential to arise. Furthermore,
he offers examples of instances in which just the subjective conditions have altered.

According to Krueger (1993), research shows that perceived trustworthiness, perceived

attractiveness, and inclination to act explain well over half of the variance in entrepreneurial
aspirations, with perceived feasibility explaining the most. If perceptions of situational
competence are unquestionably essential to intents and potential, KAUFMANN (1999)
indicates that self efficacy is another significant element that influences an individual's
intention to pursue entrepreneurship.

Perceived venture desirability

The concept of perceived desirability incorporates two appealing components of theory of

planned behaviour: "attitude toward the act" and "social norms." These two components are
inextricably linked.

Problems with attitude toward the act: views of what an individual considers personally
desirable are influenced by the consequences of executing the goal behaviour. A potential
entrepreneur may not be concerned with prestige, but he or she may be concerned about
being viewed as exploiting the community.

In entrepreneurship and innovation, perceptions of desirability are linked to intrinsic wants. A

significant issue here is an individual's choice of initiative; someone who loves managing
quick development may prefer a new venture over an already established firm (franchise).
Low-tech may be preferred over high-tech. According to the author, entrepreneurs differ
based on their preferences. (Stevenson, Roberts, & Grousbeck, 2004)
According to Brazeal and Krueger (1994), in order to encourage entrepreneurial behaviour in
a corporate setting such as a franchise, there should be appreciation for creative actions. This
includes both intrinsic and extrinsic benefits offered to franchisees. According to Moothilal
(2008), social norms play an important part in entrepreneurial activity since they are
expectations about what key people in our lives would think about us establishing our own
firm. In the case of a franchise, the potential entrepreneur's reference may be the franchisor
and their perceived beliefs, rather than family.

Perceived venture Feasibility

Perceived venture feasibility is a person's belief in his or her capacity to carry out a specific
behaviour. Someone with well-developed plans to start a new business is more likely to have
identified the barriers than someone with less serious intentions to establish a new business.
Threatening to raise business taxes may dissuade someone who is already planning to
establish a firm, affecting future entrepreneurs as well. (G. N & E, 1992).

According to Rabow, Berkman, and Kessler (1983), economically poor groups suffer from
deficiencies in self-efficacy — a lack of self-confidence or self-responsibility because they
believe they cannot rely on others to aid them.

Independent business face a wide range of challenges when starting a business, from
underestimating capital needs to incorrect assessment of market demand, to lack of
contingency plans. In a Franchise business, the franchisor itself presents obstacles in addition
to those presented by the marketplace, as well as those faced by franchisee themselves.Some
of the most rigorous obstacles in a franchise business is impatience of franchisor , lack of
franchisor commitiment to innovation , and unrealistic expectations which is stated by
(MacMillan, Block, & Narasimha, 1986)

Propensity to act

Shapero (1982) proposes that we may train people to be more self-reliant and self-managing,
rather than depending on others to perform all of the hard work for us. Self-management
skills, such as dealing with adversity, must be taught to franchise owners, and we may clearly
reward them for taking risks, even unsuccessful ones. The proclivity to act is linked to the
locus of control.

The demand for control is significantly connected with the commencement and continuation
of goal-directed behaviours, as well as with entrepreneurial goals.. (Krueger, 1993)
 Theories sustaining Franchise

 Leader members exchange theory

The leader member exchange (LMX) theory emphasises the relationship between a leader
and the group, but more crucially, specific members of the group (Batman, S., & Snell,
2015). Individual members' relationships must necessarily vary depending on the level of
maintenance between the parties, As a result, certain members receive more attention than
others, creating "in-group" and "out-group" dynamics (Lunenburg & C, 2010) .As a result,
the out-group receives less attention and benefits than the in-group (Aung, Ousawat, & T,
2019) ,and in the case of franchising, the franchisor must maintain trust, communication, and
respect with all members (franchisees). "This can lead to higher quality connections, trust,
and financial success across the network if people feel supported and treated fairly”. (Houng,
2011).

 Resource scarcity theory

According to, Oxenfeldt & Kelly(1969) the resource scarcity theory, franchising is a useful
avenue for promoting capital growth, management competence, and widespread country or
international experience. While the franchisor can quickly grow his company idea and the use
of his intellectual property by making franchise licences available, franchisors can share the
burden of raising the business's visibility and profitability with a proportionate investment of
their own resources (Roh, Tarasi, & Popa, 2013)The franchisor's limited resources can thus
be utilised for individual contributions by franchisees who gain access to a proven business
concept, enhancing their own prospects of success (Varotto & Silva, 2017)

 Transaction-cost Analysis

Transaction-cost analysis has at least two major implications for the problem of
ownership redirection when seen through the lens of franchising. The first is
concerned with the prospect of opportunistic behaviour as a driver for ownership,
while the second, based on specific transaction governance structures, is concerned
with the prediction of ownership of certain outlets based on the combination of
transaction and production costs. (Dant, Kaufmann, & Paswan, Ownership
Redirection in Franchised Channels, 1992).

 Signaling Theory

Signaling theory provides an alternate theoretical perspective on franchising. While previous

theories focused on internal firm restrictions, signalling theory focuses on the externalities of
market inefficiencies and knowledge asymmetries to explain franchising (Dant & Kaufmann,
2003). Using pricing, promotion, and warranty information, firms can provide information
about themselves and their products in an asymmetric information environment. (Lafontaine
F. , 1993). According to this approach, such inequalities are driven by two fundamental
forces: the nature of the subject under information search and people' failure to analyse
informational cues. Because of the intangible nature of the assets (knowledge, brand,
operational know-how), signalling is an important element in franchising (Dant & Kaufmann,
2003).

Franchise vs. independent

Comparison studies between franchisees as entrepreneurs and independent business owners
have occurred in the literature to a limited extent. In a review of 20 years of research on
small, independent retailers using the Small Business Administration definition, Runyan &
Droge, (2008) discovered seven important studies that contrasted independent versus
franchised small firms. Withane,( 1991) compared the success variables for franchisees
versus independent business owners and discovered that taking risks was the most essential
component in achieving success. Independent business proprietors, according to Knight ,
(1984), were more self-reliant, highly motivated, and independent-minded. According to
Bronson & Morgan , (1998) economies of scale explain why franchisees are more efficient
than independent enterprises. Except in extremely competitive contexts, retail franchises
performed slightly better, according to (Litz & Stewart, 1998). Kalnins & Mayer, (2004)
discovered that an owner's pleasant experience benefits numerous units, whether they are
franchised or not, and that local experience reduces failure rates.

Risk of franchising in the start-up phase

Stanworth , Purdy , Price, & Zafiris, (1998) analysed the survivability of franchised small
firms and studied the causes for their survival. They concluded that franchising is riskier than
independent enterprises in the starting phase if all franchise exits are counted as "franchise
deaths." A follow-up study looked at franchisors in the early stages of development and
discovered the same significant risk. Shane , (1996)discovered that new businesses that used
a hybrid growth strategy that included franchising fared better in terms of survival and
growth, even though most new franchising systems do not last more than ten years.
Incidence of franchising

Capital constraint and agency theory are two of the most compelling theories used to explain
the prevalence of franchising. When capital resources, management talent, or local market
expertise are scarce, capital constraint (resource scarcity) emerges (Combs & Castrogiovanni,
1994). The argument is usually applied to small organizations that lack the necessary finance
or managerial ability to expand (Norton , 1998).Franchising is stated to give these businesses
with the resources they need to speed expansion, attain a minimum efficient scale of
operation, and build a brand name and capital reserves ( (Caves & Murphy , 1976); (Martin ,
1998); (Oxenfeldt & Kelly, (1968-69)). However, citing financial portfolio theory, Rubin,
(1978) dismisses the capital constraint hypothesis. Franchising is thought to be an ineffective
method of raising money because the risk in a single unit is completely undiversified. Many
franchisors do, in fact, provide financing to their franchisees Frazer & Weaven, (2004)
implying that they do not rely solely on franchisee cash to expand.

The agency theory is an effort to characterise a relationship in which one party (the
principal/franchisor) delegates work to another (the agent/franchisee) (Jenson & Meckling,
1976)There are two issues with agency relationships. The first is the problem of information
asymmetry (hidden information), in which the principal is unaware of whether a prospective
franchisee possesses the necessary attributes ( (Axelrad & Rudnick, 1987); (Spake et al ,
1999).Moral hazard (hidden action) happens when a franchisee fails to perform at the desired
level after the contract has expired Brickley, Dark, & Weisbach, (1991), Eisenhardt, (1989b),
Mathewson & Winter , (1985), Rubin, (1978), Thomas et al., (1990). Franchisees use
incentive-based contracts to try to solve these two issues (Lafontaine & Slade, 1998 )

About efficiency incentives for franchisee

It's important to keep in mind that most agency models describe efficiency from the
perspective of the principal (Bergen, Dutta, & Walker , 1992). They refer to a franchisee's
incentive to maximise the value of his or her franchise, which improves the value of the
entire system to the franchisor's benefit. The franchisee's capacity to claim residual income
and the share of risk are the two key motivations Fama & Jensen, (1983). The assumptions of
agency theory include that agent are driven by self-interest, are rational actors, and are risk
averse (Eisenhardt, 1989b).As a result, principals can motivate agents by managing their
incentives (Gomez-Mejia & Balkin , 1992).
Motivation for independent owners

On the other hand, Individuals who start a small independent business are motivated by a
desire for independence, locus of control, goal setting, and egoistic enthusiasm (Shane, et al.,
2003; McClelland, 1965; Locke et al., 1984; Murphy and Riggio, 2003). Individuals with the
characteristics are passionate about their profession and believe they oversee their own
future. Shane et al., 2003; Robbins et al., (2001); McClelland, (1965); Janis and Mann,
(1977); Rowe and Boulgarides, (1992) state that autonomous small business owners must
achieve, possess self-efficacy, be high risk takers, and have a tolerance for ambiguity.

Image 1: Entrepreneurial Frameworks Conditions for the year 2020

Expert Ratings: 1 = highly insufficient, 5 = highly sufficient

 Variables and Definitions

Model variables affecting an individual decision for choice between franchise and
independent business

Variables Operational Definitions

Social Norms Social Norms are shared standards of acceptable
behaviour by a group or a society
Social Capital Informal Financiers or business angels , like
friends ,family , who provides financial resources
that an Entrepreneur needs
Financial Capital Entrepreneurs who obtain money from capital
markets to avoid capital constraints while starting
a business
Risk Preference An individual Tendency to choose a risky or less
risky option
Personal Traits Personality traits reflects people’s characteristics
patterns of thought, feelings, and behaviours.
Perceived Behavioural Control This refers to people’s perception of their ability
to perform a given behaviour
Knowledge Facts, information, skills acquired through
experience or education .

Psychology Personal characteristics and environment in

which the entrepreneur lives and social climate
plays a role in their decision

Innovation attitude Defined as the constant exploration of

opportunities in thinking, and above all doing it .
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