Cliquet / Hendrikse / Tuunanen Economics and Management of Networks

Franchising, Strategic Alliances, and Cooperatives
2007
ISBN: 978-3-7908-1758-4
Verlag: Physica
Format: PDF
Kopierschutz: Wasserzeichen (»Systemvoraussetzungen)

E-Book, Englisch, 465 Seiten, eBook

Reihe: Contributions to Management Science

Previous research on the institutional structure of franchising networks (Bri- ley et al. 1991; Lutz 1995; Shane 1998; Lafontaine and Shaw 1999, 2005; - fuso 2002; Penard et al. 2003a,b) does not explain the governance structure of the franchising firm as an institutional entity that consists of two interrelated parts: Residual decision rights and ownership rights. The latter includes not only residual income rights of franchised outlets but also residual income rights of franchisor-owned outlets. Previous studies primarily examines the incentive, signalling and screening effects of fees, royalties and other contractual pro- sions from the point of view of organizational economics (see Dnes 1996 for a review) without taking into account the interactions between residual decision and residual income rights as interrelated parts of the governance structure. This paper fills this gap in the literature. According to the property rights view, de- sion rights should be allocated according to the distribution of intangible kno- edge assets between the franchisor and franchisee and ownership rights should be assigned according to the residual decision rights. Since ownership rights are diluted in franchising networks, the dilution of residual income rights of fr- chised outlets is compensated by residual income rights of company-owned o- lets. Under a dual ownership structure, company-owned outlets compensate the disincentive effect of low royalties for the franchisor, and low royalties strengthen the investment incentives for the franchisee.

Zielgruppe

Research

Autoren/Hrsg.

Cliquet, Gérard

Hendrikse, Georg

Tuunanen, Mika

Windsperger, Josef

Hendrikse, George

Inhaltsverzeichnis

Introducing ‘Economics and Management of Networks’.- Introducing ‘Economics and Management of Networks’.- Franchising.- Plural Form in Franchising: An Incomplete Contracting Approach.- Franchisee Versus Company Ownership — An Empirical Analysis of Franchisor Profit.- Existence of the Plural Form Within Franchised Networks: Some Early Results from the US and French Markets.- The Governance Structure of Franchising Firms: A Property Rights Approach.- Governance Inseparability in Franchising: Multi-case Study in France and Brazil.- Entrepreneurial Autonomy, Incentives, and Relational Governance in Franchise Chains.- Beneficially Constraining Franchisor’s Power.- A Cointegration Analysis of the Correlates of Performance in Franchised Channels.- Franchised Network Efficiency: A DEA Application to US Networks.- Franchising as Entrepreneurial Activity: Finnish SME Policy Perspective.- Creating Franchised Businesses Through Franchisee Training Program — Empirical Evidence from a Follow-up Study.- Understanding Strategic Interactions in Franchise Relationships.- Strategic Alliances.- Administrative and Social Factors in the Governance Structure of European R&D Networks.- Firm and Industrial Organization Frontiers: An Empirical Model of Inter-firm Network in the Winter Sports Industry.- The Influence of Financial Institutions and Investor Behaviour on Company Management Practice.- International Audit Firms as Strategic Networks — The Evolution of Global Professional Service Firms.- International Joint Venture Performance: Impact of Performance Measures and Foreign Parent, Target Country and Investment Specific Variables on Performance.- Cooperatives.- Orientation in Diversification Behavior of Cooperatives: An Agent-Based Approach.- Organization and Strategyof Farmer Specialized Cooperatives in China.

Leseproben

Franchisee Versus Company Ownership – An Empirical Analysis of Franchisor Profit (P. 31)

Thomas Ehrmann and Georg Spranger
Abstract.
In this paper, we examine ownership structures of franchise chains and evaluate their impact on franchisor profit. Specifically we compare pure forms of franchising with those that use both company-owned and franchised outlets within one chain – a phenomenon termed the plural form. Theoretically such plural arrangements are supposed to provide franchisors with lower costs, higher growth, greater total-quality, and reduced business risk.

Empirical results of this study indicate the superiority of company-owned businesses over franchised units in generating franchisor profits. Moreover plurally organized systems compensate for losses from franchising with profits from company units and outperform purely franchised competitors in overall profitability. Despite a clear financial inferiority of franchise outlets, franchisors of our sample do not convert plural structures into wholly-owned chains. Much more when organizing the chain, franchisors face an (skewed) inverse u-shaped profitablity curve with both pure franchising and pure company-ownership lying at the (undesirable) extremes and with a performance peak somewhere in between.

Keywords.
Franchising, plural form, ownership redirection, company ownership, chains

1 Introduction
"As all of you know, the name of the game is not really franchising. The name of the game is company stores. …It becomes obvious to you, if two hundred company- owned units out of 1600-1700 overall units produce 60 percent of the net after tax profit, the real name of the game is owning the stores yourself" Economic transactions within firms are organized either by hierarchy or by price mechanisms – or by a mixture of both.

Concerning the matter of franchising, only a minority of today’s leading franchise chains relies on pricing systems alone. The vast majority operates a minor but still significant number of company-owned stores (the hierarchy) side by side with their franchisees (the price system). Since Bradach and Eccles (1989) examined such special hybrid arrangements, mixes of company and franchise units within the same system, have been known as plural forms.

In contrast to early research propositions by Oxenfeldt and Kelly (1968), Hunt (1973), Caves and Murphy (1976) and Martin (1988), plurally organized franchise chains have not significantly altered their structure into entirely franchised or company-owned systems. Thus plural forms appear to be a stable organizational phenomenon. Upon these findings, organization science began to explain the widespread use of plural forms by researching its advantages over pure franchise systems (Bradach 1997, Ehrmann and Spranger 2004).

Compared to pure hierarchy (full vertical integration) or pure price systems (pure franchise chain), plural forms are firstly supposed to lower overall agency (i.e. monitoring) cost and the cost of searching for and implementing local and highly specific information. Secondly, it is argued that plurality improves system and process quality by the following effects: By signaling internal franchisor information to the franchisee, thus overcoming inefficiencies arising from asymmetrical information, by preventing conflicts among contracting parties through aligning divergent interests of principals (franchisors) and potential agents (potential franchisees),