Multi-Unit franchising and relational governance: A study of operating networks in Brazil
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Abstract
The relationship between relational governance mechanisms and multi-unit franchising, where a single franchisee owns and operates multiple units, has received limited attention in the existing literature. Previous studies primarily focus on the role of trust in such arrangements. Consequently, this study aims to develop and test a theoretical model that explores the association between a higher allocation of units to this type of franchisee and key attributes of relational governance, such as participation and communication. Adopting the franchisors’ perspective, our sample consists of 170 networks affiliated with the Brazilian Franchising Association (Associação Brasileira de Franchising [ABF]), and data were collected from various sources, including a self-administered questionnaire (based on data from 2018). The results provide support for our general hypothesis, indicating a positive association between relational aspects of the franchisor-franchisee partnership and a higher proportion of units owned by multi-unit franchisees. Additionally, we find that the operational sector (retail/service) and specific
local investments diminish the explanatory power of the model’s variables related to relational governance, suggesting a secondary influence on the decision-making process concerning the contractual mix.
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Bitti, E. J. S., Lanchimba, C., Vilcacundo, D., & Narváez, S. J. (2023). Multi-Unit franchising and relational governance: A study of operating networks in Brazil. Brazilian Administration Review, 20(3), e220068. https://doi.org/10.1590/1807-7692bar2023220068
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Research Articles
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References
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Bradach, J. L. (1995). Chains within chains: The role of multi-unit franchisees. Journal of Marketing Channels, 4(1-2), 65-81. https://doi.org/10.1300/J049v04n01_05
Bradach, J. L., & Eccles, R. G. (1989). Price, authority, and trust: From ideal types to plural forms. Annual Review of Sociology, 15, 97-118. https://www.jstor.org/stable/2083220
Bretas, V. P. G., Rocha T. V., Spers, E. E., & Melo, P. L. R. (2020). Modos de governança em redes de franquias internacionalizadas: seleção de parceiros e relacionamentos. Revista Brasileira de Marketing, 19(1). https://doi.org/10.5585/remark.v19i1.17139
Brookes, M. (2014). The dynamics and evolution of knowledge transfer in international master franchise agreements. International Journal of Hospitality Management, 36, 52-62. https://doi.org/10.1016/j.ijhm.2013.07.005
Calderon-Monge, E., & Pastor-Sanz, I. (2017). Effects of contract and trust on franchisor performance. Contemporary Economics, 11(4), 383-400. https://ce.vizja.pl/en/issues/volume/11/issue/4#art513
Carnahan, S., Agarwal, R., & Campbell, B. (2010, October). The effect of firm compensation structures on the mobility and entrepreneurship of extreme performers. Atlanta Competitive Advantage Conference, Atlanta, GA, USA.
Carson, S. J., Madhok, A., & Tao, W. (2006). Uncertainty, opportunism, and governance: The effects of volatility and ambiguity on formal and relational contracting. Academy of Management Journal, 49(5), 1058-1077. https://www.jstor.org/stable/20159816
Combs, J. G., Ketchen, D. J., Shook, C. L., & Short, J. C. (2011). Antecedents and consequences of franchising: Past accomplishments and future challenges. Journal of Management, 37(1), 99-126. https://doi.org/10.1177/0149206310386963
Chiou, J. S., Hsieh, C. H., & Yang, C. H. (2004). The effect of franchisors’ communication, service assistance, and competitive advantage on franchisees’ intentions to remain in the franchise system. Journal of Small Business Management, 42(1), 19-36. https://doi.org/10.1111/j.1540-627X.2004.00095.x
Dada, O. L. (2018). A model of entrepreneurial autonomy in franchised outlets: A systematic review of the empirical evidence. International Journal of Management Reviews, 20(2), 206-226. https://doi.org/10.1111/ijmr.12123
Dant, R. P., Weaven, S. K., Baker, B. L., & Jeon, H. J. (2013). An introspective examination of single-unit versus multi-unit franchisees. Journal of the Academy of Marketing Science, 41, 473-496. https://doi.org/10.1007/s11747-011-0265-2
Dwyer, F. R., & Oh, S. (1988). A transaction cost perspective on vertical contractual structure and interchannel competitive strategies. Journal of Marketing, 52(2), 21-34. https://doi.org/10.2307/1251262
Dyer, J. H., & Singh, H. (1998). The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23(4), 660-679. https://doi.org/10.2307/259056
Garg, V. K., & Rasheed, A. A. (2003). International multi-unit franchising: An agency theoretic explanation. International Business Review, 12(3), 329-348. https://doi.org/10.1016/S0969-5931(03)00019-2
Garg, V. K., Priem, R. L., & Rasheed, A. A. (2013). A theoretical explanation of the cost advantages of multi-unit franchising. Journal of Marketing Channels, 20(1-2), 52-72. https://doi.org/10.1080/1046669X.2013.747859
Ghantous, N., & Alnawas, I. (2021). Zooming in on co-creation practices of international franchisors. Industrial Marketing Management, 92, 1-13. https://doi.org/10.1016/j.indmarman.2020.10.014
Ghantous, N., & Christodoulides, G. (2020). Franchising brand benefits an integrative perspective. Industrial Marketing Management, 91, 442-454. https://doi.org/10.1016/j.indmarman.2020.10.009
Ghantous, N., & Das, S. (2018). International franchising and performance: A resource-based perspective. International Journal of Retail and Distribution Management, 46(8), 744-763. https://doi.org/10.1108/IJRDM-10-2017-0244
Gillis, W. E., Mcewan, E., Crook, T. R., & Michael, S. C. (2011). Using tournaments to reduce agency problems: The case of franchising. Entrepreneurship: Theory and Practice, 35(3), 427-447. https://doi.org/10.1111/j.1540-6520.2011.00438.x
Gorovaia, N., & Windsperger, J. (2013). Determinants of knowledge transfer strategy in franchising: Integrating knowledge-based and relational governance perspectives. Service Industries Journal, 33(12), 1117-1134. https://doi.org/10.1080/02642069.2011.632003
Grandori, A. (2006). Innovation, uncertainty, and relational governance. Industry and Innovation, 13(2), 127-133. https://doi.org/10.1080/13662710600684290
Griessmair, M., Hussain, D., & Windsperger, J. (2014). Trust and the tendency towards multi-unit franchising: A relational governance view. Journal of Business Research, 67(11), 2337-2345. https://doi.org/10.1016/j.jbusres.2014.01.009
Grünhagen, M., & Dorsch, M. J. (2003). Does the franchisor provide value to franchisees? Past, current, and future value assessments of two franchisee types. Journal of Small Business Management, 41(4), 366-384. https://doi.org/10.1111/1540-627X.00088
Grünhagen, M., & Mittelstaedt, R. A. (2002). Is bigger better?: The anticipation of scale efficiencies and decision participation as motivations for aspiring multi-unit franchisees. International Journal of Entrepreneurial Behaviour & Research, 8(3), 188-200. https://doi.org/10.1108/13552550210436512
Grünhagen, M., & Mittelstaedt, R. A. (2005). Entrepreneurs or investors: Do multi-unit franchisees have different philosophical orientations? Journal of Small Business Management, 43(3), 207-225. https://doi.org/10.1111/j.1540-627X.2005.00134.x
Heide, J. B., & John, G. (1992). Do norms matter in marketing relationships? Journal of Marketing, 56(2), 32-44. https://doi.org/10.2307/1252040
Hendrikse, G., Hippmann, P., & Windsperger, J. (2015). Trust, transaction costs, and contractual incompleteness in franchising. Small Business Economics, 44(4), 867-888. https://doi.org/10.1007/s11187-014-9626-9
Hussain, D., Perrigot, R., Mignonac, K., Akremi, A. E., & Herrbach, O. (2013). Determinants of multi-unit franchising: An organizational economics framework. Managerial and Decision Economics, 34(3-5), 161-169. https://doi.org/10.1002/mde.2580
Hussain, D., Sreckovic, M., & Windsperger, J. (2018). An organizational capability perspective on multi-unit franchising. Small Business Economics, 50(4), 717-727. https://doi.org/10.1007/s11187-017-9891-5
Jap, S. D., & Ganesan, S. (2000). Control mechanisms and the relationship life cycle: Implications for safeguarding specific investments and developing commitment. Journal of Marketing Research, 37(2), 227-245. https://doi.org/10.1509/jmkr.37.2.227.18735
Jeffries, F. L., & Reed, R. (2000). Trust and adaptation in relational contracting. Academy of Management Review, 25(4), 873-882. https://doi.org/10.2307/259212
Jindal, R. (2011). Reducing the size of internal hierarchy: The case of multi-unit franchising. Journal of Retailing, 87(4), 549-562. https://doi.org/10.1016/j.jretai.2011.07.003
Kalnins, A., & Lafontaine, F. (2004). Multi-unit ownership in franchising: Evidence from the fast-food industry in Texas. RAND Journal of Economics, 35(4), 747-761. https://doi.org/10.2307/1593771
Lee, K.-J. (2017). Knowledge sharing in a franchise system: Franchisee self-leadership, satisfaction, and compliance. International Journal of Contemporary Hospitality Management, 29(12), 3101-3118. https://doi.org/10.1108/IJCHM-03-2016-0178
Liu, T. C., Chen, J. V., & Hsu, P.-Y. (2014). Opportunity recognition and cooperation flexibility of entrepreneurial franchisees. Industrial Management and Data Systems, 114(4), 506-525. https://doi.org/10.1108/IMDS-06-2013-0280
Maalouf, J. T., Combs, J., Gillis, W. E. , & Perryman, A. (2020). Replicate or adapt? Franchising and organizational routines. Journal of Knowledge Management, 24(4), 775-798. https://doi.org/10.1108/JKM-09-2019-0493
Madanoglu, M., Lee, K., & Castrogiovanni, G. J. (2011). Franchising and firm financial performance among U.S. restaurants. Journal of Retailing, 87(3), 406-417. https://doi.org/10.1016/j.jretai.2011.02.003
Mainardes, E. W., Gomes, V. C. A., Marchiori, D., Correa, L. E., & Guss, V. (2019). Consequences of customer experience quality on franchises and non-franchises models. International Journal of Retail & Distribution Management, 47(3), 311-330. https://doi.org/10.1108/IJRDM-09-2018-0211
McCullagh, P., & Nelder, J. A. (1989). Generalized linear models (2nd ed.). Chapman and Hall.
Meek, W. R., Davis-Sramek, B., Baucus, M. S., & Germain, R. N. (2011). Commitment in franchising: The role of collaborative communication and a franchisee’s propensity to leave. Entrepreneurship: Theory and Practice, 35(3), 559-581. https://doi.org/10.1111/j.1540-6520.2011.00445.x
Meiseberg, B., & Perrigot, R. (2020). Pricing-based practices, conflicts, and performance in franchising. European Management Journal, 38(6), 939-955. https://doi.org/10.1016/j.emj.2020.04.004
Moon, J., & Sharma, A. (2014). Franchising effects on the lodging industry: Optimal franchising proportion in terms of profitability and intangible value. Tourism Economics, 20(5), 1027-1045. https://doi.org/10.5367/te.2013.0336
Moorman, C., Zaltman, G., & Deshpande, R. (1992). Relationships between providers and users of market research: The dynamics of trust within and between organizations. Journal of Marketing Research, 29(3), 314-328. https://doi.org/10.2307/3172742
Morgan, R. M., & Hunt, S. D. (1994). The commitment-trust theory of relationship marketing. Journal of Marketing, 58(3), 20-38. https://doi.org/10.1177/002224299405800302
Myers, R. H., Montgomery, D. C. (1997). A tutorial on generalized linear models. Journal of Quality Technology, 29(3), 274-291. https://doi.org/10.1080/00224065.1997.11979769
Nelder, J. A., & Wedderburn, R. W. M. (1972). Generalized linear models. Journal of the Royal Statistical Society, 135(3), 370-384. https://doi.org/10.2307/2344614
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