Franchising Research: A Literature Review and Synthesis

In the last 20 years, a significant amount of research on franchising has been conducted in various disciplines, including economics, law, management, marketing, and management science. A major goal of this article is to provide a comprehensive overview of the existing literature. A second goal of this article is to enumerate steps that can be taken to improve both the rigor and relevance of franchising research. Since this represents an initial overview of a very broad research field, we have not attempted to develop a tightly focused research agenda on any one topic. Instead we present several relatively general, widely applicable suggestions that can significantly improve future research. We first split existing research into three categories and provide reasons for this split. Each of the categories is then reviewed, and suggestions are offered to improve research. Finally, methodologies for franchising research are discussed. Franchising sales of goods and services in the U.S. are estimated at $758 billion (U.S. Department of Census 1994), with further expansion expected (Hoffman and Preble 1991). There are 2,177 franchisors with 542,000 units (U.S. Department of Census 1994); 374 U.S. franchisors operate about 35,000 franchised units abroad, 75 percent of which are in Canada, Japan, Western Europe, and Australia (U.S. Department of Commerce 1988; U.S. Department of Census 1994). Franchising is an important means of doing business for many entrepreneurs. It is suited for environments characterized by intense competition, rapidly changing customer tastes, and a trend towards localized market segments. It provides large company advantages such as economies of scale in marketing and production while providing for entrepreneurial discretion at the unit level. Franchising is an organizational form in which a company grants an individual or another company the right to do business in a prescribed manner over a certain period of time in a specified place in return for royalties or the payment of other fees. The company granting the right is termed the "franchisor," the receiver of the right is the "franchisee," and the right is the "franchise" (U.S. Department of Commerce 1988; Hisrich and Peters 1989). The outlet or the operational establishment where the franchising operation is conducted is called the "franchised unit. " A franchisor usually has a number of franchised units. Units that are owned by the franchisor and operated by its employees are referred to as "company-owned units. " The word "franchising system" refers to the franchisor and all units (both franchised and company-owned). Franchising systems can be broadly divided into two types. "Product/Trade Name" franchising is a relationship between the supplier and the dealer in which the dealer agrees to acquire some of the identity of the supplier in order to become the preferred source of the supplier's goods. "Business Format" franchising is an ongoing relationship between the franchisor/franchisee that not only includes product, service, and trademark, but also the entire concept of the business (U.S. Department of Commerce 1988). Overview of the Research No major review of franchising research has ever been published. As a result, we first made an attempt to locate all published research on franchising. (1) We were aware of several articles at the time we started the study. We also searched major computerized indexes for articles on franchising. In addition, we knew of some journals that were not included in the computerized indexes but do publish franchising research. We searched the contents indexes of these journals. All articles that we found were fully reference-checked in an attempt to locate any published research on franchising. Brief summaries of each work were written. (An annotated bibliography providing short summaries of 99 articles on franchising is available.(2)) We then analyzed the literature in order to develop an in-depth understanding of the current state of the field. …