title: Factors influencing the decision to adopt multiple unit franchising arrangements
Creators: name: Weaven, Scott
Publisher: name: Griffith University
Year: 2004
Subjects: subject: franchises
subject: franchising
subject: multiple unit franchising
subject: Australia
subject: Australian

description: Franchising performs an important role in the production and distribution of goods and services. Current research suggests that much of the future growth in franchising in many world economies will be attributable to the growth in multiple unit franchising arrangements. Multiple unit franchising refers to an organisational arrangement in which franchisees are permitted to own more than one unit in the same franchise system. Although the Australian franchising sector has reached an early stage of maturity, the limited acceptance of multiple unit practices contrasts with overseas experiences. This remains a curious anomaly, as significantly higher levels of multiple unit ownership are observable in comparably mature markets in other countries. Multiple unit franchising appears a conceptually unsound alternative to traditional dyadic revenue sharing franchising relationships as it does not benefit from the structural and operational synergies commensurate with ownership attention at the unit level. Therefore, from the franchisor's perspective, multiple unit franchising appears a suboptimal alternative to traditional franchising. From the franchisee's perspective, alternative investment opportunities may present superior choices to multiple unit arrangements. Franchisees have only limited control of their organisation, pay substantial percentages of their gross revenues in the form of fees and royalties, and forgo the ability to capitalise on the growth in the value of their intangible assets. While these apparent disadvantages may be overcome by an individual's desire to 'buy a job', the reasons explaining a franchisee's desire to own multiple units is less clear. Recent research has attempted to explain the ubiquity and increasing popularity of this organisational form, given these operational disadvantages, albeit mostly from the perspective of the franchisor. Previous empirical research in the United States views multiple unit franchising as a driver of system growth, promoting system-wide adaptation to competition. However, this conventional wisdom fails to consider additional franchisor motivational incentives. Moreover, anecdotal evidence in the Australian franchising sector contrasts markedly with the relationships exposed in multiple unit analyses overseas. Thus, existing franchising research does not adequately capture the range of incentives motivating an entrepreneur's decision to elect the franchising channel of distribution. In addition, at this time no theoretical framework exists espousing the reasons that lead to a franchisee's adoption of these hybridised organisational forms. This has led some researchers to conclude that multiple unit franchising is in an embryonic stage. Further complicating our understanding of the choice of this organisational form is the absence of multiple unit incentives analysis in Australia. In addition to gaining valuable insights into current managerial practice, the first purpose of this research is to support informed decision-making in the future through an investigation of the fundamental and under-researched question of why franchisors choose to grow and expand through multiple unit arrangements. This research focuses upon theory development by integrating known concepts with newly identified motivational incentives that caveat the adoption of this organisational arrangement. These incentives are incorporated in a model of multiple unit franchising from the perspective of the franchisor. The model describes multiple unit franchising as a function of the context of franchise system context (age, system corporatisation, plurality of distribution, geographic dispersion of available units and level of existing intra-firm conflict), and strategic (ownership redirection, perceived future agency cost minimisation, and system rewards) factors. In an attempt to extend the cross cultural boundaries of previous franchising research, a given level of multiple unit expansion is described through the predicted outcome of franchise system growth. Secondly, this research investigates the reasons why franchisees become multiple unit holders. This process involved the integration of existing theories drawn from different disciplines and presents an integrated theoretical model explaining why individuals are driven to create their own subsystems within a franchisor-owned network. The multi-perspective approach is critical to advancing our understanding of the genesis of this organisational arrangement, and specifically the issues of who should engage in multiple unit franchising arrangements, and when franchisors and franchisees should sanction and adopt mini-chains within a single franchising system. Thus, this proposal addresses gaps in the literature by investigating the research question: What are the motivational incentives that influence franchisors and franchisees to adopt multiple unit franchising? That is, this thesis aims to identify the reasons that justify the existence of multiple unit franchising forms from the franchisor and franchisee perspectives. A three-stage methodological approach is used in this research. Franchisor motivations are examined within stages one and two. Franchisee motivations are detailed in section three. An examination of the parent disciplines of resource scarcity theory, agency theory, and the immediate discipline of multiple unit franchising resulted in the development of a preliminary conceptual model and general set of propositions explaining why franchisors choose to engage in multiple unit franchising arrangements. In stage one an exploratory survey of seven franchisors from a range of industries of different type, size and age was conducted using a convergent interviewing technique, to gather insights and reasons into multiple unit practices. The stage one findings were used to clarify and confirm the appropriateness of the conceptual model of multiple unit franchising. Permission was granted by the Franchise Council of Australia to include a limited number of questions in the Franchising Australia 2002 survey. In the (second) stage of this research, a sample of the population of franchisors in Australia was surveyed by an electronic questionnaire administered on the World Wide Web in June and July 2002. The resultant data was analysed to test a revised theoretical model of franchisor motivations to adopt multiple unit franchising arrangements. Inferential statistical tests were used to test the relationships hypothesised in the model of multiple unit franchising from the franchisor's perspective. The results built upon the inductive stage of the research, providing a descriptive snapshot of multiple unit franchising in Australia. The third stage of this research explored the factors influencing a franchisee's decision to become a multiple unit owner. Following a review of the predominantly single unit literature, a model and series of general propositions explaining multiple unit franchising was developed explaining multiple unit ownership in terms of subsystem size (expected decision making power and anticipated subsystem economies of scale), franchisee context (franchisee liquidity, entrepreneurial orientation), and strategic (pre-empt future intra-system competition) factors. The appropriateness of the conceptual model and propositions were tested through convergent interviews with ten multiple unit and nine single unit franchisees within a prominent fast-food system. This resulted in a revised conceptual model and general set of propositions that contribute to the development of existing theory and will form the basis of future empirical assessment. This research makes an original contribution to the body of knowledge about multiple unit practice through inductive analysis that not only recognises the reach of this franchising phenomenon, but also develops our theoretical understanding of why franchisors and franchisees engage in intra-firm mini-chain development. So, apart from gaining valuable insight into current managerial motivations and practice in Australia, a concomitant aim of this research is to enhance the generalisability of prior franchising theory developed in the United States through examination of the under-researched areas of why franchisors allow, and franchisees choose, to own more than one unit within the same franchising system. This research has contributed to the body of knowledge on franchising. Based upon the extant literature and exploratory analyses, models of multiple unit franchising from the franchisor and franchisee perspective were developed. It is the first empirical analysis of multiple unit franchising in Australia and provides a starting point for future research. This research has made a valuable contribution in being the first to: investigate multiple unit franchising in an Australian setting using primary data sources; utilise an inductive convergent interviewing technique to clarify and confirm the appropriateness of theories derived from the extant literatures; survey a large representative sample of Australian franchisors about multiple unit franchising; survey a sample of franchisees about multiple unit franchising; incorporate aspects of agency theory, resource constraints theory and multiple unit franchising to develop a model of multiple unit franchising; use a three-stage methodology involving qualitative and quantitative analyses; investigate motivations and factors influencing multiple unit franchising choice; introduce new constructs and reposition existing constructs into multiple unit franchising theory. In conclusion, this original and comprehensive research has found that more experienced Australian franchisors appear to adopt multiple unit franchising, possibly as a method of sustaining growth in units and system-wide sales. Furthermore, entrepreneurial franchisees appear to source private sources of equity in order to grow their holdings sequentially as they anticipate savings accruing from economies of scale while limiting competition within their franchise system.