Antecedents of early terminations in franchising: franchisor versus franchisee cancelations

Abstract

Franchisors capitalize on franchisee entrepreneurial capacity to grow. However, enabling franchisees to develop their ventures may damage system consistency. This dilemma makes conflict particularly prevalent in the field of franchising. Nevertheless, prior research has reported an incomplete picture of factors leading to serious disagreement and premature termination in franchise partnerships. We address this gap, first, by adding the entrepreneurial autonomy of franchisees as a relevant but underexplored source of conflict and, second, by providing a more fine-grained analysis of franchisors' versus franchisees' drivers of termination. Specifically, we focus on the controversial issues of pricing and local advertising policies and analyze how expanding franchisees' entrepreneurial autonomy in these decision areas is related to contract terminations depending on who ended the relationship (the franchisor or a franchisee). The study also highlights less controversial requirements and conditions (e.g., upfront investments, franchisor experience …) that may reduce early terminations. Our empirical objectives are met by using survey data from a sample of franchisor companies. The results show how the performance outcomes of entrepreneurial autonomy differ depending on the decision area in which it is exercised. Results also throw light on the consequences of various critical franchise policies that may be masked if both types of termination (franchisors vs. franchisees) are considered together.

“Conflict-performance assumption” or “performance-conflict assumption”: Insights from franchising

“…In relational contracting, "enforcement of obligations, promises, and expectations occurs through social processes that promote norms of flexibility, solidarity, and information exchange" (Poppo and Zenger, 2002, p. 710). However, if franchisees perceive that their objectives are not met, they can be placed out of their zone of tolerance, be dissatisfied and there is potential for conflict (Spinelli and Birley, 1996), Moreover, if resolutions are not satisfactory, this may damage the relationship thus increasing conflict through its different stages and conflict may have long-lasting effects (Winsor et al, 2012;López-Fernández and López-Bayón, 2018). Gillis and Castrogiovanni (2012, p. 91) explained that "there is limited knowledge on the firm performance associated with franchising, which underscores the need for a more comprehensive understanding of the link between the antecedents to franchising and the consequence of firm performance."…”

“…On the other hand, the stream of literature covering conflicts in franchising has mainly been directed toward its sources and consequences. For example, many papers on sources of conflicts deal with structural features (e.g., Frazer and Winzar, 2005), functional policies (e.g., López-Fernández and López-Bayón, 2018) and issues related to ongoing relationships (e.g., Weaven et al, 2010) that make overall reference to the economic interdependence of partners. Another body of research looks at distribution of power (e.g., Argyres and Bercovitz, 2015) in the franchise relationship as a source of friction.…”

Franchisees with multiple stakeholder roles: perceptions and conflict in franchise networks

“…Investigating the relational constructs of support and conflict in franchising in China, Doherty et al (2014) find that non-compliance and counterfeits by franchisees are among the most prominent reasons for conflict. Building on agency theory, López-Fernández and López-Bayón (2018) examine the antecedents of early franchise relationship terminations, finding that franchisees' entrepreneurial autonomy reduces terminations.…”

Franchising microbusinesses: coupling identity undoing and boundary objects

“…The modern franchise business model has a long history (Dant et al, 2011;López-Fernández and López-Bayón, 2018;Pardo-del-Val et al, 2014) and continues to contribute significantly to the global economy (Dant et al, 2011;Gillis et al, 2018;Watson and Johnson, 2010).…”

“…The literature examining how franchisors adjust as their systems age (Hossain and Wang, 2008) is remarkably silent about the individual-level experience of converting a conventional business into a franchise system. Instead, the emphasis is more on post-startup management and strategy variables such as franchisor-franchisee relationships (e.g., Dada and Watson, 2012;Jang and Park, 2019;López-Bayón and López-Fernández, 2016;López-Fernández and López-Bayón, 2018; Watson and Johnson, 2010), ownership structure (e.g., Dant et al, 2008;Kaufmann and Eroglu, 1999), and network size (e.g., Kacker et al, 2016).…”