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This paper is part of on‐going research examining the growth of small and medium‐sized enterprises through franchising. It reports the findings of an exploratory investigation that examines why franchising is selected less frequently as a growth strategy in some industrial sectors than it is in others. The applicability of the main theories used to explain the decision to franchise are tested through a study which focuses on the UK construction industry, a sector containing relatively few franchised operations. It reveals that the high human capital requirement of this industry (as proxied by average wages) may make it unsuitable for franchising. Interviews with franchisors operating in the construction industry indicate that, although few operational difficulties are encountered, the franchisors had experienced severe difficulties in recruiting suitable franchisees, possibly reflecting the high human capital requirement of the sector. It is concluded that further research is needed to compare these findings with those from industry sectors in which the level of franchise representation is high, to determine whether some industries are, in fact, more suited to franchising than others.

Conversion franchising is a strategy where franchisors recruit existing franchisees from rival systems or by converting independent businesses to franchisees. The present research aims to investigate the attractiveness of conversion offers and the likelihood of such offers being accepted under different conditions of the franchising agreement.

Based on commitment theory and agency theory, it is hypothesised that conversion likelihood will be larger if the conversion offer is more attractive in terms of relational benefits, relational costs, the management of control in the franchise relationship, or perception of brand strength. The study comprises a qualitative phase followed by a scenario experiment held among 415 Australian business format franchisees across six industries.

The qualitative findings reveal a predominantly calculative attitude towards the franchise relationship. The experimental findings support that relational costs and perception of brand strength are unconditional drivers of conversion likelihood; however, the effects of relational benefits and power and control depend on the details of the conversion offer. Effects of relational benefits depend on the level of power and control. More experienced franchisees and service-based franchisees are more likely to convert.

The use of experimental case scenarios limits the external validity but enhances the internal validity by allowing control for factors that are difficult to account for in survey-based approaches. The study includes only franchisees from Australia although from a range of industries. The proposed methodology can be easily modified for other contexts.

The results can help franchisors tailor conversion proposals to suit specific conversion targets based on experience and industry type. Franchisors should generally focus on developing conversion proposals that are attractive in terms of perceived brand strength and relational costs. Relational benefits and management of power and control appear to play a role only in particular circumstances. For example, when no other factors differentiate the competitor, the management of power and control can make a difference in indicating franchise support quality and level of control among franchisees.

The study extends franchising research to the franchisee perspective and to a non-American context. It utilises an experimental approach that hitherto had not been applied in franchising research, allowing rigorous testing of hypotheses about franchise behaviour. Hypotheses are tested for different industry groups.

The franchising business becomes an essential to the economy of Malaysia and social. It also considers a popular choice to develop entrepreneurs particularly among Bumiputera in Malaysia. Recognizing the importance of the franchising business, the Government of Malaysia through the Ministry of Domestic Trade and Consumer Affairs (MDTCA) has developed programs and activities to accelerate growth of the franchising business. In February 2020, a total of 915 franchise systems or franchisors have been registered under Malaysia Franchise and subsequently few franchisors have penetrated worldwide such as in Saudi Arabia, Indonesia, United State of America, and Australia. At the same time, Perbadanan Nasional Berhad (PNS) and Malaysia Franchise Association also strongly take part in many franchise initiatives, programs, and activities to support the development of franchising business in Malaysia. Besides that, Malaysia also has developed the Franchise Act to safeguard the franchising industry. Nevertheless, there still exist some issues and challenges. Hence, this paper aims to review the franchising business in Malaysia by discussing the development of franchise business in Malaysia, the supports, and the issues and challenges.

The existing research finds a positive financial impact of franchising for relatively short time windows, usually less than ten years. As a result, these studies leave one critical research question unanswered: does franchising influence restaurant firms' financial performance consistently in the long term? The purpose of this paper is to address the research question and offer relevant managerial implications.

This study uses and expands the models derived from Ohlson, from Amir and Lev and from Lev and Zarowin to address the financial impacts of franchise in the restaurant industry from a long-term and consistent perspective.

Carrying out empirical tests over all ten-year testing windows that span 1980-2010 with quarterly data, this study finds that franchising is an effective mechanism to systematically and consistently outperform non-franchise firms in the long term and provides compelling empirical evidence to answer the research question. Further, limited-service restaurants also exhibit consistent and positive impacts on firm financial performance in the long term, suggesting limited-service operations are also effective to enhance firm value and outperform competitors.

First, this study expands the set of variables employed by many financial researchers to explain stock price in the restaurant industry. Second, this study tests and shows that franchising systematically leads to financial outperformance over the long term. Third, this study tests and shows that limited service restaurants consistently and systematically outperform their peers in the long run. Finally, the results of this study can be used to help investors and fund managers select restaurant company stocks and offer compelling evidence in support of franchising and limited service operations.

In The Times (10th July 1992) the following by line appeared on p1 ‘Body Shop wins unholy row with businesswoman’; announcing that Sir Peter Pain, sitting as a High Court judge, had granted an injunction restraining a Mrs Pauline Rawle, who was described as ‘an evangelical Christian woman’ from using the ‘Body Shop’ name in respect of six franchised shops in Bromley, Maidstone, Canterbury, Romford and Croydon (2 branches). It was alleged that the ‘close relationship’ essential to the franchise contract between Mrs Rawle and the Body Shop ‘had clearly broken down’. Mrs Rawle allegedly told staff to have nothing to do with Body Shop representatives and alleged a conspiracy against her and comparing herself with God and the Body Shop organisation to Satan! Mass dismissals of staff followed and the franchises were temporarily closed and re‐opened with inferior standards. This case is one of the few reported decisions on franchise operation in the UK.

This paper describes the status quo of the Austrian franchise situation. Judging from current trends, the future of franchising seems to have a bright outlook in Austria. The growth in franchising is a result not only of the increasing number of homegrown systems, but also of the influx of foreign franchise systems. Recently, there has been an increase in information and consulting activities as a result of the growing demand. Owing to the fact that little research on franchising in Austria has been done so far, there is a wide area for further investigation on this subject.

The purpose of this study is to explore the franchise relationship in China, focusing on the relational constructs of power, control, support and conflict in this developing franchise environment. Agency theory has dominated franchise research. A more rounded theoretical interpretation of the franchising relationship is offered by employing both agency theory and institutional theory perspectives.

The study adopts an interpretive approach, employing in-depth interviews with franchisors and franchisees in nine franchise organisations operating in the retail sector in China. It contributes a fuller understanding of how to manage the research process in China.

The study reveals how the relational constructs of power, control, support and conflict are manifest in the franchise relationship in China. The explanatory power of agency theory is apparent when viewed in terms of the vertical agency problem. However, free-riding outside the franchise system, in the form of counterfeiting, mitigates against the occurrence of free-riding within it. With regard to institutional theory, we demonstrate that the regulatory institutional pillar is a crucial foundation for the franchise relationship.

The study offers insights for franchisors and franchisees considering franchise relationships in China.

For the first time in the literature, this study offers insights into key elements of the franchise relationship in China. Employing both agency and institutional theories facilitates a rounded explanation of the developing franchise environment in China.

Internationalization, entrepreneurship, franchising, international marketing.

First year undergraduate students of Management courses.

This case is about a newly established fast food company that expands very rapidly in Malaysia. Growing from merely a single pushcart, the company has evolved into one of the most successful purely-local food franchise businesses with almost 100 franchises throughout the country and abroad. The company keeps on looking at bigger expansion plans abroad and eyeing the Middle Eastern markets.

After carrying out this exercise, students are expected to be able: to understand how a new business start up grows; to provide a simple illustration on how internationalization of small firms can took place; to analyze the various factors of considerations prior to internationalization; to identify the basic issues of international franchising and how the system works.

Teaching note.

Uses comprehensive data on the geographical and industry distribution of company‐owned and franchised outlets in franchise chains to test hypotheses on the ownership fror choice in US state markets. Comfirms the importance of geographical factors, associating company ownership with urbanization and/or higher population densities, an therefore concluding that in these cases monitoring cost are lower. Concludes further that franchising supplement the financing of the chain and is particularly useful in achieving rapid growth.

As franchisees are independent entrepreneurs, one important part of the business format that franchisors are not allowed to impose on their franchisees is resale prices. They are only allowed to indicate a recommended or a maximum price. This study aims to look further into the capabilities underlying the calculation of resale prices and suggests that price-setting is part of both the “business know-how” transferred to franchisees and the “organizational know-how,” that is, capabilities developed and kept at the franchisor level.

This study adopted a qualitative methodology with a total of 65 interviews, 19 with franchisors and 46 with franchisees, all operating in the French market.

The findings show that resale pricing is a process that involves know-how. The complexity of pricing leads to develop specialized and broad capabilities. The first type of know-how, i.e., business know-how transferred to franchisees, deals with operational implementation of recommended resale prices in the stores. The second type, i.e., organizational know-how, not transferred as a safeguard against opportunism, connects across other functions of the franchise chain such as R&D and communication.

This study confirms the existence and relevance of another kind of know-how apart from the business know-how that is transferred to the franchisees. Organizational know-how at the chain level, though often neglected, is a necessary determinant of sustaining a competitive advantage. This know-how is not transferred to the franchisees but contributes to the success and sustainability of the franchisor/franchisee relationship. Franchisors should thus work on improving their capabilities to better support their franchisees. Moreover, this study highlight the complexity and extreme importance of setting the right resale price.