فرانچایزینگ به عنوان یک سیستم کثرت گرا : توضیحی مبتنی بر ریسک

Empirical studies show that most franchise systems consist of both franchisee-owned and franchisor-owned units. We contribute a new theory that explains why such a mixture exists, using a model that focuses on the franchisor's optimal risk allocation. The costs of risk and controlling franchised units explain the varying fraction of franchisee-owned to total selling units, and the incentive to franchise decreases with an increasing fraction of franchisee-owned to total selling units, as well as with decreasing costs of control. Our explanation for these plural systems is consistent with the ownership redirection hypothesis.

When buying at an outlet, most customers do not know whether it is a franchisee- or franchisor-owned branch. According to franchisors and franchisees, this situation marks a success, because it indicates that the franchisor has successfully transferred its brand name to the franchisee. A naïve assumption might suggest a system containing uniform outlets uses either a pure franchise system or a pure company-owned system, depending on which form proves superior in the particular conditions. However, franchise systems usually contain some company-owned outlets; that is, franchise systems generally are plural systems rather than pure franchise systems. Bradach (1997) reports that of the 100 largest U.S. restaurant chains, 74 employ plural systems, 22 are systems with exclusively system leader-owned units, and only 4 represent pure franchise systems. This article contributes a new explanation for the existence of plural systems that specifically considers the fraction of franchisee-owned outlets versus the fraction directly operated by the franchisor. Several existing theoretical and empirical studies address the ownership patterns of franchise systems, mostly by examining changes in ownership patterns as franchise systems mature (Dant and Kaufmann, 2003, Dant et al., 1992, Dant et al., 1996, Hunt, 1973, Lafontaine, 1993, Lafontaine and Kaufmann, 1994 and Lafontaine and Shaw, 1999) on the basis of various theoretical backgrounds and concepts, such as the resource acquisition (Caves and Murphy, 1976, Norton, 1988 and Oxenfeldt and Kelly, 1968) and signaling (Gallini and Lutz, 1992 and Lafontaine, 1993) theories of franchising. However, no previous studies attempt to determine the percentage of franchisees in the system by taking into account the franchisor's risk considerations. We examine how franchisor risk and related costs develop when outlets convert from franchisee- to franchisor-owned units or vice versa and base our findings primarily on the franchisor's risk assessments, which have been largely ignored in the literature thus far,1 even though risk assessments play significant roles in explaining unit-level decisions. According to agency theory, the franchisor's goal conflict consists of stimulating a selling incentive versus allocating risk efficiently, which prompts fixed transfer payments and sales shares (Lafontaine, 1992 and Lal, 1990). In this sense, the typical assumption that franchisees are more risk averse than franchisors appears plausible because of the common relative proportions of size by the two parties. We focus on the risk reduction the franchisor can achieve when it substitutes a franchisor-owned with a franchisee-owned unit, which it does as long as its costs of control remain sufficiently low. This conceptualization may seem counterintuitive at first, because risk is shifted to the more risk-averse franchisee, which should increase the cost of risk for the whole system. However, from solely the franchisor's perspective, increasing the percentage of franchisee-owned units decreases its risk and thereby reduces the costs associated with financing, in that the franchisor substitutes part of the variable income it earns from its franchisor-owned units to fixed income it obtains from franchisee-owned units. If the franchisor minimizes the costs associated with risk taking and control of the system, the preferred system structure will include both franchisor- and franchisee-owned units, and the fraction of franchisee-owned units should depend on the costs the franchisor incurs to take risks and control the system. We organize the remainder of this article as follows: In the next section, we provide a brief overview of extant literature that attempts to explain the existence of plural systems. Then, we examine whether it is possible to make a definitive statement about the optimal fraction of franchisee-owned units, or the optimal ratio of franchisee-owned to the total number of outlets. Subsequently, we develop a new approach that explains the combinations of franchisee- and franchisor-owned outlets in one system. Finally, we clarify why such risk transfer within the framework of a franchising system affects the fraction of franchisee-owned units and argue that it strongly supports the introduction of a plural system.

Several existing studies attempt to explain the existence of plural systems, but none explicates the proportion of franchisee-owned units to total units. Our model offers an approach based on considerations of risk and control costs and can effectively explain the proportion of franchisee-owned outlets in a system. Although control costs are not uncommon topics in existing literature, they have never been applied to franchising in the way we suggest, namely, as a mechanism to reduce the franchisor's risk. Rather, previous research tends to concentrate on the risk costs the franchisee incurs. Although franchising increases the risk costs for the franchisee (compared with a branch manager), the franchisor's saving of risk costs with each franchisee-owned unit (compared with a franchisor-owned unit) may even be larger. As we show, an increasing fraction of franchisee-owned units creates an increasingly weaker incentive to transfer further units to franchisees, because the savings in (marginal) risk costs constantly decline. However, the optimal fraction of franchisee-owned units remains below the level determined by the franchisor's risk costs and control costs, because the marginal revenue derived from substituting the expected income of a franchisor-owned unit for the fixed fees paid by a franchisee is negative. How can we evaluate the model results against the backdrop of ownership redirection? As we noted, the hypothesis of ownership redirection states that past a certain growth point, franchisors take over the units. If we assume that small franchise systems generally are at the beginning of their organizational life cycle, the franchisor lacks sufficient resources and is poorly diversified and therefore strongly risk averse. Initially outsourcing outlets through franchising provides particularly high savings in terms of risk costs for the franchisor, and for such early-stage systems, the discussed effects will have commensurately greater significance. Consequently, we anticipate a correspondingly high percentage of franchising. Larger systems, in contrast, presumably have reached an advanced stage of their life cycle, which has enabled the franchisor to accumulate greater assets and achieve a better position from which to diversify. Therefore, franchisors of larger, more successful systems tend to be less risk averse, and the risk costs have lesser significance to them. Efforts to save risk costs become commensurately low through the increasing fraction of franchisee-owned units, and therefore, we expect a higher proportion of franchisor-owned units. Our model thus provides theoretical substantiation of the ownership redirection hypothesis, which has gained support in empirical studies (Dant and Kaufmann 2003). However, we also acknowledge several limitations to our theory. First, we base our model on an exponential utility function. Second, we assume that each outlet faces the same environmental uncertainty. Third, we assume that the fixed fee paid by the franchisee remains constant, even though we could argue that the fixed fee is endogenous and changes with the risk parameters in the model or may relate to increasing market risk. Although franchisees may not know the environmental risk of a particular outlet, they likely would demand different fixed fees if they did know that specific risk. Fourth, our model neglects the effect of contract length on the franchisees’ incentives; they may behave more opportunistically near the end of their contract if they do not want to extend it. Further research should address these problems and thereby provide further insights.