تصمیمات بهینه در فرانچایزینگ تحت عدم قطعیت سود

This study constructs a real options model to evaluate franchise contracts that take into account a guaranteed profit offered by the franchisor to franchisees under a dynamic environment, as in the contract of 7-Eleven Convenient Stores in Taiwan. We derive closed-form solutions of contract values for the franchisor and franchisee. We also calculate the expected value of the guaranteed profit, which is reflected in the franchise fee. Corresponding numerical analysis is then conducted for different scenarios with respect to expected profit, the level of guaranteed profits, and profit volatilities. These results show that the contract values for both franchisor and franchisees are high if the franchise is lucrative. Higher guaranteed profit increases the value of franchisees while it decreases that of the franchisor, and the influence magnitude grows in a more volatile business environment. However, if the gross profits are stably high, then guaranteed profit is unlikely exercised and hence has less impact on the contract values of either party. Based on these findings, implications and suggestions are given.

Franchising in a service industry has grown vigorously in recent decades. Hempelmann (2006) indicates that more than 40% of retail turnover are allotted to franchising in the U.S. Aside from the United States, franchising is also a very common business model in many other countries. In Taiwan, for example, franchises can be found in most service industries, including convenience stores, education, health care organizations, and restaurants. According to a survey conducted by Taiwan Chain Stores and Franchise Association (TCFA),1 the total sales of chain stores hit US$ 53.7 billion in 2005, which accounted for 47.49% of retail and restaurant industry sales. Franchisors grew 30.8% to 1,124, while number of franchisees grew 16.3% to 72,847 from 2004 to 2005. Franchising is a business model, where the franchisor with specialized operating know-how, technologies, and brand authorizes individual franchisees located at different regions to provide services or sell products (Justis and Judd, 1989). The franchisor may also provide franchisees specialized operating and administration support, like staff training, or accounting and financing support, etc. From the franchisee's perspective, a business owner by joining a franchise allows the franchisee to quickly obtain a mature operational model that offers a well-known brand and helps lower marketing and development cost, hence cutting operational risk (Hoffman and Preble, 1991 and Stanworth and Curran, 1999). From the franchisor's perspective, the enterprise can also grow quickly by increasing economies of scale, market share, and revenue through franchising (Lafontaine, 1992, Love, 1986 and Shane, 1998). If a franchise works well, it is a win-win situation for both parties. Such a win-win situation may start from the franchise contract, which defines the right and obligation of both franchisor and franchisee. In general, the franchisee is required to pay to its franchisor a franchise fee, a lump-sum fee, and a royalty fee on a regular basis (Lafontaine and Shaw, 1999). The franchise fee and royalty fee given by the franchisees most likely reflect not only the costs incurred in fulfilling the franchisor's obligation, such as staff training and franchisee education, but also the business value of the brand name and the operating know-how offered by the franchisor. The more a franchisor provides to its franchisee, the higher a franchisee has to pay (Vázquez, 2005). From the franchisor's viewpoint, fees too high may push away potential franchisees, while fees too low make it harder for the franchisor to make a profit. On the other hand, when considering joining the franchise, the franchisee will take into account the reputation of the franchise, operational capabilities, and other rights and obligations, all of which could materialize into a fee structure. However, there lacks a discussion in literature on this subject and thus the amount of references available on the dynamic valuation of a franchise contract is very limited. The main purpose of this paper is to propose a dynamic valuation model of fee structures. Since there are many varieties of franchise contracts, in order to simplify the matter and for illustration purposes, we consider the case of 7-Eleven Convenience Stores (hereafter, 7-Eleven) in Taiwan. It is a leading and successful convenience store franchise in Taiwan, having almost 5000 stores in place for a population of 23 million, and it outnumbers the total of all other convenience store franchises together. In their contracts, a guaranteed profit is offered by the franchise to their franchisees, besides the normal franchise fees and royal fees. A franchisee may receive a guaranteed profit offered by its franchisor when its gross profit is lower than the guaranteed profit. Hence, the guaranteed profit, a protection of minimum profit, is one of the main attractions in the contract. The guaranteed profit can now be regarded as an indicator of the franchisor's operating capability and also its business value. The stronger the operating capability is and the greater the franchisor's business reputation, the higher the guaranteed profit is that the franchisor could afford. There is no doubt that a higher guaranteed profit is more appealing to the franchisees. Normally, the franchisor would not offer guaranteed profits higher than expected profit generated by the franchisee. Thus, the guaranteed profit level could be related to brand name, education training, marketing, etc. Based on its capabilities, the franchisor could ask for a greater franchise fee when higher guaranteed profit is offered. Therefore, the structures of franchise fee, royalty fee, and guaranteed profit are interrelated. However, the royalty fee, a fixed ratio of gross profit given to the franchise on a regular basis, is not considered here so as to simplify the story. This paper assumes that changeable sales gross profit follows a stochastic process, and the value of the franchise varies with gross profit. With the value of the guaranteed profit reflected in the franchise fee, the franchise fee can be treated as the sum of the expected value of the guaranteed profit and other related expenses, such as staff training, etc. Now, if we look at the problem from the viewpoint of finance, the guaranteed profit is similar to an (European) option sold by the franchisor to the franchisee. The option is exercised only when the situation is not working in the owner's favor (franchisee's, in our case). The value of such an option could be reflected in the franchise fee paid by the franchisee when joining the franchise. In other words, the franchisee pays the franchise fee so that it can enjoy the guaranteed profit protection against sales fluctuation. Therefore, the option value that the franchisee gains via the guaranteed profit can be estimated based on the real options method. The franchisor could be interested in the value of having a new franchisee at the same time that the franchisee could be interested in the value of joining the franchise. These values amount to the contract values for the franchisor and the franchisee, respectively, for which the closed forms are derived. Based on the contract values, the guaranteed profit value is obtained. From the expected value of the guaranteed profit, we suggest a reasonable franchise fee. In addition to closed-form solutions of these contract values, we further explore these values based on numerical analysis and both parties' corresponding strategies. We hope this study can shed some light on the values of a franchise contract in a dynamic environment and hence the strategies of both parties. This paper is organized as follows. Section 2 summarizes relevant research about franchising and real options and provides a base for model construction. Section 3 exploits a real options approach to evaluate the contract values for the franchisor either with or without guaranteed profit and then further estimates the fair values of the guaranteed profit and franchise fee. The follow-up section focuses on the contract value from the prospective of the franchisee, which can be added to the franchisor's value to get a franchise store's value. Section 5 provides numerical analyses and their results, verifying the model established in prior sections, followed by conclusions and strategic implications in Section 6.

Joining a franchise allows the franchisee to quickly obtain a mature operational model that offers a well-known brand and helps lower marketing and development cost, hence cutting the operational risk for the franchisee. From the perspective of the franchisor, the enterprise can grow quickly by increasing economies of scale, market share, and revenue through franchising. Franchising thus offers a win-win situation for both parties. In this study the contracts of 7-Eleven Convenience Stores in Taiwan are used as an example, in which guaranteed profit is provided for the franchisees while franchisees pay franchise fees and royalty fees to the franchisor. The guaranteed profit provides a protection against profit fluctuation, thus reducing risk for the franchisees, one of appealing features for them. For this contract, we construct a real options model of fee structures with fluctuating gross profits and obtain closed-form solutions of contract values for the franchisor (that is, the value of a new franchise), franchisee (the value of joining the franchise), and guaranteed profit. Numerical analysis looks at the paired relationship among those fees and the impacts caused by uncertainty in the business environment. Based on those solutions and numerical analysis, we have a few findings. The contract values for the franchisee and the franchisor clearly are enhanced by high expected gross profit. However, contract values are affected by profit volatility, as well. In other words, under drastically unstable profits a franchise offering protection of guaranteed profit appeals to those risk-averse entrepreneurs, regardless the level of expected gross profit. The gain to the franchisee obtained via exercising the guaranteed profit is a cost to the franchisor. Therefore, given the level of expected gross profit, a higher guaranteed profit yields a higher contract value for the franchisee and yields a lower contract value for the franchisor. The effects are enlarged by profit volatility. The franchisor's expected losses as a result of the guaranteed profit could be compensated by raising the franchise fees. However, the higher franchise fee may turn away potential franchisees, eroding the effect of guaranteed profit. The strategic implications of this study shed some light on how the franchisor can deal with this paradox as follows. (1)The design of guaranteed profit provides protection against business risk, especially when profit is expected to be low and unstable, which is a common phenomenon when the franchise is new to the market. This protection feature could provide a competitive advantage over competitors. Due to this advantage, the franchisor could be selective in choosing its franchisees. (2)When a franchise in general yields high and stable profit, in the mature stage the franchisees obtain benefits owing to the well established brand, scale economy, and operation efficiencies of the franchise. Guaranteed profit is unlikely to be exercised as such and hence the expected costs of this feature are quite small for the franchisor. The franchisor in this stage is more attractive to the franchisees due to its strong resources and competence rather than for its protection features. Now both parties in the franchise enjoy this win-win situation. This is the case of 7-11 Convenience Stores in Taiwan for the last several decades. (3)Theoretically, the franchisee fee should be high when the franchise is in the introduction phase. However, a high franchise fee could push away prospective franchisees. Moreover, the contract in general is not altered in different phases. The franchisor, if confident in its business know-how at present and in the future, should consider the fee structure in view of the long-term performance of the business and can offer a reasonable franchise fee as well as guaranteed profit to remain competitive in the introduction phase. With this risk protection feature, the franchisor could be more aggressive in recruiting franchisees and be selective in choosing franchisees, so that both parties work effectively to bring the franchise quickly to the growth or mature stages, where profit is high and stable and guaranteed profit is seldom exercised. This suggestion is supported by similar results by Bhide (2000), in which firms at early stage tend to attract partners via various strategies; and also supported by Shane et al. (2006), where franchisors are recommended to use specific strategies (e.g. pricing policy and strategic control) to facilitate the attraction of franchisees and expand system sizes. Overall we recommend the guaranteed profit be set at a reasonable level so that it is appealing to potential franchisees, and hence the franchise is more competitive in recruiting franchisees in the industry, nevertheless, is seldom exercised in the long run; as in the case of 7-11 Convenience Stores in Taiwan.