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...1992; Bradach and Eccles 1989) and empirical articles (e.g., Dant and Kaufmann 2003; Lafontaine and Shaw 1999; Bradach 1997; Lafontaine and Kaufmann 1994) have attempted to expound on this relatively new notion of stable dual distribution. Much of this literature is based on theoretical perspectives derived from the North American experience.
Earlier accounts of franchising were driven by either support or refutation of the ownership redirection hypothesis (cf. Oxenfeldt and Kelly 1968), which envisioned nearly pure, fully company-owned systems for older, resource-flush franchise systems in the steady state, whereas the plural forms account of franchising recognizes the synergies to be derived from simultaneously maintaining a mix of both company-owned and franchised units in the system. In effect, then, the plural forms thesis (operationally, a collection of theoretical perspectives nested within the general concept of tapered organizations proposed by Dant, Paswan, and Kaufmann 1992; Bradach and Eccles 1989; Harrigan 1984) phenomenologically reconciles the theory with much of the contemporary franchising reality, where the plural form is widely used. Consequently, the plural forms thesis can legitimately be portrayed as the successor to the ownership redirection thesis, which has been one of the main preoccupations of the franchising scholars for over 35 years. As with most nascent theories, considerable articulation of the framework remains to be accomplished both from grounded descriptive literature and empirical investigations. This paper is offered as a contribution to the empirically grounded cross-cultural description of the plural forms phenomenon.
The vast majority of previous investigations of plural form have all been single-country investigations. For instance, Lafontaine and Shaw (1999), Dant and Kaufmann (2003), and Ehrmann and Spranger (2004) focused their investigations within the U.S. market, whereas Cliquet (2000), Lopez and Gonzales-Busto (2001), Windsperger (2004b), and Windsperger and Dant (2006) have investigated different European markets, while Frazer (2001) was focused on the Australian experience. The sole exception to this pattern is a recent exploratory analysis comparing French and Brazilian franchising case studies (Azevedo and Silva 2005), underscoring the need for mounting a data-driven cross-cultural investigation of the plural forms phenomenon such as being attempted in the present paper.
As explained by Bradach (1998), the plural form model within a franchising context is aimed at meeting four managerial challenges related to (1) spatial expansion; (2) brand protection; (3) reaction against competition; and (4) service and/or product concept evolution. It was first empirically defined within a franchising context through an exploratory research carried out in the U.S. restaurant industry (Bradach 1997). Several articles on this phenomenon have attempted to compare plural forms or tapered integration with other theoretical approaches such as the signaling theory (cf. Gallini and Lutz 1992) and the resource-based theory (cf. Dant and Kaufmann 2003), or the property rights and transaction cost theories (Windsperger and Dant 2006; Windsperger 2004a, 2004b), or the theory of incentives and the agency theory (Chaudey and Fadario 2004). Other related articles have focused on particular elements of the larger nomological network surrounding the plural forms phenomenon such as innovation (Cliquet and Nguyen 2004; Lewin-Solomons 1999), the organizational learning process (Sorensen and Sorensen 2001), or the royalty rate (Penard, Raynaud, and Saussier 2003). Ehrmann and Spranger (2004) have attempted to examine the cost reduction, quality enhancement, growth stimulation, and optimized risk control related to the plural forms whereas Cliquet (2000) has sought to examine the advantages and drawbacks associated with plural form networks within the context of hotels industry, the bakery sector, and retail cosmetics distribution in France.
As noted earlier, this emergent literature base is being developed using a series of single-country studies set in Australia, Austria, France, Germany, Spain, and most importantly in the United States. But as far as we know, there is no attempt to empirically compare the plural forms phenomenon across countries with the sole exception of the recent exploratory comparative case studies by Azevedo and Silva (2005) discussed earlier. This paper aims to empirically compare the plural form phenomenon across Brazil, France, and the United States and to test some variables likely to explain the observed differences. The potential contributions of such an undertaking are easy to state. From a theoretical perspective, it is only through such cross-cultural empirical investigations that we get a genuine sense of the generalizability of our theories and their boundary conditions. Managerially, the franchisors must adapt to their local cultural imperatives and business practices if they are to succeed cross-culturally. And it is comparative analyses such as these that alert the managers to the cross-cultural idiosyncrasies.
Literature Review
The literature review attempted in the succeeding discussion aims at selecting variables for our empirical analyses. Two key constraints related to these variables had to be managed for such an enterprise. First, these variables had to be available in the extant secondary data sources utilized. Second, for consistency reasons, these variables had to be present in all three databases for their retention. In other words, we followed the principle of least common denominator in the retention of the variables utilized for developing the database for our empirical analyses. In the process of culling these variables, we also utilize this opportunity to inform the interested reader about the broad-based literature related to this topic, recognizing at the onset that the selected variables utilized in the present investigation are necessarily a small subset of the former due to the constraints of the variables being available in the extant secondary data sources. That said, the accumulated literature base on plural forms phenomenon is impressive considering its relative recent vintage, that is, the plural forms concept has been studied in detail for only a handful of years (albeit often in an exploratory manner), and we already see the emergence of four categories of models related to this phenomenon. These are as follows:
(1) Econometric models drawn from economics based research.
(2) Channel management models drawn from accounting data.
(3) Models of rupture in the franchise process.
(4) Models founded on spatial considerations drawn from management sciences, or management and marketing, or even geography.
The first category of econometric models relies on regression analyses and econometric techniques using databases. These are purely statistical studies aimed at proving various hypotheses culled from theories such as the agency theory (e.g., Shane 1998a), or founded on the study of certain concepts such as the importance of the brand name (e.g., Lafontaine and Shaw 1999), or the elements of the marketing mix such as price (Lafontaine 1998) or advertising (Michael 1999). The dependent variable in these models is generally the proportion of franchised and company-owned units. They tend to be global models of store network study. The second category of channel management models has been initiated by Kaufmann, Gordon, and Owers (2000) and relies on the notions of accounting and economic value analysis. The third type of modeling the plurality of forms uses the study of ruptures in the franchise process (Frazer 2001). The recent nature of these two last categories of models does not allow in-depth development as only one reported investigation has hitherto occurred for each (i.e., Frazer 2001; Kaufmann, Gordon, and Owers 2000). Finally, the fourth category of model studies particular aspects of the management of store networks (e.g., innovation [cf. Sorensen and Sorensen 2001] or location [cf. Ghosh and Craig 1991]).
Econometric Models
Most of the econometric research linked to plural forms has been carried out in the United States so far. The modeling efforts related to the relative proportion of franchisee activity compared to that of company-owned units started in the mid-1980s. Based on a rather simplistic first model (O'Hara and Thomas 1986), Thomas, O'Hara, and Musgrave (1990) developed a model with the ratio of per unit sales in company-owned outlets and the per unit sales in franchisee-operated outlets as the dependent variable and a series of predictor variables. The main conclusion of the model, evaluated using 10 sectors of activity over a 10-year period, was that when there are too many company-owned units, losses are noticed. This seemingly invalidated the life-cycle argument implied in the resource constraints perspective espoused by the ownership redirection thesis, which argued that larger, older, and hence more resource flush franchisors will repurchase their successful franchisee-operated units during the maturity stage of the organizational life cycle (Oxenfeldt and Kelly 1968).
Many of these investigations have resulted in nonsignificant, inconclusive, and/or inconsistent findings. For example, a related longitudinal data analysis of franchise networks belonging to the same 10 sectors over a 10-year period demonstrated that only franchisee sales explain the percentage of company-owned units (Thomas, O'Hara, and Musgrave 1990). The implication is that it would not be in the interest of the franchisor to internalize and/or increase the percentage of company-owned units because its rate of return otherwise would be inferior to that of its franchisees. This may explain the behavior of certain franchisors that cherry-pick and own the larger, more profitable units and let the smaller marginal ones be run by the franchisees, an implication consistent with the ownership redirection thesis (Oxenfeldt and Kelly 1968) but contradictory to the conclusion reached by Thomas, O'Hara, and Musgrave (1990). Research on salary levels seems to confirm this latter tendency insofar as the salaries of employees in company-owned units are higher and increase more rapidly than their counterparts in franchises (Krueger 1991). More recent studies have shown that the proportion of franchises in retail trade is positively connected to the size and geographic expansion and negatively associated with the rate of growth and the size of investment but not system age or royalty rates (Ehrmann and Spranger 2005a; Alon 2001).
Turning to more managerially oriented literature, we note the econometrically oriented papers of Brown (1998), Lafontaine (1992), and Lafontaine and Shaw (1999). Using the transaction cost theory, Brown (1998) shows that firms lean toward a long-term equilibrium between the proportions of franchised units and company-owned units. Firms apparently use a more efficient system of internal promotions in order to motivate the employees of company-owned units and leave it up to the franchisees to motivate their own employees who would otherwise be inevitably disadvantaged with contracts founded on performance. These kinds of contracts imply high monitoring costs for the operator. Using multi-sector data, Lafontaine (1992) demonstrated that the proportion of franchisee-operated units rises with the geographic dispersion, the rate of growth, and the age of the network. In addition, she explores the determinants of the rate of repurchase of the franchisee contracts by the franchisor and notes that the econometric estimations better explain the proportion of franchised units than the terms of the franchise contracts. However, the proportion of franchised units decreases with the average sales and the capital invested per store.
Lafontaine and Shaw (2005) carry out...
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