Journal of Global Scholars of Marketing Science (마케팅과학연구)

Korean Scholars of Marketing Science (한국마케팅과학회)
권호 표지

Organizational Factors Facilitating the Internationalization of Korean Franchising Companies

해외진출 국내 프랜차이즈기업의 조직특성

  • Lim, Young-Kun (Marketing, College of Business, Kwangwoon University) ;
  • Lee, Dong-Whuy (Marketing, College of Business Administration, Myongji University) ;
  • Kim, Hee-Jung (Marketing, College of Business, Kwangwoon University)
  • Published : 2009.06.30
Download PDF
⟨ Previous Next ⟩

Abstract

Franchising is one of the fastest growing types of business. It is already popular and well-known in the U.S., and has been growing in many other countries including Korea. Furthermore, many Korean franchising companies have expanded their business overseas actively. According to the data by the Ministry of Industry and Resource, 82 companies out of a sample of 500 franchising companies are already operating in many foreign countries and 48% of them have started their foreign business since 2006. This clearly indicates the fast growing current trend of foreign operation by Korean franchising companies. In spite of the fast growing trend of foreign expansion in the industry, academic research on internationalization of franchising companies is extremely difficult to find. Accordingly, academic research on the issue is necessary and urgent in Korea. Among the various research questions on internationalization of franchising business, this study intends to investigate the difference in organizational factors between the franchising companies doing foreign operation and those doing business only domestically. More specifically, this research has the following purposes. First, considering the lack of theoretical basis of previous studies, resource-based theory and agency theory are employed as the theoretical bases. Second, this study explains the difference in internationalization based on organizational factors such as company size, history and growth rate. Third, the five hypotheses regarding the difference in organizational factors are presented and tested empirically, which is the first attempt in the area of this topic. Finally, the study attempts to clarify the conflicting implications among theories regarding some organizational factos such as growth rate. As the theoretical background, resource-based theory and agency theory are discussed. According to resource-based theory, a firm can grow continuously when it has competence and resource, and also the ability to develop them. The competence and resource can include capital, human resource, management skill, market information, ability to manage risk, etc. Meanwhile, agency theory views the relationship between franchisor and franchisee as an agency relationship. In agency theory, bonding capability and monitoring capability are the two key factors which promote internationalization of franchising companies. Based on the two theories, a conceptual model is designed. The model consists of two groups of variables. One is organizational factors including size, history, growth rate, price bonding and geographic dispersion. The other is whether a franchising company is operating overseas or not. We developed the following five research hypotheses basically describing the relationship between organizational factors and internationalization of franchising companies. H1: The size of franchising companies operating overseas is larger than that of franchising companies operating domestically. H2: The history of franchising companies operating overseas is longer than that of franchising companies operating domestically. H3: The growth rate of franchising companies operating overseas is higher than that of franchising companies operating domestically. H4: The price bonding of franchising companies operating overseas is higher than that of franchising companies operating domestically. H5: The geographic dispersion of franchising companies operating overseas is wider than that of franchising companies operating domestically. Data for the analyses are obtained from 2005 Korea Franchise Survey data co-generated by Ministry of Industry and Resource, GS1 Korea, and Korea Franchise Association. Out of 2,804 population companies, 2,489 companies are excluded for various reasons and 315 companies are selected as the final sample. Prior to hypotheses tests, validity and reliability of the measures of size, history, growth rate and price bonding are examined for further analyses. Geographic dispersion is not validated since it is measured using nominal data. A series of independent sample T-tests is used to find out whether there exists any significant difference between the companies internationalized and those operating only domestically for each organizational factor. Among the five factors, size and geographic dispersion show significant difference, growth rate and price bonding do not reveal any difference and, finally, history factor shows conflicting results in the difference depending on how to measure it.

shows the summary statistics for hypotheses testing. In conclusion, the results show that the size and history, which are the key variables in resource-based theory, have a significant relationship with internationalization and that geographic area, which belongs to agency theory, also has a strong relationship with internationalization. The results support the findings of extant research and, therefore, prove the usefulness of resource-based theory and agency theory in explaining internationalization of franchising companies. However, growth rate and price-bonding do not show a clear difference between the two types of companies. Accordingly, these two factors need further attention in the future research. Although this study shows meaningful findings theoretically and practically, it has several limitations. First, only organizational factors are considered even if there are various environmental factors influencing franchising firm's internationalization. Second, only being internationalized or not is considered. That is, modes of entry and the size of foreign operations are not included in the study. Third, internationalization strategy is often determined based on the desire for business expansion and higher profitability and egoistical reasons of the CEOs. However, this type of factors belonging to behavioral science is not discussed in the study. Finally, organizational ecology perspective is usefully applicable in explaining the survival and performance of internationally operating companies. Accordingly, research propositions based on this perspective need to be developed and tested.

Keywords

(34141) Korea Institute of Science and Technology Information, 245, Daehak-ro, Yuseong-gu, Daejeon
Copyright (C) KISTI. All Rights Reserved.