• Journal of Distribution Research
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• v.15 no.5
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• pp.217-235
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• 2010

In franchise industry, territorial restraint is a system that imposes exclusive right to franchisers in a certain business area. To the franchisers, this system guarantees monopoly profits in a local market and exclusive rights during the contract periods. In such a way, franchisee generates a big revenue at once on the basis of franchiser's initial investment such as interior cost and franchise fee, it must have supervised franchiser's moral hazard for the territorial restraint agreement. Rather than territorial restraint can be a system to give exclusive right to franchiser's so that they neglect their own sales and too much rely on headquarter's brand and marketing activities without their own efforts. This paper assesses the implication of territorial restraint by examining the effect on brand extension, degree of contract termination. Drawing on research in transaction cost agreement and opportunism, the authors suggest that franchisee is highly likely to launch similar brand which is not effected on previous contract when territorial restraint is set out in the contract system. Moreover, the authors find that the degree of contract termination will be high in the existence of territorial restraint due to the franchisee's opportunism. The results imply that territorial restraint induces franchisee's opportunistic strategy more aggressively so that the possibility of brand extension or new brand launching will be increased. At the same time, franchisee is aggressively seeking for the reason for contract termination due to the pursuit of its profit maximization. Based on some empirical findings, this paper concludes with policy implications and some necessary fields of future studies desirable.

• The Korean Journal of Franchise Management
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• v.10 no.3
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• pp.25-35
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• 2019

Purpose - The major objective of this study was to investigate the effect of franchisor's (economic and philanthropic) CSR in inspiring franchisee's loyalty for the franchisor. Another aim of this investigation also was to clarify the mediating role of economic and social satisfaction in the relationship between franchisor's CSR and franchisee's loyalty. Research design, data, and methodology - This study explores the structural relationship between franchisor's CSR and franchisee's loyalty and in these relationships, the mediating role of relationship satisfaction. Data were gathered from employees(above manager) in food-service franchisee companies in Seoul, Korea. The questionnaires were distributed to managers of the franchise stores. A total of 251 questionnaires were collected. Data management and analysis were performed using SPSS 21.O and SmartPLS 3.0. Evaluation of measurement model and structural model was carried out using confirmatory factor analysis and correlation analysis. Result - The results of this study show as follows. First, economic CSR had positive effects on economic satisfaction and social satisfaction. Second, philanthropic CSR had positive effects on social satisfaction. Third, economic satisfaction and social satisfaction had positive effects on franchisee's loyalty to the franchisor. Conclusions - The important implications of this study have as follows. First, this study has found that economic CSR can create a high economic satisfaction and social satisfaction of franchisee. Second, this findings suggest that the philanthropic CSR can improve the social satisfaction of franchisee. Third, this results demonstrate, for the first time, that the economic satisfaction and social satisfaction of franchisees can play a crucial role to improve their loyalty for the franchisor and pursue mutual development by maintaining the stable business relationship with a franchisor. In this investigation there are at least three limitations. First, Because the research sample is limited to the foodservice franchisee in Seoul, it is not possible to be representativeness of the national franchisee. Second, CSR activities are mostly focused on large franchise companies. Therefore, there is a limit to the research approach. Finally, this study examined the effect of economic CSR and philanthropic CSR on the loyalty of franchisors, but in the future study, it is necessary to analyze the relationship between CSR and loyalty of franchise companies by collecting specific quantitative data such as re-contract rate and management performance of franchisees.

• The Korean Journal of Franchise Management
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• v.9 no.4
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• pp.21-31
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• 2018

Purpose - Recently, the franchise business has made remarkable progress, but many conflicts have occurred. From this perspective, this paper explains how to improve the long - term relationship between franchisor and franchisee by integrating the relationship between franchisor of franchise business and franchisee. This study aims to identify the franchisee's economic and social satisfaction and to examine their influences on calculative and affective commitment, and loyalty. At the end of this paper, theoretical and managerial implication were suggested. Research design, data, and methodology - The data were collected from owners and store managers in franchisees located in Seoul, Korea. The trained researchers contacted owners and managers of the franchise stores. The questionaires were distributed to owners and managers consented to respond. The collected questionnaires were used for the final analysis of 324 copies(243 store owners and 81 store managers), except for 26 copies of the untrustworthy response out of 350 copies. The data were analyzed with SPSS, 21.0 and SmartPls 3.0 Result - The results of the study are as follows. First, economic satisfaction effects both calculative and affective commitment, but social satisfaction does not. Second, both calculative and affective commitment have positive effects on loyalty. Third, economic satisfaction has a positive impact on loyalty, but social satisfaction does not. Conclusions - The implications of this study are following as: From the theoretical perspective, this study analyze the satisfaction and commitment of the franchisee from the multidimensional perspective by analyzing the effects of the franchisee on two dimensions of economic and social satisfaction and on calculative and affective commitment. That is, this study explains the trade-off between economica and social satisfaction, and between calculative and affective commitment. From the managerial perspective, the results of this study suggest that the economic satisfaction of the franchise headquarters felt by franchisees should be prioritized over social satisfaction. Especially at the early stage of the contract, economic satisfaction should be given priority over social satisfaction. However, since affective and calculative commitment have a significant effect on loyalty, social satisfaction factors should not be excluded by focusing on only economic ones. In other words, the franchisors should not only think of franchisees as a source of sales and profits, but should respect franchisees and maintain loyal relationships with friends.

• Journal of Distribution Science
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• v.12 no.2
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• pp.39-47
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• 2014

Purpose - The ultimate goal of a franchise system comes from its win-win strategy. Agency theory uses goal incongruity to examine complex contracting problems between buyers and suppliers. Goal incongruity within a contractual relationship can be defined as the agent's desire not to cooperate. It is the degree to which the contractual terms do not satisfy the agent's goals. The greater the goal incongruity between the agent and the contract, the more likely it is that the agent will meet the terms of the contract. Thus, goal incongruity between buyers and suppliers has close relationships with both behavioral and financial performance. This study tries to examine these relationships in the franchise context using a model including related variables, such as regulatory foci, financial performance, and opportunism, to explain the reasons that not all franchisees perform their best. In particular, the study examines the effects of goal incongruity on regulatory focus, and the effects of regulatory focus on performance and opportunism. In short, the objective is to determine goal incongruity's effect on regulatory foci, and the effect of regulatory focus on performance and opportunism. Research design, data, and methodology - This study used data collected from the franchisee managers of 104 franchisors in South Korea. The franchisors include more than 10 franchisees, the majority of whom have been in business for more than five years. The study also surveyed 104 franchisees, matched with their franchisors for the sake of a dyadic approach. The study used regression analysis to test the hypotheses. Results - H1 and H2 predicted that goal incongruity would decrease promotion focus and increase prevention focus. Supporting H1, the result indicates goal incongruity had a positive effect on promotion focus. However, H2 was not supported. Goal incongruity had no significant effect on prevention focus (β = -.375, t = -4.331 and β = -.145, t = -1.950, respectively). H3 and H4 predicted that promotion focus would increase financial performance and decrease opportunism. Supporting these hypotheses, the results indicate that promotion focus had a positive effect on financial performance and a negative effect on opportunism (β = .771, t = 7.899 and β = -.765, t = -6.778, respectively). H5 and H6 predicted that prevention focus would decrease financial performance and increase opportunism. However, the results do not support these hypotheses. The results indicate that prevention focus had no effects on opportunism or financial performance (β = -.130, t = -1.070 and β = .090, t = .641, respectively). Overall, the evidence generally supported the hypotheses. Conclusion - Goal incongruity between a franchisor and a franchisee increases the franchisee's financial performance and opportunism, and the relationship is mediated by promotion focus. Interestingly, however, prevention focus has no mediating effect between goal incongruity and performance. Even though no significant relation exists between goal incongruity and prevention focus, the results have two implications. First, decreasing goal incongruity can improve financial performance and suppress franchisee opportunism. Second, the relationship between goal incongruity and performance affects promotion-focused franchisees.

• Journal of Distribution Research
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• v.16 no.3
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• pp.33-75
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• 2011

The ownership structure of a franchise system is determined by the franchisor's strategic choice. A close look at the extant theories and perspectives in economics and management such as resource scarcity theory, agency theory, transaction cost analysis, and mixed ownership theory reveals that firms choose their ownership structure for the sake of economic efficiency, profit potentials, the chance of survival, and other strategic concerns. The present study, on the basis of strategic choice perspective, reviews the divergent theories of a franchise system's ownership structure and its determinants, thus providing a theoretical framework for comparing the contradictory arguments along the several critical dimensions. We also developed and tested the conflicting hypotheses regarding key determinants of ownership structure including firm's age, size, transaction-specific investments, uncertainty, and risk-sharing propensity. Using a FDD (Franchise Disclosure Document) data set of 543 Korean franchisors, we found that the years in business, the total number of employees, days of training, the inverse of the years of franchising, and the requirement of royalty payment have positive relationships with the proportion of company-owned outlets to total number of outlets. On the other hand, the proportion of company-owned outlets was found to have negative relationships with the total number of outlets and the extent of geographic dispersion of outlets, but to have no significant relationships with the initial investment required and the inverse of contract length. Based on the findings, we provide several theoretical and managerial implications for studying ownership structure of franchise systems.

• The Korean Journal of Franchise Management
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• v.4 no.1
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• pp.1-24
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• 2013

The purpose of this work is to analyze the case that Yeongju Municipality Government of Gyeongbuk and Jung Donuts Co., Ltd., a franchise company, activated local economy through Farm's Franchise Commercialization (FCC) and to establish the concept of FCC. As a food service franchise company, Jung Donuts specializes in making and selling glutinous rice donuts. In cooperation with Commodity Dept. of Yeongju Municipality Government, the company cultivates raw materials under contract. Such farm's franchise business has the following advantages: First, it is meaningful in the point that it contributes to opening a new market of local agricultural products in a stable way. In short, by using most agricultural products of Yeongju as raw materials, the business serves as a stable market for farmers. Secondly, it is possible to set a reasonable price through stable supply of raw materials. It is to advantages of both producers and consumers. Thirdly, the business brings about the effect of employment rise. It can cause increases in employment of franchise head office and its agencies, and of the Commodity Dept.. Lastly, it produces the promotion effect of local special products. By expanding its agencies across the country, a franchise business can promote the items of raw materials in terms of marketing. The successful FCC needs to meet three requirements as follows. The first one is to establish systematic logistic system. Stable logistic system is required in order to directly distribute and deliver products to nationwide agencies by a producing place. The second one is constant R&D activity. Through the activity of R&D of raw materials and equipment, they should be used most effectively. The third one is to build mutual trust relationship. For long-term business achievements, it is required to establish mutual trust relationship in which relevant entities share their visions with each other and cooperate with each other.

• Journal of Distribution Research
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• v.17 no.3
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• pp.1-24
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• 2012

Franchises have recently emerged as the most rapidly expanding industry positioned to create a large impact in the domestic economic. The Chinese franchise industry developed rapidly in the period prior and subsequent to WTO accession with more than 50% of new franchises brands emerging since 2000. M&A transactions in the Chinese franchise industry have progressed actively. In the period from 2005-2007, due to the wholesale and retail market opening in accordance with the guidelines laid forth within the MOU by the WTO the Chinese franchise market is now the largest market in the world all despite a short history of only 20 years. The amount of franchise market research on China is disproportional to its current size and development potential. Beginning in the 1990s, market research conducted by the International Franchise Association focused on emerging markets in Eastern Europe and China. While the research dealt with the Chinese investment environment, it insufficiently explained the market region and cultural environment. The purpose of this research is (i) to investigate the determinants of the performance of franchise systems in China and (ii) new contract renewals based on performance factors. This study will complement existing research in terms of the franchisee perspective. This study may also prove of the benefit to the franchise companies entering the Chinese franchise market enabling them to develop an effective strategy. This study shows that support, incentives, and system standardization by franchisor yielded a positive effect on management performance. This is consistent with previous studies by Shin (2000) and Kim (2008) targeting Korean franchises. Therefore, in the Chinese market, the franchisor must focus on support, incentives, and system standardization rather than concentrate only on the recruitment of franchisees in order to improve revenue. Hypotheses regarding franchisor control have been dismissed in existing research, in the opinion of this study, due to their complexity and inability to control the merchant as a one-kind-assessment-standard. Our findings show that the franchisees' financial condition, management ability and entrepreneurial spirit, among franchisee's characteristics, have a positive effect on franchisor's business performance and satisfaction for the franchisee. This is consistent with previous studies on headquarters' management performance of Lussier (1996), Heo and Jang (2008), and franchisees' financial condition, management ability and entrepreneurial spirit effect on franchisor's satisfaction of Weaven and Franzer (2007), Kim (2009), Han (2009), and Yoon etc. (2008). Therefore, when permitting a franchisee, financial condition, management ability, entrepreneurship of the franchisee should be carefully considered. Among relational factors between franchisor and franchisee, trust has the positive influence on the management performance of the franchisor while conflict has a negative effect. However, trust, commitment and conflict factors have been shown not to have any impact on the satisfaction of the franchise headquarters. This result is consistent with the previous studies of Pavlou and Ba (2000), Morrison (1999), Weaven and Frazer (2007), Kim and Park (1994), Sohn (2007) which show that trust between franchisor and the franchisees have a positive effect and that conflict has a negative impact on franchisor's management performance. Other factors causing a negative effective on the franchisor's management performance are a rapid environmental changes and uncertainty in the business. This is consistent with Campbell et al (2007), Kim and Kim (2009), Han and Baek (2008). Finally, the high management performance and satisfaction of the franchise headquarters has a positive effect on the intention of franchise renewal. In the case of large markets such as China, the franchisor's strategy and the role is very important. In this study, we also investigated the characteristics of franchisor and franchisee, relationship, and environmental uncertainty affecting on the management performance and satisfaction of franchisor. Recently, Korean franchises are attempting to enter foreign markets through the rise in popularity of Korean culture and entertainment commonly referred to as the Korean wave. This study provides recommendations for Korean franchises intending on entering the Chinese market. First, in order to achieve stable profits, the franchise corporation needs to support the operation of the individual franchisee through incentives and standardization of services. Second, because trust between the franchisor and franchisee has a positive effect on management performance, on-going discussion and cooperation is necessary to reduce the level of conflict.

• Asia-Pacific Journal of Business Venturing and Entrepreneurship
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• v.15 no.4
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• pp.245-261
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• 2020

The aim of this study is to investigate the correlation between the support activities provided by the franchiser and how they affect the intention of the contract renewal and business performances made by franchisees, developing dynamic trust between these transactional partners. Various supportive activities between franchiser and franchisees were divided into financial and non-financial activities and dynamic trust into Transitional-based trust, Calculative-based trust, Relational-based trust, and Balanced-based trust. These trust types, which are variable and adjustable based on the opportunistic behaviors of business parties, were applied to define the impact of the support activities on the contract renewal intention and the performances. This study was developed around domestic franchisees. An investigator visited business owners and manager level-employees, explained the purpose of the survey prior to the response, and the answers were directly written by hands. A total of 348 copies were used for the analysis. As the results of the analysis, first, financial support activities were found to have a positive(+) effect on transitional-based trust, calculative-based trust, and balanced-based trust. On the other hand, non-financial support activities were found to have a positive(+) effect on calculative-based trust, relational-based trust, and balanced-based trust, and there was no significant relationship on transitional-based trust. Second, the dynamic trust had a statistically significant positive(+) effect on inducing the contract renewal. Lastly, in the relationship between the dynamic trust and its impact on business performances, only transitional-based trust, and relational-based trust were found to have a positive(+) effect on the financial performances. In addition, relational-based trust showed a meaningful positive(+) relationship on the non-financial performances, and non-financial performace showed a meaningful positive(+) relationship on the re-contract intention. From the results, it can be concluded that the financial and non-financial activities for a win-win partnership between franchiser and franchisees are essential in not only forming dynamic trust but also boosting business performances as well as maintaining the business relationship. Thus, it suggests that building a win-win partnership can be promoted more efficiently by specifying activities best suitable for a particular relationship. In addition, a specific set of activities could be presented for establishing the level of trust that is formed in situations that vary depending on transaction risks and interdependency arising from having the transactional relationship based on the contract as the franchise industry features. Eventually, it is expected that this study can provide a way to promote the qualitative improvement of the franchise industry by identifying factors essential to establishing a sustainable win-win system and relationships that can improve the business performance of franchisees.

• Journal of Distribution Science
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• v.9 no.2
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• pp.49-59
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• 2011

A franchise can be said to be the main method of distribution and marketing. It appears to be the future of the retail industry and is one of the world's fastest growing businesses sectors, as many policy reports and research results have acknowledged. Korea's franchise industry began in the 1970s, spread out into many areas (including food services, retail, and the service industry), and has grown by over 10% each year ever since. The industry's influence on the national economy becomes ever greater. Although the size of the franchise industry is expected to grow as it spreads and as the government expands its support, it has not yet attracted much academic interest. Research has so far been very fragmented. The main interest has been the relationship and conflicts between the head offices and the affiliates. No study has yet occurred on whether the concepts of satisfaction and intent to conclude a contract directly affect the success or failure of the affiliates. Few studies have empirically inquired into the demographic characteristics and abilities of the affiliates that significantly affect their results. Domestic franchise industries must prepare to leap from quantitative to qualitative growth. Most important is the need for affiliate headquarters and affiliates to build confidence between them. A friendly and reliable relationship between affiliate headquarters and affiliates will eliminate distrust from the franchise and maintain a healthy franchise system. This study suggests that current and prospective heads of affiliation should concentrate not on attracting affiliates but on investment and techniques of affiliate support. They should work on the reinforcement of brand power, the appropriate affiliate business environment, systematic education/training, taking burdens off the affiliate business persons, consolidating the relationship with the affiliate business persons, marketing mix factors (e.g. products, price conditions, logistics and shipping services, promotion, supervising and supervisor, operation procedures/processes, and material evidence); these all greatly affect the success or failure of the affiliate business. Supporting the affiliates is an important factor that enhances their results and satisfaction and consequently increases the positive recommendations to others and the ratio of recurrent conclusions of contracts, which ultimately generate the growth of the franchises. In addition, it is suggested that prospective franchise founders should make every effort to choose a good head office since the characteristics of the head office greatly influence the success of the affiliates. This study is significant in that it grasps the characteristics of the head office of affiliation and of the affiliates that influence affiliate results in ways not yet academically attempted.

• Journal of Distribution Research
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• v.17 no.5
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• pp.1-23
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• 2012

The conflict between major corporations and small and medium-sized businesses is being aggravated, the trickle down effect is not working properly, and, as the controversy surrounding the effectiveness of the business limiting system continues to swirl, the plan proposed to protect the business domain of small and medium-sized businesses, resolve polarization between these businesses and large corporations, and protect small family run stores is the suitable business type designation system for small and medium-sized businesses. The current status of carrying out this system of selecting suitable business types among small and medium-sized businesses involves receiving applications for 234 items among the suitable business types and items from small and medium-sized businesses in manufacturing, and then selecting the items of the consultative group by analyzing and investigating the actual conditions. Suitable business type designation in the service industry will involve designation with priority on business types that are experiencing social conflict. Three major classifications of the service industry, related to the livelihood of small and medium-sized businesses, will be first designated, and subsequently this will be expanded sequentially. However, there is the concern that when designated as a suitable business type or item, this will hinder the growth motive for small to medium-sized businesses, and designation all cause decrease in consumer welfare. Also it is highly likely that it will operate as a prior regulation, cause side-effects by limiting competition systematically, and also be in violation against the main regulations of the FTA system. Moreover, it is pointed out that the system does not sufficiently reflect reverse discrimination factor against large corporations. Because conflict between small to medium sized businesses and large corporations results from the expansion of corporations to the service industry, which is unrelated to their key industry, it is necessary to introduce an advanced contract method like a master franchise or local franchise system and to develop local small to medium sized businesses through a franchise system to protect these businesses and dealers. However, this method may have an effect that contributes to stronger competitiveness of small to medium sized franchise businesses by advancing their competitiveness and operational methods a step further, but also has many negative aspects. First, as revealed by the Ministry of Knowledge Economy, the franchise industry is contributing to the strengthening of competitiveness through the economy of scale by organizing existing individual proprietors and increasing the success rate of new businesses. It is also revealed to be a response measure by the government to stabilize the economy of ordinary people and is emphasized as a 'useful way' to revitalize the service industry and improve the competitiveness of individual proprietors, and has been involved in contributions to creating jobs and expanding the domestic market by providing various services to consumers. From this viewpoint, franchises fit the purpose of the suitable business type system and is not something that is against it. Second, designation as a suitable business type may decrease investment for overseas expansion, R&D, and food safety, as well negatively affect the expansion of overseas corporations that have entered the domestic market, due to the contraction and low morale of large domestic franchise corporations that have competitiveness internationally. Also because domestic franchise businesses are hard pressed to secure competitiveness with multinational overseas franchise corporations that are operating in Korea, the system may cause difficulty for domestic franchise businesses in securing international competitiveness and also may result in reverse discrimination against these overseas franchise corporations. Third, the designation of suitable business type and item can limit the opportunity of selection for consumers who have up to now used those products and can cause a negative effect that reduces consumer welfare. Also, because there is the possibility that the range of consumer selection may be reduced when a few small to medium size businesses monopolize the market, by causing reverse discrimination between these businesses, the role of determining the utility of products must be left ot the consumer not the government. Lastly, it is desirable that this is carried out with the supplementation of deficient parts in the future, because fair trade is already secured with the enforcement of the franchise trade law and the best trade standard of the Fair Trade Commission. Overlapping regulations by the suitable business type designation is an excessive restriction in the franchise industry. Now, it is necessary to establish in the domestic franchise industry an environment where a global franchise corporation, which spreads Korean culture around the world, is capable of growing, and the active support by the government is needed. Therefore, systems that do not consider the process or background of the growth of franchise businesses and harm these businesses for the sole reason of them being large corporations must be removed. The inhibition of growth to franchise enterprises may decrease the sales of franchise stores, in some cases even bankrupt them, as well as cause other problems. Therefore the suitable business type system should not hinder large corporations, and as both small dealers and small to medium size businesses both aim at improving competitiveness and combined growth, large corporations, small dealers and small to medium sized businesses, based on their mutual cooperation, should not include franchise corporations that continue business relations with them in this system.