Electronic Thesis and Dissertation Repository

Degree

Doctor of Philosophy

Program

Business

Supervisor

Kersi D. Antia

Abstract

Growing franchise systems are admired and rewarded favorably by press, seen as “growth engines” in investor stock portfolios, and attract significant interest from potential franchisees. Yet growth brings with it the specter of intra-brand competition, and its attendant ill effect of sharply reducing the motivation of franchisees – the very drivers of such growth. Facing competition from their very own, franchisees indulge in shirking, in turn eliciting franchisor terminations in ever greater numbers as they run afoul of the franchise agreement. These franchisor terminations, in turn, may subsequently affect the financial position of franchise systems in terms of sales and profitability. It is therefore worth investigating the relational and financial consequences of franchise system growth. Importantly, it is useful to uncover means of growing even while reducing the extent to which terminations might even be necessary.

Further, as a franchise system’s growth in a particular market fosters geographic proximity or clustering of the same-brand outlets leading to intrabrand competition, it is useful to uncover the conditions under which this proximity is beneficial or harmful to the same-brand outlets’ performance. Proximal same-brand outlets may share knowledge while competing with one another. The boundary conditions where one effect overcomes the other are worth exploring.

My dissertation comprises two essays assessing the performance implications of growth and geography in the context of franchising at two different levels of analysis – at the franchise system-, and at the individual outlet-level. My first essay traces the growth in the retail footprint – the number of outlets operating – of 75 franchise systems operating in 11 industries, observed over up to thirteen years. In contrast, essay 2 examines the implications of growth-induced proximity for each of the 988 individual outlets of a single franchise system from its inception in 1977 until 2012. Overall, my findings suggest that franchise system growth increases franchisor terminations of franchisees, but the likelihood of these terminations may be reduced if growth relies on ownership of franchisor outlets, higher royalty rate, or clustering of outlets. Furthermore, the impact of clustering of outlets on their performance is contingent on outlets’ experience and the governance context.

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