Academic journal article Entrepreneurship: Theory and Practice

Franchising and the Family Firm: Creating Unique Sources of Advantage through "Familiness"

Academic journal article Entrepreneurship: Theory and Practice

Franchising and the Family Firm: Creating Unique Sources of Advantage through "Familiness"

Article excerpt

The paucity of research examining family firms engaged with franchising is surprising. We theorize about differences in franchising behavior between family and nonfamily firms and the relative advantages accruing to family firms in this context. We also explore how selection processes tend to lead to family franchisor/family franchisee matches that enable a more effective sharing of complementary resources. The theoretical framework we develop is grounded in the "familiness" of the family firm as suggested by the logic of the resource-based view. Additionally, our theoretical analysis extends and complements the frequent use of agency theory as the basis for studying franchising.


Franchising occurs when a franchisor sells to the franchisee the right to market its branded products (goods or services) and uses its business practices (Combs, Michael, & Castrogiovanni, 2004). As an organizational form, franchising is widely recognized as an important driver of growth in entrepreneurial firms, principally by making products proximate to geographically dispersed customers (Combs, Michael, et al.). Successful franchising benefits the franchisor and the franchisee. The franchisor benefits from leveraging some of the franchisee's assets such as financial capital and specific local knowledge, while the franchisee benefits from leveraging some of the franchisor's assets including the brand, organizational routines, purchasing power, and managerial input. Thus, franchising is a form of inter-firm cooperation between organizations in which two types of entrepreneurs share tangible and intangible resources with the purpose of increasing performance (Combs & Ketchen, 1999b).

Agency theory is used frequently to analyze and interpret franchising and its related outcomes (Combs, Michael, et al., 2004). Agency theory asserts that franchising is beneficial because it resolves the potential misalignment of interests between owners and managers. It is expected that the cost of monitoring a franchisee is less relative to the cost of monitoring hired managers. However, the evidence developed through agency-based franchising research is mixed, inconclusive, and explains little of the observed variance (Castrogiovanni, Combs, & Justis, 2006a, 2006b; Combs & Ketchen, 2003; Combs, Michael, et al., 2004; Lafontaine, 1992; Storholm & Scheuing, 1994). In fact, opportunistic behaviors may still occur in a franchise contract because of basic conflicts associated with the franchisee and franchisor's respective goals.

Given that agency theory arguments have not, to date, robustly explained franchising, scholars are challenged to apply complementary theoretical lenses to increase our understanding of the franchising phenomenon (see Castrogiovanni et al., 2006a; Combs & Ketchen, 1999a, 2003; Combs, Michael, et al., 2004). We respond to this challenge by drawing on the resource-based view of the firm and family-firm literature, thus extending and complementing agency theory arguments. We explain how the unique attributes of family firms, which exist when ownership and management are concentrated within a family unit that strives to maintain intra-organizational family-based relatedness (Arregle, Hitt, Sirmon, & Very, 2007), may be especially valuable to franchising activities. Specifically, we theorize that "familiness," resulting from the enduring interaction of the family and the business, provides a distinctive bundle of intangible resources that leads to high levels of value creation (Cabrera-Suarez, De Saa-Perez, & Garcia-Almeida, 2001; Chirico & Salvato, 2008; Habbershon & Williams, 1999; Tokarczyk, Hansen, Green, & Down, 2007). Thus, our work addresses why and how franchise relationships that are built on "familiness" facilitate value creation.

We believe that examining these questions is valuable to scholars because family firms appear to actively engage in franchising (Armitage & Wolfe, 2009; ICED, 2010; IFA, 2010; Rowlinson, 2010; Welsh & Raven, 2011; Wilson, 2006). …

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