Academic journal article Journal of Business and Entrepreneurship

Plural Form Chains and Retail Life Cycle: An Exploratory Investigation of Hotel Franchised/company-Owned Systems in France

Academic journal article Journal of Business and Entrepreneurship

Plural Form Chains and Retail Life Cycle: An Exploratory Investigation of Hotel Franchised/company-Owned Systems in France

Article excerpt

ABSTRACT

Many retail and service chains are now run in a plural form organization which means that franchised and company-owned units can be found in the same chain. Bradach (1998) has shown the superiority of this organizational format compared to franchising and company-owned systems in mature fast food chains in the USA. This article attempts to reinforce this opinion by showing the same superiority in hotel chains in France but for any company all along the life cycle and not only for mature chains. A method to better relate the life cycle and the crucial objective of territory coverage is developed by using an entropy measurement.

INTRODUCTION

A growing percentage of retail and service store sales is passing through chains (Bradach, 1998). This phenomenon has been widely studied in studies on franchising. But traditional approaches which could be described as dichotomous have pitted franchise purists against company owned outlets: the situation represents a true conflict between two opposing philosophies of chain management. Recent research has shown that most American fast food franchising chains are organized in a plural form. This means that franchisees and company-owned units occupy the same chain (Bradach, 1997).

In this article the model developed by Bradach (1998) is applied to the hotel industry in France. In the past, this model has been based exclusively on chains in their maturity stage. In this study, a model is developed that graphically represents the life cycle and a model of organizational form choice at every stage of the franchising system's life cycle.

PLURAL FORMS IN RETAIL AND SERVICE CHAINS

Franchise Versus Company-owned Systems

Most research has considered franchising and company-owned systems as competing organizational arrangements. Many questions relating to this arrangement choice have been previously addressed (Anderson, 1984). One deals with the choice between franchising and company-owned units (stores, hotels, restaurants,...) when developing a new chain or a new unit, i.e. the question can be examined at the chain level as a choice for a management philosophy, or at the unit level. Another question concerns ownership or franchise redirection of the whole chain (Dant et al., 1996) at the maturity stage.

Many theoretical and empirical explanations have been proposed. Answering the question about choosing between franchisee and company-owned outlets for a new chain leads to an opposition between controlling the system (ownership) despite increased costs, and using incentives within the chain (franchising) which tends to difficulties in maintaining uniformity. This opposition between resource constraints and incentives in ownership patterns has been highlighted by Lafontaine and Kaufmann (1994).

The main assumption of the resource constraint approach derives from the fact that retailers prefer ownership. But chains should often be quickly developed in order to reach a sufficient visibility in terms of brand or trade name communication, and a minimal profitability by taking benefit from economies of scale: speed of market entry appears to be a critical success factor (Lafontaine, 1992). That is why a franchising chain is used as opposed to a company-owned chain that would prove too costly. Franchising provides this location speed along with both financial and human resources (Oxenfeldt & Kelly, 1968-69).

Financial resources are provided because franchisees invest instead of the franchisor, and pay fees and royalties; human resources are generated because franchisees bring managerial ability as well as superior knowledge of local markets (Minkler, 1990). The franchising option can be chosen because of financial resource scarcity. Rubin (1978) however argues that franchising should not be chosen exclusively. Attracting investors is less risky than sharing capital with franchisees. Lafontaine (1992) views the franchising channel option as a less costly source of financing than investors who would generally demand a higher rate of return. …

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