Academic journal article Journal of Management Research

Enhancing Relationship Quality: The Case of Franchises

Academic journal article Journal of Management Research

Enhancing Relationship Quality: The Case of Franchises

Article excerpt

Abstract

What circumstances enhance franchise relationship quality is not well understood. We help to fill this research gap by developing and testing a model of the sources of relationship quality using constructs from the transactions cost literature, including idiosyncratic investment and interdependence. A survey was conducted successfully to 550 franchise owners or managers of Taiwanese small and medium enterprises. We find that idiosyncratic investment directly enhances trust and indirectly reinforces trust via interdependence. Franchisees' idiosyncratic investment cannot directly influence opportunistic behavior but indirectly influence it via trust or interdependence. Moreover, franchisees with lower opportunistic behavior and higher trust have higher commitment.

Keywords: Franchise, Relationship context, Relationship quality, Relationship marketing

1. Introduction

Many problems affect franchising performance, including relationship quality (Dertouzos, Lester, and Solow, 1989). However, franchisers often neglect relationship quality, feeling that franchising contracts bind franchisees to the relationship and franchisee feelings are unimportant.

Previous studies of relationship quality have explored ordinary channel stores, but studies on chains are lacking. Chains are hierarchically governed, while ordinary stores are market governed. Franchisees are vertically integrated and regulated by franchising contracts. Thus, it is unclear whether the research findings on ordinary stores are applicable to chains. Therefore, this study uses franchises to explore relationship quality.

Enhancing relationship quality between franchisers and franchisees is an important strategic issue. However, the types of relationship context that strengthen the relationship quality between franchisers and franchisees remain unclear. Although Brown, Dev, and Lee (2000) examined the influence of idiosyncratic investment on opportunistic behavior within the hotel franchise industry, only direct influence was examined. This study explores the question of which relationship contexts reinforce franchiser-franchisee relationship quality and how they do so. We include two relationship context variables: idiosyncratic investment and interdependence to explore their influences on relationship quality (including opportunistic behavior, trust and commitment).

This study may help franchisers strengthen their relationship quality with franchisees by identifying the key source of relationship quality. The results also clarify the important roles of idiosyncratic investment and interdependence in franchising relationships.

2. Literature and Hypotheses

2.1 Franchising

Franchising is a form of organizational cooperation, in which franchisers empower franchisees to do business for a particular period and in a specific location under defined conditions. Franchisers obtain royalties or receive charges in return. The firms that empower others are called franchisers, and those that receive the power are called franchisees. The power refers to the franchise (Elango and Fried, 1997).

Franchises represent a group of firms in the same industry that shift from competition to cooperation. They represent upstream-downstream cooperation. For a franchiser, franchises have many benefits. For instance, they allow the rapid deployment of a large sales system with less investment and lower risk to increase market share and reputation. In addition, franchise scale economies create lower purchase and promotion costs, increasing market competitiveness. Franchise stores are the franchisees' own businesses, meaning that franchisees work to promote them. Franchisers thus acquire dedicated partners. Franchisees also benefit. With the franchisers' guidance, franchisees can launch their stores immediately, learn business and management skills, and reduce the risk of failure. They can use the reputation and knowledge of the franchisers to increase sales. …

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