Franchising As A Strategic Alliance Model: A Qualitative Research

Abstract

Franchising method based on sale of the right to use recognized trade name and organized business is a common type of strategic alliance. Franchising is noticed in Turkey like all over the Word day by day and be preferred by especially small and medium sized enterprises. The purpose of the research is to reveal reasons for choosing franchising by franchisee, also the advantages and disadvantages of the system in terms of franchisee as a type of strategic alliance. According to defined purpose, data were collected by semi-structured interview method with 22 franchisees which are operating in the food and beverage sector in Antalya, Burdur and Denizli provinces. The obtained data were analyzed with MAXQDA 18.0 statistical packet program. As a result of the discourse analysis, “Power of brand” took place on the top among the reasons for selecting franchising. In terms of franchisee’s perspective, franchising’s first rank advantage is being a ready system. Also loyalty and entrance fee are top disadvantages. In addition, reasons for choosing a franchise, advantages and disadvantages were examined according to scale, the number of employees, the activity area and the duration dimensions.

Keywords: Strategic alliancefranchisingsmefood and beverage sector

Introduction

Increasing competition under the influence of globalization forces companies to enter international markets. Companies search more reliable and fast way to access markets which is unknown for them. In this situation, the importance of strategic alliances between foreign and local companies appears. Especially extending market share and having competition advantage become the companies’ main reasons of strategic alliance. Whatever the name is used, the global marketplace creates new strategic approaches to many industries. Starting usage of strategic alliance as an instrument frequently by today’s companies which want to keep pace to global competition conditions made important strategic alliance once again. Strategic alliance has played an important role in international company activities especially in the early 20th century. Today, strategic alliance activities show fast growing development with food-beverage restaurant chains. Companies which base fast service like Mc Donalds, Burger King, Kentucky Fried Chicken and Piza Hut pioneer in food beverage sector development and these companies’ sovereignty still continue. One of the basic facts behind the rapid progress at Fast Food Restaurants in the last thirty years in the world of business and the last fifteen years in Turkey is undoubtedly the franchise system which is used by system to grow. With this alliance model, fast-food businesses can grow on a large scale while reaching determined standards and new businesses can be established in many different regions. The purpose of this research is to reveal reasons for choosing franchising as a type of strategic alliance and the advantages and disadvantages of the franchisee.

Literature Review and Theoretical Framework

Strategic Alliance and Reasons for Choosing

Different definitions of strategic alliance have been made by the authors who showed different aspects of it but a common definition of strategic alliance has not been made in the literature. According to Lee (1999), strategic alliances are complex relationships between businesses and it can be defined as collaborative relationships carried out by two or more companies in order to achieve a strategic goal that will bring mutual benefit. In terms of Chan & Jamison (2001), alliance is the task of doing business together, integrating operational activities, sharing risks and creating a common culture in order to gain the competitive advantage of two or more companies. In other words; it is a strategy which express cooperating parties’ contribution to the relationship with the different sources of capital, technology and specific resources (Lin, 2006). According to Besanko, Dranove, Shanley & Schaefer, (2009), strategic alliance is agreements which are made by two or more companies that are not involved in the same industry or vertical relationship in order to reach objectives or share know-how.

Strategic alliances are a way for companies to use the other companies’ knowledge of production and learn new skills. The presence of a well-known and large partner in strategic alliances can provide social status to unrecognized companies (Stuart, 2000). There are lots of reasons that motivate organizations to make strategic alliances (Hitt Ireland & Hoskisson, 2003).

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Franchising as a Strategic Business Model

The absence of a common definition of strategic alliances in the literature has caused the authors to make different assessments on the content and types of Strategic alliances”. Alliances between companies are classified in many different ways. Culpan (2002) divides strategic alliances into two types depending on whether they are capital-intensive or not.

Culpan (2002) also split non-capital partnerships into two groups. The first one is alliances which is established by the contribution of globalization and technological advances. License and franchising agreements are included this group. The other group has cooperations. These cooperations are technology partnership, joint production, joint marketing, supply chain partnership. In addition to these alliances; long-term procurement agreements, production sharing, R & D partnership and management agreements are also included non-capital partnership.

According to the definition of the National Franchising Association (UFRAD) franchising is the whole of a long-running and continuous business relationship that occurs when a concessionaire of a product or service gives the concession right to the second party to conduct business, providing information and support for the management and organization of the business within a certain period of time and limitations (UFRAD, 2001-2002). Also, Hitt, Ireland & Hoskisson, (2005) explain the franchising as an agreement that involves contractual relations regarding the identification and control of resources that are shared by joint ventures. It is a type of alliances which take the attention where the small and medium sized enterprises are competitor and none of the company is dominant. In a franchising agreement which is one of the most advanced strategic alliance types and based on vertical integration, a company who purchase franchising rights (franchisee) invest like its franchiser, gives the rights in detail for a specific area and operate under the franchiser’s management and control even if it has different identity.

The most important question that an entrepreneur who wants to be a franchisee should ask himself is: "Why should I join a chain of franchisees instead of establishing and operating an independent business?". Researchers searching for answers to this question have often tried to determine the franchisee's most significant beneficial according to their perceptions. In a survey conducted in England, Franchisees’ the most important superiority thanks to being in this system, summarized as follows: Nationally recognized brands are national wealth (Stanworth, 1977). In another study, franchisor support was identified as the most important factor (Hough, 1986). Baron and Schmidt (1991) stated that entrepreneurs who entered franchise system wanted an independent business, at the same time they found the franchising system attractive. Because the franchising system reduces the probability of mistakes and offers a proven concept and brand name. In a study by Knight (1986), the most important reasons for encouraging a franchisee are the benefits of working with a known trademark, high level of independence and job satisfaction. In a study Peterson and Dant (1990) conducted in the United States, asked entrepreneurs who had previously owned their own independent business and entered franchise system to rank the most important advantages they had in this system. As a result of research, brand image and low development cost were found to be the most important advantages. Franchisees who have never had their own independent operating experience previously ranked the important advantages of being in this system as more independence and educational activities than other intermediaries in distribution channels. In the research conducted by Koç (2006), franchise acquisition reasons in Turkey are sorted as follows: "well-recognized brand", "no need to be trained and experienced" and "ability to take necessary help from franchisor". The main reasons for the franchising strategy in the literature vary from franchisee to franchiser (Sherman, 2003; Tuunanen, 2005).

Franchisee’s Advantages and Disadvantages

The advantages and disadvantages of the franchising system vary according to the franchisee and the franchisee. Since the research is carried out with franchisees, advantages and disadvantages will be given only in terms of franchisee. Table 2 shows the advantages and disadvantages of the franchising system in terms of franchisee.

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Research Method

Sample and Data Collection

The franchisees interviewed were reached using snowball sampling technique. This study was conducted with 22 firms managed by franchising and accepted the interview in Antalya, Burdur and Denizli province center. The obtained data were analyzed using the MAXQDA 18.0 statistical packet program.

Analyses

This study is a qualitative research that includes face-to-face interviews with franchisees in the franchising system. Semi-structured interview technique was used as data collection method in the study. All interviews were recorded in writing. Later, responses were analyzed by discourse analysis. Research questions were set in the first stage. In the second stage, categorization was done. While categories were created, similar categories were used in similar studies (Grzelak & Matejun, 2013; Tuunanen, 2005; Sherman, 2003). Encoding was done in the third stage. After reading the texts and understanding their meanings in the sample, they were categorized and then coded. In the last stage, interpretation has been made. In negotiations, the franchisees were asked questions about the business and the demographics of the participants and also the following questions were asked:

  • What are the reasons to take franchise as a type of strategic alliance for you?

  • What are the advantages of franchising as a type of strategic alliance for you?

  • What are the disadvantages of franchising as a type of strategic alliance for you?

Findings

Demographic data of company owners and firms participating in the survey are included in table 3 . The group that starts with the document name A represents Antalya Province, the group that starts with B represents Burdur province and the group that starts with D represents Denizli province. According to table 3 ; 21 of the participants were male and 1 of them was female. When age distributions are examined, it is seen that 3 of them are under 30 years old, 5 of them are over 40 years old and 16 of them are between 30-40 years of age. When the level of education of the participants is examined, it is understood that 6 persons are graduated from high school, 1 person is associate degree, 14 people are undergraduate and 1 person is graduate degree. 8 of the interviewed franchisees operate in Antalya, 8 franchisees operate in Burdur and 6 franchisees companies also operate in Denizli. Looking at the year of operation of the interviewed companies, it is seen that 4 firms are under 1 year and below, 14 firms are between 1 and 5 years, and 4 firms are 5 years and above. In the distribution of the number of employees, it is seen that 7 firms have 10 employees and under, 14 firms have between 10-50 employees and only 1 company has 50 employees. 10 of the companies work with national franchisors and 12 of them work with international franchisors.

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As a result of the analysis, firms' franchise acquisition reasons were collected under 9 categories. The frequencies of 87 phrases forming 9 categories are shown in Table 4 . At the beginning of the reasons for buying franchises is the power of brand with 22 frequencies.

Table 4 -
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The franchisee's reasons for taking franchisees are shown in Table 5 in terms of activity area, number of employees, duration of activity and scale differentiation. According to this; the power of branding is at the forefront of the reasons why companies receive franchises operating with national and international scale franchisors. According to Table 5 , while " power of brand " ranked first for firms operating in Antalya and Denizli, "quality and standard products and services" ranked first for companies operating in Burdur. It is seen that "Education and management consultancy" and "quality and standard products and services" take place at the beginning of the franchise acquisition reason for the companies whose operation period is one year or less. For those who work for 1-5 years, the most important reason for preference is the power of brand. For 5 years and over operated companies, " being a ready system " and "power of brand" is the reason for preference. In terms of the number of employees, the rank of power of the brand for both groups is in the first place.

Table 5 -
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As a result of the analyzes, the advantages of franchising are collected under 12 categories (Table 6 ). Accordingly, as a type of strategic alliance, the advantages of franchising include "being a ready system (16,16%)", "education and management consultancy services (14,14%)" and " Power of brand (13,13%)" among the top three.

Table 6 -
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The differentiation of the ideas about the franchising advantages of the companies in the activity area, number of employees, duration of activity and scale dimension are shown in Table 7 . It is emphasized that the power of the brand is a very important advantage on the international scale, in the size of the companies operating in Antalya for 1 year or more and having 10 or less employees. The product standard is an advantage for companies operating on a national scale. The "checking and comparison" dimension for companies in Denizli and "corporate identity" dimension for companies in Burdur is the most important advantage. "Logistic support and corporate identity" is seen as the most important advantage for those who operate for 1 year or less. According to Table 7 , the most important advantage for companies with 11 or more employees is "corporate identity".

Table 7 -
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As a result of the analysis, the disadvantages of franchising are divided into 8 categories (Table 8 ). According to this, the disadvantages of franchising include "Loyalty and entrance fee (22,73%)", " Unable to go out of concept (19,70%)" and "Loss of independence (19,70%)" among the top three.

Table 8 -
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The differentiation of disadvantages of franchising in activity area, number of employees, duration of activity and scale are shown in table 9 . According to this; "Loyalty and entrance fee" in the national dimension, and " Unable to go out of concept " in the international dimension are the most frequently repeated disadvantage. In terms of the activity area, it is seen as the first disadvantages of " Loss of independence " in Antalya, "unable to go out of concept" in Denizli and " Loyalty and entrance fee " in Burdur. Companies that operate for a period of one year or less in terms of activity duration have emphasized " Dependence on the main company on supply " as the most important disadvantage. At the same time, companies who have been operating for 1-5 years have emphasized that " Unable to go out of concept " is the most important disadvantage.

Table 9 -
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Conclusion and Discussions

When academic studies related to the franchising system are examined in international literature, it is seen that there are studies evaluating the relationship between the franchisor and the franchisee from different points (performance, job satisfaction, power perception etc.). (Combs, Ketchen & Hoover, 2004; Parsa, 1999; Michael, 2000; Lee, 1999). Studies dealing with different aspects of the franchising system have been carried out in Turkey based on distribution, business and marketing system. However, there is a lack of work on how the system is perceived by the franchisee. From this point of view, the aim of this study is to reveal reasons for choosing franchising by franchisee, also the advantages and disadvantages of the system in terms of franchisee as a type of strategic alliance. The research was carried out on 22 business owners in the food and beverage sector that implemented a franchising model operating on three different provinces. At the end of the research, the following conclusions were reached:

The power of branding is at the beginning of the reasons why franchisees prefer franchising. This result supports some research results in the literature (Stanworth, 1977; Baron & Schmidt, 1991; Knight, 1986; Dant & Peterson, 1990).

As the type of strategic alliance, the advantages of franchising include "Being a ready system (16,16%)", "education and management consultancy services (14,14%)" and "power of brand (13,13%)" among the top three. The results are similar to the literature (Combs, Michael & Castrogiovanni, 2004; Stanworth & Smith, 1995).

As a result of the research, the disadvantages of franchising include "Loyalty and entrance fee (22,73%)", " Unable to go out of concept (19,70%)" and " Loss of independence (19,70%)" among the top three. These results also support the relevant literature (Stanworth & Smith, 1993). It is seen as the most significant disadvantages of franchisee are dependence on the main company on supply and loyalty-entrance fee for companies in the national market with a number of employees under 10. Although the loyalty entry fee of national franchisors is lower than international franchisors, insufficient capital and investment repayment period for small businesses is perceived as disadvantage.

As a result, in future research, taking the views of the franchisors’ opinions about the franchise model will also make a significant contribution to the field. The studies carried out with differentiated sample groups in terms of quantity and quality will enable to reach healthier and generalizable results.

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Publisher

Future Academy

First Online

18.12.2019

Doi

10.15405/epsbs.2019.01.02.29

Online ISSN

2357-1330