Trust, Commitment And Compliance: A Study Of Franchisee’S Perception Towards The Franchisor

Abstract

The objective for this current study is to propose a conceptual framework investigating the relationship between franchisee and franchisor from franchisee’s perception. Taking its cue from the Agency theory, this study gives an additional value in franchise business industry literature by proposing an extensive approach to understand the role of commitment and compliance to the franchisor from the franchisees’ perspective. Trust acts as an independent variable, compliance as a dependent variable, commitment as mediator variable and environmental uncertainty as a moderator in this study. This is a quantitative study and will adopt a cross-sectional survey research method which the data will be collected at just one-time period throughout this study. The sample of this study would be individual franchisee from various sectors. In addition, this study can contribute to the conceptual understanding on the internal franchise relationship. For instance, this research also can contribute for the added value on the literature review for the future researcher in the same area. The determinant of franchise compliance will promote a healthy and positive working environment in this franchise relationship.

Keywords: Trustcommitmentcomplianceenvironmental uncertainty

Introduction

In Malaysia, franchising has become one more prominent business entity besides sole proprietorships, partnerships and companies or branch offices of foreign companies. Today, franchising strategy is broadly used in business especially for the new entrepreneurs. Since 1950s, franchise industry has been at the top point of business strategy which presenting an incredible profit rates in sales. Franchising is a form of business that duplicates franchisor’s business model which has been established and proven to be successful in term of quality and uniformity of products or services (Davies et al., 2011). According to Ishak (2016), up to this time the franchise industry in Malaysia is in its early stage as most of the local franchisor and franchisee are in the development phase.

There is a judgment that purely contractual forms of governance are not ample to control franchisees’ potential opportunistic behaviour (Davies et al., 2011), whereas the progress of good relationship enables franchisees to cope with uncertainty and unpredictability in their relationships with the franchisors (Dada et al., 2015). Obviously, commitment becomes the link for both franchisor and franchisee in order to build a quality relationship in their business (Amy et al., 2011). Thus, the commitment acts as an alternate for formal knowledge and boosts the spirit of cooperation (Altinay et al., 2014).

In franchising business, it is very important to get both franchisee and franchisor to comply both in formal or non-formal relationship (Eser, 2012). According to O’ Connel (2014), compliance has many definitions but in this study compliance refers to the obedience and fulfilment between two parties which is the franchisor and franchisee in running their franchise business. In fact, the Franchise Act 1998 contribute in the registration stage of franchise business and make use to regulate franchise for incidental matters. By having this enactment, the franchisees have to follow their franchisor’s model by maintaining reputation, and standards determined by their franchisor. Thus, Wang and Yang (2013), stated that this positive interpersonal relations is influenced by the franchisee’s compliance with guidance and advice from the franchisor. So, if the franchisee does not trust their franchisor, this will result in non-compliance and it leads to the failure of the franchise relationship (Davies et al., 2011).

Problem Statement

In Malaysia, most franchisees have come a cross complication in their business and some of them time off from the industry due to poor business performance or termination by the franchisor (Ishak, 2016). The franchisee feels pressured and burdened by the franchisor and perceive that the agreement is not advantageous to them (Davies et al., 2011). In addition, 30 franchisees filed for bankruptcy due to profit loss when they had to shut down their operations and met difficulties in repaying their loan instalments to Perbadanan Nasional Berhad (PNS) (Affes, 2016). Thus, this shows that franchisees have problems with their franchisor and this might lead to the strained relationship between franchisor and franchisee.

Additionally, when the number of franchisees increases with the same franchisor, there will be intense competition among them because the franchise outlets will be in same state or nearby with the same business model (Asad Sadi & Henderson, 2011). Similarly, the franchisor will have problems to regulate a growing network of franchisees as well as providing support services and management team as fair as possible while mitigating remaining agency issues (Chiou et al., 2004). Therefore, despite the growth at the industry in Malaysia, the relationship between franchisor and franchisee has remained contentious.

Research Questions

Based on the research objectives, this study accordingly pursues to explore and answer the following research questions:

• Does franchisee’s trust positively and significantly affect commitment?

• Does the commitment positively and significantly affect compliance?

• Does the commitment mediate the relationship between trust and compliance?

• Does the environmental uncertainty moderate the relationship between commitment and compliance?

Purpose of the Study

Based on the previous discussion, this study aims to examine the commitment and compliance of franchisee towards their franchisor. The expectation of this study is to explore the extent to which trust effect will boost and enhance franchisees’ commitment. Therefore, this study attempts to meet the following research objectives:

• To examine the relationship between franchisee’s trust and commitment.

• To examine the relationship between franchisee’s commitment and compliance.

• To examine the extent to which commitment mediate the relationship between trust and compliance.

• To study the moderating effect of the environmental uncertainty in strengthening the relationship between commitment and compliance.

Research Methods

This research is designed as quantitative approach that will utilize a quantitative research method to examine the relationship between dependent and independent variables. This study is a correlational study which has two or more variables from the same group of participants and determines relationship between variables. This current study adopted a cross-sectional survey research and the data will be collected at just one-point at a period of time. Thus, self-administered questionnaire survey will be used as a technique for data collection which the sample or respondent have to answer the questions. Researcher will use drop-off and pick-up method in this current study. The sample for this study is individual franchisee in Malaysia who registers under the Registrar of Franchise, Ministry of Domestic Trade and Consumer Affairs (MDTCA). Then, the unit of analysis in this study is the individual which referring to the franchisee as an individual unit. This study will utilise non-probability sampling to obtain information from those who are readily available or from target groups. Thus, purposive sampling is used in this study because the franchisee is the only ones who can respond to the survey, or they can comply with some criteria set by the researcher. The minimum sample size in this study will be determined by the G-Power technique.

Findings

The conceptual framework for this study is designed based on literature review above. There are 4 hypotheses build in this study to show the relationship between the variables.

Research Framework

The conceptual framework for this study is designed as below (Figure 01 ).

See Full Size >

Conclusion

The main objective of this research is to establish the relationship between the trust, commitment as mediator, compliance and environmental uncertainty as moderator. From the academic perspective, this study is to review current literature which is to evaluate whether or not commitment leads to compliance in the franchise partnership. Previously, Dickey et al. (2008) had investigated on compliance and performance between franchisee and franchisor and Ishak (2016) investigated on relationship between quality and loyalty. Hence, this study will be focusing on trust, commitment and compliance with environmental uncertainty as the moderator.

For the practical perspective, both franchisor and franchisee can apply the results of the study in their daily business as it may assist the franchisor in understanding the importance of building a committed relationship between the franchisor and the franchisee. In fact, the result can be used for the future franchisee training programme based on the feedback given in this study. Thus, this study also indirectly contributes to the existing literature on franchising business relationship in the Malaysian context.

The franchising sector is a complicated sector because it involves numerous negotiations between the owners and the agents (Tikoo, 2005). The franchisor also plays an important role with regard to networking for and on behalf of the franchisees. Nowadays, the ministry engages the franchise industry by giving support to the local franchisor to enter international market by implementers FMGG and EFDP. Thus, the franchisor should strengthen their relationship with their franchisee to solidify the foundation for international forays with prospective franchisees from other country (Hizam-Hanafiah & Li, 2014). As in international marketing, if a company is going international, they should conduct a country analysis about the country that they want to enter because of different rules and norms (Rahatullah & Raeside, 2008). Thus, the perception of franchisee towards their franchisor is very important to strengthen the franchising relationship and more successful.

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