Diplomarbeit Frauscher Julia

DIPLOMARBEIT Titel der Diplomarbeit „Ownership Strategy in Franchising: Single- vs. Multi-Unit-Franchising“ Verfasserin Julia Frauscher gemeinsam mit Christian Schromm Angestrebter akademischer Grad Magistra der Sozial- und Wirtschaftswissenschaften (Mag. rer. soc. oec.) Wien, im April 2010 Studienkennzahl lt. Studienblatt: 157 Studienrichtung lt. Studienblatt: Internationale Betriebswirtschaft Betreuer/Betreuerin: Univ.-Prof. Dr. Josef Windsperger Danksagung Unser besonderer Dank gilt Herrn Univ.-Prof. Dr. Josef Windsperger, der sich zur Betreuung unserer Diplomarbeit bereiterklärt und uns das gemeinsame Verfassen die- ser Diplomarbeit ermöglicht hat. Herrn Dildar Hussain gilt unser Dank für die Hilfe im empirischen Teil. Bei all jenen, dich sich die Mühe gemacht haben diese Arbeit Korrektur zu lesen oder uns in sonstiger Weise bei der Fertigstellung behilflich waren, möchten wir unseren Dank aussprechen. Julia Frauscher Ich möchte mich bei meiner Familie bedanken, die mir meine akademische Ausbil- dung ermöglicht und mich während der Studienzeit moralisch und finanziell unter- stützt und mir unermüdlich und liebevoll Beistand geleistet hat. Ganz speziell denke ich hierbei an meine Mama, Anna Frauscher, der ich die vorliegende Arbeit widmen möchte. Ein Dankeschön gebührt auch meinem Lebenspartner, der mit viel Geduld meine Lau- nen während des Studiums ertragen und mir anstandslos zur Seite gestanden hat. Christian Schromm Ich bedanke mich bei meinen Eltern für die unermüdliche Unterstützung während meiner Studienzeit ohne deren Hilfe es mir nicht möglich gewesen wäre eine universi- täre Ausbildung in Anspruch zu nehmen. Ohne deren Zuspruch in schweren Zeiten und finanziellen Beistand wäre ich nicht in der Lage gewesen, das Studium zu Ende zu führen. Selbstverständlich bedanke ich mich auch bei meinem Bruder, der mir zu jeder Zeit mit gutem Rat zur Seite stand. Mein Dank gilt auch meiner Lebenspartnerin und meiner Tochter, die mir Tag für Tag Rückhalt gegeben haben. Table of Contents Table of Figures 5 1. Introduction 7 2. Types of Franchising 9 2.1. Single Unit Franchising 9 2.2. Multi-Unit Franchising 9 2.3. Master Franchising 10 2.4. Area Development Franchising 10 3. Theoretical Views on Single-unit and Multi-unit Franchising 10 3.1. Transaction Cost Theory 10 3.1.1. Transaction Cost Factors Influencing Multi-Unit Franchising 12 Environmental Uncertainty 12 Transaction Specific Investments 13 3.2. Agency Theory 14 3.2.1. Agency Theory in Franchising 14 3.2.2. Monitoring Costs 16 Geographical Distance 17 Cultural Distance 17 3.2.3. Shirking and Free-riding 18 3.3. Resource Scarcity View 20 Firm’s Resources 20 Valuable Resources 21 Rare Resources 21 Imperfectly Imitable Resources 21 Non Substitutable Resources 21 Franchising and the Resource Based Theory 22 3.4. Organizational Capabilities 24 3.4.1. Exploration and Exploitation 24 3.4.2. Knowledge Transfer 25 3.5. Screening Theory 26 3.6. Property Rights Theory 28 Contractibility of Local Market Assets 29 Contractibility of System-specific Assets 31 4. Comparative Case Analysis 33 4.1. Research Design 34 4.2. Coffeeshop Company 36 History 36 Strategy of Expansion 37 Franchise Model of Coffeeshop Company 39 Entrance Fee 39 Kinds of Outlet 39 Royalties 40 Training of Franchisees 40 Quality-Check 40 4.3. Testa Rossa Caffèbar 41 History 41 Testa Rossa Caffè 41 The Franchise Concept 42 Strategy of Expansion 43 Entrance Fee 44 Kinds of Outlets 45 Royalties 45 Training of Franchisees 46 Quality Check 46 4.4. Empirical Findings 46 4.4.1. Transactions Cost Theory 46 Transactions Cost Theory – Coffeeshop Company 47 Transactions Cost Theory – Testa Rossa Caffèbar 49 4.4.2. Agency Theory 53 Agency Theory – Coffeeshop Company 53 Agency Theory – Testa Rossa Caffèbar 55 4.4.3. Resource Scarcity View and Organizational Capabilities Theory 57 Financial Resources – Coffeeshop Company 58 Financial Resources – Testa Rossa Caffèbar 59 Local Market Know-how – Coffeeshop Company 59 Local Market Know-how – Testa Rossa Caffèbar 60 System Specific Assets – Coffeeshop Company 61 System Specific Assets – Testa Rossa Caffèbar 62 4.4.4. Screening Theory 63 Screening Theory – Coffeeshop Company 63 Screening Theory – Testa Rossa Caffèbar 65 4.4.5. Property Rights Theory 66 Property Rights Theory – Coffeeshop Company 67 Property Rights Theory – Testa Rossa Caffèbar 68 5. Summary of Empirical Results 70 References 74 Appendix 80 Interview: Testa Rossa Caffèbar 80 Interview: The Coffeeshop Company I 103 Interview: The Coffeeshop Company II 131 Abstract (English) 147 Abstact (German) 147 Lebensläufe 149 Aufteilung der Diplomarbeit 151 -4- Table of Figures Figure 1: Number of outlets according to countries of the Coffeeshop Company Figure 2: Number of outlets according to countries of Testa Rossa Caffèbar 1. Introduction The present thesis is about the ownership strategy in franchising networks. Therefore we want to find out whether it is advantageous for the franchisor to have franchisees who own one outlet or more outlets in the franchise chain. So, the objective of our study is to point out the franchisor’s choice between using single- and multi-unit franchising. As franchising is an important topic in global business world we first give an overview about how franchising works, by presenting definitions, business procedures and the different kinds of franchising in the service sector. Subsequently we present a review about the most important theories to find out in which situations the franchisor should make use of what kind of ownership strategy. For this challenge we do not only present the theory itself but we set up hypotheses for the use of single- or multi- unit franchising. In the empirical part of our thesis we present two case studies. One is about the Cof- feeshop Company and the other is about Testa Rossa Caffèbar, both well established Austrian service franchise systems. This section shows whether the established hypotheses in theory are compatible with business reality or not and, if it is the case, dem- onstrate the differences between theory and practice and try to explain why the results do not align with those of theory. Franchising in the service sector is a business format and thus an organizational form. Franchising is a business relationship between the franchisor (headquarter) and the franchisee (local store) that gives the franchisee the right, opportunity and duty to sell a product or service under a common brand name with the help of established business procedures. Those characteristics are owned by the franchisor, assigned to the franchisee and in return, the franchisor receives a lump sum payment as well as a royalty fee. The latter one is based upon sales made by the franchisee for a pre- specified period of time (Rubin, 1978). Due to Kaufmann and Dant (1996) franchising is a growing sector in economies all over the world. In general there exist only a few researches and studies on multi-unit -7- franchising whereas the main focus relies on single-unit franchising. Sorenson and Sorenson (2001) state that franchising is a growing business format for firms that seek for higher wealth creation. Due to Kaufmann and Dant (1996) there exist two reasons why franchising is the preferred organizational form in economical business. They state that franchising helps to overcome the financial scarcity problem. The second point is that franchisees are seen to be better managers of their stores than the managers of company-owned outlets. The authors also argue that multi-unit franchising is a kind of anomaly. Fact is that the previously supplied research studies have focused on single-unit franchising rather than on multi-unit franchising whereas to- day’s business life is confronted a lot with not only single but increasingly with multi-unit ownerships. -8- 2. Types of Franchising This section is about the term franchising and its different meanings to get a wider overview about what we are discussing. The term franchising can be diversified into several business arrangements (Burton et al., 2000). Therefore it is necessary to state which term of franchising we are using in our thesis. Due to the discussion of Burton et al. (2000), one has to distinguish between first and second generation franchising. In the first case the franchisee receives a pre-specified set of rights and resources for the production of a product or a service via a contract, for doing business under a special brand name. A more common name for this kind of franchising is licensing. Second generation franchising involves a wider package of rights and resources than the first possibility and involves not only contractible assets but also assets with a tacit and intangible character. Thus, the franchisee is able to replicate business successfully. With the second definition in mind, we go on with further kinds of franchising. 2.1. Single Unit Franchising In a franchise relationship the owner of a single-unit outlet within the franchise system is just allowed to run this single unit and not more (Garg et al., 2005). 2.2. Multi-Unit Franchising Kaufmann and Dant (1996) state that multi-unit franchising is the type of franchising that is of most importance. In this case the franchisor allows the franchisee to open up several outlets within the chain. This means that the franchisee has the possibility to establish own mini-chains in the main chain. Kaufmann and Dant (1998) explain that that there exist two ways of doing so. First, there is the sequential acquisition. At the beginning of the franchise relationship, the franchisee may have just one outlet. With the ongoing acquisition of additional stores sequential franchising come into effect. The other possibility of multi-unit franchising is the corporate strategy of the franchisor- also called area development franchising. Thus, the franchisor transfers rights and responsibilities to the franchisee to operate exclusively in a pre-specified area. -9- 2.3. Master Franchising According to Burton et al. (2000), franchisors often make use of an intermediary in franchising patterns.

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