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Chapter 6. Conclusions
The results of this study indicate that franchising tendency is related to franchise speed, initial capital, franchise fee, royalty fee, experience, internationalize and franchise chain performance. However, the results of royalty fee are inconsistent with hypothesis in full data model and industrial model. These findings support the theoretical model presented earlier. Furthermore have contribution of analysis automotive, food, hotel and motels, retail and service industry. Surprisingly this research found automotive industry has different factors effect on franchising tendency. Explain these findings by the characteristic of automotive industry that operates much more domestic oriented.
Internationalize and franchise performances are both shown to have significant relation with franchising tendency, while internationalization has positive relationship with franchising tendency and performance has negative relation with franchising tendency. However, the establishment of a foreign franchise is a form of international expansion. As contractual forms of international business are thought to be more likely to fail than contractual forms of domestic business, franchisors require to develop superior mechanisms that protect them against franchisee opportunism if they are to expand overseas successfully.
The study also shows that franchising tendency is different after the recent credit financial crisis. Further examine the effect of financial crisis and founding that franchise fee is significantly positive related to franchising tendency. It indicates that in an uncertainty global financial environment, franchisors would earn the profit by
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franchising instead of open a unit by company. In this way, franchisors could not only earn the franchise fee but also transfer the risk and expand the franchise chain in the same time. To attract franchisees, franchisors would lower royalty lever, promise higher proportion of unit revenue to franchisees. Other explanation of higher franchise tendency is that the rent is cheaper in financial crisis period.
For further research, it could be further compare the factors of single franchise brand with the industry to if the brand is outlier situation or not. Also, further researcher could examine the trend of factors within data period. Hopefully, this study could provide researchers, franchisors and potential franchisees to better understanding on franchising.
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Table 1. Definition of Variables Definition summary of variables
Variables Definition
Dependent Variables
Tendency of franchise Proportion of franchised units to total units Independent Variables
Franchise speed (FS) Years from founded to begin franchising
Capital Thousand dollar amount of investment necessary to open an outlet
Franchise Fee
Million dollar amount of the up front fee that the franchisee must pay to the franchisor to buy the franchise outlet
Royalty The percentage of outlet sales that franchisees must pay to franchisors for participation in the system
Experience Franchising experience year Internationalize Foreign units divided by total units Performance Worldwide Sales in billion
Control variables
Seeking foreign Dummy =1 if franchise chain seeks foreign expansion opportunity
Financing Dummy =1 if franchisors provide financing Varied contract Dummy =1 if contract with flexibility
Parent adjustment Dummy =1 if used parent company’s data in Entrepreneur Magazine
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Table 2. Summary Statistic of Varied Contract
Summary of distribution on the dummy variable- varied contract by industry
Industry 0 1 Total
Automotive 46 2 48
Food 311 10 321
Hotels & motels 128 75 203
Retail 63 17 80
Service 269 48 317
Total 817 152 969
Note: Dummy =1 if contract with flexibility
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Table 3 Descriptive Statistics of Variables Summary descriptive statistics of regression model variables
Variable Obs Mean S.D. Min Max
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Table 3. Descriptive Statistics of Variables (Continued)
Variable Obs Mean S.D. Min Max
Panel D: Hotel and Motels industry
FS 203 12.502 13.605 0 48
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Table 3. Descriptive Statistics of Variables (Continued)
Note: FS: Franchise speed lncap: log(capital)
Variable Obs Mean S.D. Min Max
Panel E: Retail industry
FS 80 28.863 23.114 0 75
lncap 76 5.965 1.052 4.247 8.487
Franchise Fee 63 0.039 0.093 0 0.755
Royalty 63 3.392 2.349 0 6
Age 80 25.688 10.419 8 49
Internationalize 80 0.231 0.287 0 0.852
Performance 80 3.705 10.002 0.0002 84.8
Seeking foreign 80 0.450 0.501 0 1
Financing 80 0.775 0.420 0 1
Varied Contract 80 0.213 0.412 0 1
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Table 4 Correlation Tables of the Variables Correlation matrix of 13 variables in regression model
1 2 3 4 5 6 7 8 9 10 11 12 13
1. FS 1
2. lncap 0.09 1 3. Franchise Fee 0.02 0.38 1 4. Royalty -0.18 -0.21 -0.08 1 5. Age -0.12 0.19 0.12 0.06 1 6. Internationalize 0.10 0.09 0.14 0.06 0.37 1 7. Performance 0.07 0.10 0.30 -0.01 0.28 0.37 1 8. Seeking_foreign 0.03 0.20 0.04 0.08 0.22 0.47 0.15 1 9. Financing 0.07 0.04 0.02 0.02 0.02 0.03 0.02 0.04 1 10. Automotive -0.13 -0.06 -0.01 0.05 0.13 -0.07 -0.05 -0.08 -0.03 1 11. Hotels_motels 0.08 0.72 0.27 -0.12 0.09 0.08 -0.03 0.28 0.05 -0.11 1 12. Retail 0.37 -0.06 0.02 -0.17 -0.12 0.06 0.07 -0.07 0.03 -0.07 -0.12 1 13. Service -0.16 -0.56 -0.09 0.22 -0.11 -0.01 -0.14 -0.15 0.04 -0.17 -0.30 -0.20 1
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Table 5 Result of Regression Analysis of Franchise Tendency
The dependent variable, tendency of franchise, is modeled as the proportion of franchise units to total units, which is total franchised units divided by total units of the franchise system. Following contain total data estimated by OLS method.
Model (1) is base model. Model (2) to Model (5) respectively examine the interact effect of financial crisis. Model (6) aggregate all financial crisis interact effect. Model (7) examines the effect of contract flexibility. Model (8) is full model.
H1, H3, H6, H7 received statistical support in model (1), H2, H4, and H5 have the significant opposite result to the hypothesis.
Model (1) Model (2) Model (3) Model (4) Model (5) Model (6) Model (7) Model (8)
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Table 5. Result of Regression Analysis of Franchise Tendency (Continued)
FS_crisis 0.003*** 0.003*** 0.002*** 0.003***
(0.001) (0.001) (0.001) (0.001)
Franchise Fee_crisis 1.121*** 0.841** 0.561
(0.281) (0.340) (0.491)
Internationalize_crisis 0.073 -0.075 0.050 -0.095
(0.049) (0.061) (0.053) (0.065)
Performance_crisis
0.001 -0.000 0.001 -0.000
(0.002) (0.002) (0.002) (0.002) Seeking Foreign 0.048*** 0.047*** 0.051*** 0.049*** 0.049*** 0.049*** 0.032** 0.049***
(0.014) (0.014) (0.014) (0.014) (0.014) (0.014) (0.013) (0.014)
Financing 0.004 0.003 -0.000 0.005 0.005 -0.001 -0.009 0.002
(0.013) (0.013) (0.013) (0.013) (0.013) (0.013) (0.013) (0.013)
Vary contract 0.080***
(0.017)
Parent_adj 0.179*** 0.190*** 0.158*** 0.174*** 0.176*** 0.176*** 0.024 0.186***
(0.037) (0.037) (0.037) (0.037) (0.037) (0.037) (0.028) (0.038)
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Table 5. Result of Regression Analysis of Franchise Tendency (Continued)
y2013 0.048** 0.016
***Significant at the 0.01 level.
**Significant at the 0.05 level.
*Significant at the 0.10 level.
Financial crisis: Dummy =1 if data is in between of 2010 to 2013 FS_crisis: FS* financial crisis Franchise Fee_crisis: Franchise Fee* financial crisis Internationalize_crisis: Internationalize* financial crisis Performance_crisis: Performance* financial crisis
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Table 6 Result of Regression Analysis of Franchise Tendency in Food Industry Examine the dependent variable, tendency of franchise, in food industry with OLS method.
Model (1) is base model. Model (2) to Model (5) respectively examine the interact effect of financial crisis. Model (6) aggregate all financial crisis interact effect. Model (7) examines the effect of contract flexibility. Model (8) is full model.
H1, H3, H6, H7 is proved as predicted. Franchise Fee (H3) is not significant, Royalty fee (H4) is negatively related to franchising tendency.
Performance (H7) is significant negatively related to franchising tendency.
Model (1) Model (2) Model (3) Model (4) Model (5) Model (6) Model (7) Model (8)
Franchise Fee_crisis 1.026** 0.461 1.210
(0.497) (0.646) (1.468)
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Table 6. Result of Regression Analysis of Franchise Tendency in Food Industry (Continued)
***Significant at the 0.01 level.
**Significant at the 0.05 level.
*Significant at the 0.10 level.
Internationalize_crisis 0.031 -0.124 -0.018 -0.100
(0.073) (0.097) (0.097) (0.100)
Performance_crisis 0.001 0.002 0.001 0.002
(0.002) (0.002) (0.002) (0.002)
Seeking Foreign -0.028 -0.030 -0.028 -0.025 -0.025 -0.028 0.002 -0.028
(0.019) (0.018) (0.019) (0.019) (0.019) (0.019) (0.020) (0.019)
Financing 0.003 -0.007 -0.005 -0.001 -0.001 -0.008 -0.019 -0.001
(0.019) (0.018) (0.018) (0.018) (0.018) (0.018) (0.019) (0.019)
Vary contract 0.063
(0.051)
Year control Yes No No No No No No Yes
Constant 1.489*** 1.471*** 1.494*** 1.497*** 1.484*** 1.454*** 0.904*** 1.472***
(0.090) (0.086) (0.087) (0.089) (0.097) (0.098) (0.026) (0.101)
N 311 311 311 311 311 311 321 311
Adjusted R2 0.3276 0.3448 0.3268 0.3176 0.3177 0.3423 0.1933 0.3428
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Table 7 Result of Regression Analysis of Franchise Tendency- Automotive Industry Examine the dependent variable, tendency of franchise, in Automotive industry with OLS method.
Model (1) is base model. Model (2) to Model (5) respectively examine the interact effect of financial crisis. Model (6) aggregate all financial crisis interact effect. Model (7) examines the effect of contract flexibility. Model (8) is full model.
Regression result supports H3, H4 and H5, and is inconsistent with prediction on H1, H2, H6, and H7.
Model (1) Model (2) Model (3) Model (4) Model (5) Model (6) Model (7) Model (8)
Franchise Fee_crisis -0.740 -4.474*** -7.060***
(0.636) (0.945) (2.448)
Internationalize_crisis 0.054 -0.294** -0.155 -0.224
(0.104) (0.125) (0.157) (0.149)
Performance_crisis 0.031* 0.160*** 0.064** 0.150***
(0.018) (0.028) (0.029) (0.035)
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Table 7. Results of Regression Analysis of Franchise Tendency- Automotive Industry (Continued)
***Significant at the 0.01 level.
**Significant at the 0.05 level.
*Significant at the 0.10 level.
Seeking Foreign 0.039 0.039 0.040* 0.040 0.043* 0.064*** 0.040* 0.070***
(0.027) (0.024) (0.024) (0.024) (0.023) (0.018) (0.023) (0.019)
Financing 0.014 0.014 0.014 0.014 0.018 0.036** 0.029 0.041**
(0.025) (0.021) (0.021) (0.022) (0.021) (0.016) (0.021) (0.018)
Vary contract 0.006
(0.059)
Year control Yes No No No No No No Yes
Constant 1.022*** 1.021*** 1.011*** 1.002*** 0.989*** 0.961*** 0.743*** 0.886***
(0.184) (0.155) (0.153) (0.155) (0.150) (0.112) (0.076) (0.136)
N 46 46 46 46 46 46 48 46
Adjusted R2 0.3535 0.4580 0.4629 0.4464 0.4845 0.7173 0.4378 0.7053
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Table 8. Results of Regression Analysis of Franchise Tendency- Hotel and Motels Industry Examine the dependent variable, tendency of franchise, in Automotive industry with OLS method.
Model (1) is base model. Model (2) to Model (5) respectively examine the interact effect of financial crisis. Model (6) aggregate all financial crisis interact effect. Model (7) examines the effect of contract flexibility. Model (8) is full model.
Add the control variable of parent adjustment into regression model.
H1, H5, H6, H7 is proved as predicted in hypothesis. Capital (H2), franchise fee (H3) and royalty fee (H4) have opposite result to prediction.
Model (1) Model (2) Model (3) Model (4) Model (5) Model (6) Model (7) Model (8) FS -0.006*** -0.007*** -0.005*** -0.006*** -0.005*** -0.006*** -0.003** -0.006***
(0.001) (0.001) (0.001) (0.001) (0.001) (0.002) (0.001) (0.002)
lncap -0.052*** -0.051*** -0.056*** -0.053*** -0.055*** -0.053*** -0.046**
(0.018) (0.016) (0.016) (0.017) (0.016) (0.017) (0.019)
Franchise Fee -1.349 -1.206 -2.081** -1.236 -1.109 -2.334** -3.331**
(0.914) (0.828) (0.838) (0.842) (0.831) (1.008) (1.600)
Royalty -0.009 -0.009 -0.009 -0.009 -0.010 -0.011* -0.011
(0.007) (0.006) (0.006) (0.007) (0.006) (0.007) (0.007)
Age 0.001 0.002 0.001 0.002 0.002 0.001 0.003** 0.001
(0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
Internationalize 0.267*** 0.283*** 0.245*** 0.199 0.274*** 0.362** 0.020 0.376**
(0.079) (0.076) (0.076) (0.140) (0.076) (0.172) (0.097) (0.188)
Performance -0.028*** -0.029*** -0.026*** -0.030*** -0.042*** -0.027 -0.060*** -0.026
(0.009) (0.009) (0.009) (0.009) (0.010) (0.016) (0.014) (0.018)
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Table 8. Results of Regression Analysis of Franchise Tendency- Hotel and Motels Industry (Continued)
FS_crisis 0.002 0.001 -0.001 0.001
(0.001) (0.002) (0.002) (0.002)
Franchise Fee_crisis 1.243*** 1.438** 2.316
(0.448) (0.702) (1.547)
Internationalize_crisis 0.114 -0.134 0.282** -0.142
(0.119) (0.179) (0.136) (0.196)
Performance_crisis 0.018* -0.000 0.014 -0.002
(0.010) (0.019) (0.016) (0.020) Seeking Foreign 0.395*** 0.379*** 0.421*** 0.405*** 0.411*** 0.410*** 0.248*** 0.424***
(0.057) (0.057) (0.055) (0.057) (0.056) (0.062) (0.059) (0.069)
Financing 0.057* 0.062** 0.050* 0.061** 0.061** 0.048 -0.010 0.051
(0.030) (0.029) (0.029) (0.029) (0.029) (0.030) (0.030) (0.031)
Vary contract -0.037
(0.037)
Parent_adj 0.118** 0.106** 0.107** 0.100* 0.095* 0.098* -0.088** 0.088
(0.054) (0.051) (0.048) (0.052) (0.049) (0.052) (0.043) (0.058)
Year control Yes No No No No No No Yes
Constant 0.999*** 1.028*** 1.067*** 1.016*** 1.034*** 1.068*** 0.660*** 1.052***
(0.139) (0.120) (0.118) (0.120) (0.119) (0.120) (0.062) (0.144)
N 128 128 128 128 128 128 203 128
Adjusted R2 0.6784 0.6831 0.6967 0.6791 0.6857 0.6905 0.2874 0.6750
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Table 9 Results of Regression Analysis of Franchise Tendency- Retail Industry Examining the dependent variable, tendency of franchise, in Automotive industry with OLS method.
Model (1) is base model. Model (2) to Model (5) respectively examine the interact effect of financial crisis. Model (6) aggregate all financial crisis interact effect. Model (7) examines the effect of contract flexibility. Model (8) is full model.
Regression result supports H1, H2, H3 and H7, and has opposite results to predict on H4, H5 and H6.
Model (1) Model (2) Model (3) Model (4) Model (5) Model (6) Model (7) Model (8)
Franchise Fee_crisis 3.546*** 4.268*** 3.646*
(1.201) (1.553) (2.068)
Internationalize_crisis 0.088 -0.470** -0.104 -0.523**
(0.151) (0.217) (0.177) (0.219)
Performance_crisis 0.017* 0.021 -0.006 0.030*
(0.009) (0.016) (0.013) (0.017)
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Table 9. Results of Regression Analysis to Franchise Tendency- Retail Industry (Continued)
***Significant at the 0.01 level.
**Significant at the 0.05 level.
*Significant at the 0.10 level.
Seeking Foreign 0.276*** 0.189** 0.205*** 0.171** 0.174** 0.208*** 0.051 0.292***
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