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Abstract
Purpose – This paper aims to identify and evaluate the factors which influence relationship development between franchisors and franchisees in
international service franchise partnerships.
Design/methodology/approach – Case studies of two international hotel firms were the focus of the enquiry. Interviews and document analysis
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Keywords Franchising, Relationship development, Power dependence, Transaction costs, International business
An executive summary for managers and executive Nonetheless, there is little, if any, research that empirically
readers can be found at the end of this article. examines relationship development beyond national borders
in franchise partnerships (Doherty, 2009). Although business
format franchising has become an established global
1. Introduction enterprise trend within the service sector (Altinay, 2007), it
is yet not known what triggers or hinders relationship
Despite the growth of international franchising, the development between franchisors and franchisees in
internationalization of franchise systems remains under- international partnerships. As international franchise
researched (Doherty, 2009). To date, the literature has partnerships involve cross border transactions and
evaluated the influence of different antecedents on the relationships which may be affected by cultural distance,
internationalization process of franchise systems (see Eroglu, they present particular challenges to relationship development
1992; Karuppur and Sashi, 1992); identified different and their subsequent management. Cultural distance is
selection criteria to inform partner selection decisions; reflected in franchisor and franchisee perceptions about
(Clarkin and Swavely, 2006; Doherty, 2009) and home and host country markets and the way of doing business
highlighted the importance of understanding the within those markets (Altinay, 2007). While cultural distance
complexities of local market conditions and exploiting has been used to explain entry mode choice, there is still no
organizational learning when selecting partners in consensus on the effect of cultural distance within the
international markets (Wang and Altinay, 2008). The international business literature (Tihanyi et al., 2005) and on
importance of relationship development in the viability and relationship development in particular.
success of service franchise partnerships has also been This paper therefore responds to Karantinou and Hogg’s
identified, since lack of mutual understanding and conflict (2009) call for research on relationship development in
in franchise partnerships could result in failure of business services and reports on research which aims to
identify and evaluate the factors which influence relationship
collaborative relationships with obvious monetary and
development between franchisors and franchisees in franchise
strategic effects (Clarkin and Swavely, 2006; Doherty, 2009).
partnerships. Furthermore, it examines relationship
development within two types of franchise agreements,
The current issue and full text archive of this journal is available at direct and master franchising. International master franchise
www.emeraldinsight.com/0887-6045.htm partnerships are growing in popularity, particularly within the
service industries (Brookes and Roper, 2008). They differ
from individual franchise agreements as they entitle the
Journal of Services Marketing franchisee the rights to open franchised units and to grant
26/4 (2012) 278– 292
q Emerald Group Publishing Limited [ISSN 0887-6045]
these rights to third parties as a sub-franchisor (Connell,
[DOI 10.1108/08876041211237578] 1999; Quinn and Alexander, 2002). As such, the greater
278
Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
degree of control devolved to the master franchisee (Brookes Emphasizing asset specificity, transaction cost theory is
and Roper, 2008), may impact on relationship development. concerned with the idiosyncratic assets which are dedicated
The paper exploits three main streams of research which by the partners to transact and execute relationship tasks
could inform the antecedents of business-to-business (Berthon et al., 2003; Heide and John, 1992). Researchers
relationships, namely power-dependence, transaction cost investigating channel relationships from this theoretical
theories and international business. It also cross-fertilizes two perspective (Barthon and Jepsen, 2007; Berthon et al.,
streams of research, franchising and relationship 2003) have identified asset specificity as influential to the
development. It thus aims to advance services marketing nature of the relationship between firms. Within exporter-
literature in general, and franchising literature in particular, importer relationships, investments dedicated to the channel
by offering a holistic theoretical perspective to our relationship would lose their value if they were to be re-
understanding of business-to-business relationship allocated to another relationship (Heide and John, 1992). In
development in franchise partnerships. It also offers a particular, idiosyncratic investments which are unique to a
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systematic and comparative analysis of different factors partnership such as exchanging classified product and/or
which influence relationship development as applied to market information, developing specialized training programs
individual versus master franchise partnerships within an and deploying tailor-made promotional campaigns would be
international context. worth little outside the focal importer-exporter transaction
The paper begins by reviewing the extant literature within (Skarmeas and Robson, 2008). The importance of
the three main research streams underpinning the study; idiosyncratic investments such as a proven business concept
power dependence, transaction cost analysis and international and brand, specialized training programs and marketing
business and examining these within the context of campaigns have also been identified as key drivers of
franchising. It then examines relationship development in relationship development with potential franchisees
strategic alliances and the factors that influence the (Harmon and Griffiths, 2008; Hopkinson and Hogarth-
development of these relationships. The design of the study Scott, 1999).
is then explained before the findings from two case studies are The third theoretical perspective is derived from the
presented. Following a detailed discussion, the conclusion international business literature which states that there are
highlights the implications of the study for franchisors and cultural differences between partners which are likely to
franchisees and the development of effective working impact on both the formation and sustainability of strategic
relationships between them. partnerships (Lorange and Roos, 1993; Voss et al., 2006).
Partners therefore need to be culturally familiar and
2. Power-dependence, transaction cost and demonstrate cultural sensitivity. Cultural familiarity is the
extent to which a partner is familiar with the other partner’s
international business theories
country in terms of its language, business practices, political
Researchers have studied distribution channel relationships and legal systems (Boyacigiller, 1990). Cultural familiarity of
based on a variety of theoretical frameworks. One of the most exchange partners leads to a shared and caring understanding
widely used frameworks is power-dependence theory of each other’s situations and thus results in a better
(Emerson, 1962), which adopts the premise that business relationship (Johnson et al., 1996). Partners’ awareness of
relationships can be understood as a product of inter-firm cultural differences between themselves and exchange
dependence and through the analysis of the relationship partners underpins cultural sensitivity (Lee et al., 2007).
between dependency, power and power use (Berthon et al., Cultural sensitivity therefore goes beyond the awareness of
2003). Two partners are unequally dependent on one another differences and involves effectively managing these
if one possesses resources that are valued by the other party differences. Furthermore, it demonstrates a partner’s
(Stern and El-Ansary, 1992). In distribution channel willingness and ability to tailor its approach in line with
relationships, if an export firm carries out its channel roles these differences (Lorange and Roos, 1993). Sensitivity to
effectively, leading to high role performance, the target firm’s local markets and cultures in order to stimulate relationships
dependence on a partnership with the export firm increases with local partners is also emphasized within the international
because the target firm would not easily find an alternative business literature, (Altinay, 2007; Skarmeas and Robson,
(Frazier et al., 1989; Kim, 2000). In franchising, a core reason 2008). Organizations need to demonstrate cultural sensitivity
for joining a franchise network is to access the franchisor’s towards foreign markets by gathering local market knowledge,
brand, its reputation and the training and marketing support creating an awareness of the differences between home and
to deliver that brand. A franchisor’s role performance in terms host country markets, and adapt their market practices to the
of its international brand reputation and the marketing and local conditions (Batonda and Perry, 2003a; Buckley and
training support it offers to the franchisees can also be Casson, 1998; Ghoshal and Bartlett, 1990; Glaister and
expected to have a major effect on a franchisee’s perception of Buckley, 1997; LaBahn and Harich, 1997).
power and thus relationship development (Harmon and Sensitivity to national business culture has also been
Griffiths, 2008). A franchisee’s perception of a franchisor’s identified as an important dimension of business relationships
role performance therefore can be expected to have a major in international franchise partnerships (Altinay, 2006; Eroglu,
effect on the franchisee’s willingness to develop a relationship 1992; Karuppur and Sashi, 1992). A franchisor’s cultural
with a particular franchisor (Hopkinson and Hogarth-Scott, sensitivity can be demonstrated in senior decision makers’
1999). mindsets in taking certain decisions about different country
A second theoretical perspective that has attracted markets and partners, in recruitment strategies and
heightened attention from scholars in the area of representation in different country markets and/or in their
distribution relationships is transaction cost theory adaptation to local franchisees’ practices. These practices
(Castrogiovanni et al., 2006; Williamson, 1985). could therefore form the basis of an investigation into a
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Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
franchisor’s approach to relationship development as they finally, the stabilizing role of partnership. While these stages
demonstrate a franchisor’s commitment to a partnership and broadly mirror those set within other research contexts, there
serve to build up trust among the local franchisees (Altinay, are a number of subtle differences. In the first instance,
2007). In order to build a more detailed conceptual Doherty and Alexander (2004) identify that the recognition of
framework for the study however, the following section of the need for a relationship only occurs in experienced
the paper explores relationship development within strategic franchisors who strategically choose to franchise
alliance agreements in general and within the franchising internationally. Second, they identify that in the case of
literature in particular. franchising, contractual obligations and the maintenance of
brand standards have a role to play in maintaining and
3. Conceptual framework and research questions stabilising the relationship. Finally the researchers highlight
the fundamental role of personal chemistry throughout the
Existing research shows that developing sustainable and development of franchisor-franchisee relationships. It is not
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productive strategic alliances requires the development of surprising therefore that Doherty and Alexander’s (2004)
quality relationships between the partners (Dyer and Singh, definition of relationship development refers to the creation of
1998; Johnson et al., 1993; Sarkar et al., 2001). Researchers social relationships and emotional bonds through the
have developed a number of well-supported models, such as enhancement of trust and commitment.
life cycle and growth stages models, that define many relevant Whatever the business context, trust and commitment have
variables that influence the success or failure of relationship been recognised as important elements of relationship
development (Ford, 1980; Dwyer et al., 1987; Larson, 1992; development. As the trusting and committed relationship
Kanter, 1994; Wilson, 1995). These models tend to progresses, risk and doubt should be reduced as both parties
conceptualise relationship development as progressing learn more about each other, therefore, the relationship is
through a number of distinct stages. Different researchers likely to yield more benefits, financial or otherwise. On the
however have applied different labels to a different number of other hand, if trust and commitment are absent or breached,
stages as Table I displays. conflict and uncertainty will inevitably arise, and as a result,
Pioneering research in the relationship process, conducted co-operation fails (Morgan and Hunt, 1994). Trust is
by Dwyer et al. (1987), explored the relationship process therefore the willingness to rely on an exchange partner in
within the context of buyer-seller relationships. This study whom one has confidence (Moorman et al., 1992) and
identified that the relationship process goes through five involves a belief that a relationship partner will act in the best
stages, namely; awareness, exploration, expansion, interests of other partners (Morgan and Hunt, 1994).
commitment and dissolution. Kanter’s (1994) research, Johnston et al. (2004) argue that most trust definitions
undertaken within the context of alliances, also identified incorporate two main elements:
five distinct stages in relationship development. Using the 1 confidence and predictability in one’s expectations about
analogy of a marriage, she labelled these stages as courtship, another’s behavior (competence trust); and
engagement, housekeeping, learning to collaborate, and 2 confidence in one’s expectations about another’s goodwill
managing the trade off. Five distinct stages were also (goodwill trust) (Ganesan, 1994; Zaheer et al., 1998).
determined in subsequent studies within alliance
relationships (Ring and van de Ven, 1994) and in buyer- Competence trust denotes the ability of the exchange partner
seller relationships (Wilson, 1995) as Table I depicts, to perform according to expectations as he/she possesses the
although other researchers identified only three within the necessary skills and expertise (Nooteboom et al., 1997).
context of alliances (Das and Teng, 2002) and buyer-supplier Goodwill trust, on the other hand, is related to the motives
relationships (Chang and Lin, 2008). and intentions of the exchange partner and demonstrates
Despite the different number of stages identified and the fairness in exploiting the opportunities for positive gain
different research contexts explored, Table I identifies a (Anderson and Narus, 1990). Competence trust increases
number of key similarities in the findings of the different predictability in behavior, while goodwill trust resides in a
studies. Having recognised the need for a partner, belief that the exchange partner will serve the truster’s best
relationships begin with a search for and evaluation of interests. On the other hand, commitment, defined as “an
potential partners. Evaluation involves an assessment of the exchange partner believing that an ongoing relationship with
compatibility of organisation goals and resources, as well as another is so important as to warrant maximum efforts at
interpersonal compatibility of members of the organisations. maintaining it” (Morgan and Hunt, 1994, p. 23), is also seen
The development of trust appears fundamental in these early as an essential component of successful relationships
stages. Table I also identifies, that the identification of (Ganesan, 1994; Jap et al., 1999; Morgan and Hunt, 1994).
differences and potential conflict is not uncommon during the In an overseas collaboration, commitment gives partners a
implementation stage of the relationship. If differences can be sense of unity and a strong desire to continue a relationship
overcome and sufficient resources committed, then the (Kim and Frazier, 1997). Domestic buyers develop feelings of
relationship continues and potentially stabilises. Trust and affiliation with foreign suppliers (Moorman et al., 1992) and
commitment are also important to the ongoing stability of as a result, stability and sacrifice constitute a strong
relationships. foundation to the partnership (Anderson and Weitz, 1992).
While relationship development research within franchising In addition to these models which determine the key stages
is limited, Doherty and Alexander (2004) identify four key of the relationship development, researchers have also
stages of franchise relationship development in their study set identified power/dependence (Kim, 2000), asset specificity
within the international retail industry. These stages reflect (Skarmeas and Robson, 2008) and cultural sensitivity
the recognition of relationship need, the partner search (Batonda and Perry, 2003a) as factors which influence
process, the evaluation of potential franchise partners and relationship development. The proposed links between role
280
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active constructs in selection agreement on mutual goals penetration defined, competitive abilities of the through trust and
process; social bonding enhances social bonding, adaptation occurs, and relationship to create value; performance satisfaction
begins trust and commitment resources committed which both social and structural
influences performance bonding increased
satisfaction
Das and Teng Strategic Formation stage Operation stage Outcome Stage
(2002) alliances Negotiation to determine Implementation of Four possible outcomes:
Factors influencing relationship development in franchise partnerships
281
possibility of conflicts relationship
Batonda and Business Searching Starting Development Maintenance Termination Dormant
Perry (2003) networks Partner need recognition Making contact and Emphasis on developing Increasing commitment of Weighing cost and benefits; Inactive state due to project
search, evaluation and establishing rapport; assess personal relationship and resources to the partnership possible dissolution completion or failure
selection of potential compatibility mutual trust between Ongoing exchange of
partners partners, roles defined and activities and value
priorities identified
Doherty and Franchising Relationship need Partner search Evaluation Stabilizing role
Alexander recognition Approach can be rational or Capabilities of partners and Legal contract; franchisor
(2004) Only in experienced opportunistic, chemistry performance ability support and communication
international franchisors between partners important assessed; chemistry and help to stabilize relationship;
with strategic intent trust important criteria Defined brand offer and
chemistry important
elements of stable
relationships
Chang and Lin Buyer-supplier Formation Operating Maintenance
(2008) relationships Relationship established; Implementation of Maintain relationship and
negotiations take place and relationship increase its outcomes
trust established; resources
Journal of Services Marketing
committed
Volume 26 · Number 4 · 2012 · 278 –292
Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
performance, asset specificity, cultural sensitivity and disposition as a major determinant of relationship
relationship development and its dimensions are discussed development. Confirming this, Voss et al. (2006) state that
below within the context of franchising. Three research the development of relationships derives from the partnering
questions, derived from the literature and used to frame the firms’ openness to understanding and responding to
investigation are considered below. differences in cultural and business practice (Voss et al.,
2006). Supporting this, in a study of the relationship quality
3.1 Role performance and relationship development of import-export firms, Skarmeas and Robson (2008) found
Franchisor-franchisee relationships can be viewed as an that relationship development could not be cultivated
overall franchise system where the functions performed by the between the importers and their foreign suppliers without
franchisor constitute input into the franchisee’s operations appreciation of, and adjustment to, each other’s business
(Monroy and Alzola, 2005). A franchisor that carries out its culture. In order to make this cultivation happen, an
required transactional roles in a competent manner exporting firm needs adapt its business practices to the
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contributes to the well-being of the overall system and can conditions of the importer’s local market. However, this
thus facilitate a high level of goal attainment for its partner requires an organisation wide holistic approach to
(Bradach, 1998; Fulop, 2000). A franchisee that receives understanding the local environment and the partner’s
satisfactory benefits from its franchisor partner, relative to culture and the investment of time, managerial attention
those offered by alternative franchisors, in relation to training and other resources (Voss et al., 2006).
and start up support, and advice on finance, supply networks In the case of franchise partnerships, Altinay (2007) notes
and marketing, realizes that the franchisor works hard on its that cultural sensitivity also mirrors a franchisor’s capacity to
behalf (Fulop, 2000; Lashley, 2000). This is likely to engage in culturally effective exchange with franchisees in
engender confidence in the franchisor, cultivate the international markets. A franchisee’s trust, commitment and
franchisor’s sense of relationship unity and lessen the satisfaction cannot be easily developed without appreciation
potential for disagreement. Hence, in the presence of of, and adjustment to, its business culture by its franchisor.
superior franchisor role performance, outcomes such as This study adopts the definition of cultural sensitivity which
trust and commitment are likely to occur at the franchisee demonstrates the extent a franchisor sensitizes and adapts its
level and this facilitates the relationship development business practices to the nuances of the franchisee’s local
(Harmon and Griffiths, 2008). market in order to develop and maintain relationship quality.
Demonstrating cultural sensitivity requires possession of
3.2 Asset specificity and relationship development
considerable amounts of financial, relational and cultural
Within franchise agreements, a franchisor’s asset specificity
resources on the part of the franchisor (Altinay, 2006;
serves as a key driver of relationship development with the
Sorenson and Sørensen, 2001). Furthermore, bridging
potential franchisees (Harmon and Griffiths, 2008;
differences between local and foreign markets is a
Hopkinson and Hogarth-Scott, 1999). There are several
challenging task that necessitates purposeful deployment of
types of investments a franchisor makes; developing and
available resources in cultural training and other relational
offering a proven business concept and brand, developing
specialized training programs, support in terms of site management efforts (Clarkin and Swavely, 2006; Wang and
selection, general business start up assistance, deploying Altinay, 2008). Thus, a franchisor that appreciates if
tailor-made marketing campaigns and providing the relationship decision elements (training, support, marketing
franchisee with the necessary materials and products in and management assistance) need customization to local
order to be able to run their franchised operations (Bradach, market conditions and adapts its practices accordingly is
1998; Chen and Dimou, 2004; Fulop, 2000; Shane, 1998; expected to perform its partnership roles in a more competent
Teegen, 2000). Among these, the brand name is the most fashion (Altinay, 2007; Eroglu, 1992; Sorenson and Sørensen,
important asset to protect against the potential hazard of 2001).
franchisee free riding where a franchisee appropriates the While the literature identifies that role performance, asset
benefits of the brand name while not upholding the standards specificity and cultural sensitivity impact on relationship
of the franchise system (Brickley and Dark, 1987). development, there remains a gap in our understanding of
Franchisors therefore strive to avoid damage to their how these three constructs impact on relationship
reputation by establishing and enforcing contractual development in franchise agreements. Furthermore, it is not
provisions for training and outlet operations (Shane, 1998) clear from the current literature whether the impact would be
and for controlling adherence to these (Brookes, 2007). As a the same for direct and master franchise agreements. As
result, a franchisee that sees franchisor investment in previously stated, master franchise agreements differ from
relationship-specific assets becomes more assured that trust direct individual franchise agreements, given they are
can be placed in its partner and these relationship building generally firms in their own right with the responsibility for
activities enhance franchisee commitment (Hing, 1995, 1999; a number of franchised units over a defined geographical area
Lewis and Lambert, 1991). Therefore, franchisor- (Quinn and Alexander, 2002). As such, there is a potential
transaction-specific assets are expected to facilitate impact on the dependency and power-balance in these
relationship development with the franchisee. agreements and thus on the impact of role performance, asset
specificity and cultural sensitivity in relation to individual
3.3 Cultural sensitivity and relationship development franchisees. The research therefore seeks to answer the
A partner’s cultural sensitivity facilitates recognition of following questions:
goodwill and good intentions and thus facilitates .
How does role performance affect relationship
relationship development. Athanasopoulou’s (2009) review development in the franchisor-franchisee and franchisor-
of the relationship quality literature highlights intercultural master franchisee relationship?
282
Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
.
What is the influence of asset specificity on the The second case (B) comprises a multi-branded privately-
relationship development in the franchisor-franchisee owned US hotel group. It is also structured into three
and franchisor-master franchisee relationship? geographical divisions: the Americas, Asia Pacific and Europe,
.
How does cultural sensitivity influence the relationship Middle East and Africa (EMEA). This international hotel
development in the franchisor-franchisee and franchisor- group has publicly stated a preference for international master
master franchisee relationship? franchise agreements to develop its brands and its operating
characteristics are also depicted in Table II. The territory of
4. Methodology this case is bound by the franchisor and its relationships with
two of its European master franchisees, each with
In order to achieve the aim of the study, a qualitative headquarters in a different country. As such, it is also en
approach, informed by the phenomenological research embedded case study (Rowley, 2002).
philosophy (Eisenhardt, 1989; Robson, 2002; Saunders Primary data was collected using multiple semi-structured
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et al., 2008) was adopted. Doherty (2007, 2009) argues that interviews. The interviews focused on three broad areas, the
qualitative studies are concerned with illustrating the real life processes and criteria used to identify potential franchise
complexities of organisational practices by providing rich data
partners, the negotiation process, and the inter-organisational
and by going beyond description to seek connections and
processes used to manage the relationship in franchise
explanations; that is going beyond just “what is” to suggest
partnership. In Case A, 45 interviews were conducted with
“why” it is. In line with this philosophy and with the aim of
the representatives of the franchisor organization and with
the study, the research was undertaken in two stages. In the
franchisees including country managers responsible for
first stage, relationship development was investigated between
franchisors and individual franchisees and in the second stage, franchise partnerships, strategy, marketing, operations and
relationship development was investigated between brand directors. In Case B, ten interviews were held with
franchisors and master franchisees. The research context corporate level members of the franchisor and master
adopted for the study was the international hotel industry. franchisee firms responsible for strategy, development,
This provided a suitable context given the industry’s high level marketing and financial management. Data was collected
of internationalisation its long history of franchising from both franchisor and franchisee perspectives in both cases
(Littlejohn et al., 2007) as well as the growing use of in order to validate the findings and increase their reliability.
international master franchise agreements (Brookes and Document analysis was also used as a complementary data
Roper, 2010). collection method and for triangulation purposes to increase
A case study strategy was adopted for the study as they are validity, as was replication logic (Riege, 2003). Data was
useful when the phenomenon is little understood and the collected through archival analysis and internal and external
dynamics of it need to be incorporated in the research (Yin, document review comprising organization charts, annual and
2003). The value of case studies in franchise research has interim accounts and reports, company newsletters and
been demonstrated by previous researchers (Altinay, 2007; employee magazines, press releases, internal memos and
Doherty, 2009; Doherty and Alexander, 2004). A purposive analyst and investor reports.
sampling approach was used to select a single case comprising Data analysis took place concurrently with data collection
one international hotel group, for each stage of the study. The (Eisenhardt, 1989; Gibbs, 2004; Mintzberg, 1979; Stake,
research began with the Hotels Magazine 325 Annual Survey 1995) according to two stages; familiarization and coding.
that identifies the world’s largest hotel groups by number of Familiarization, involved listening to each audio recording
hotels, hotel rooms and countries of operation. It then drew several times and noting the impressions and intuition with
on industry reports and corporate web sites to inform case regard to both interviewees and the content of the interview.
selection. It the first stage, the case selected had a high degree Notes of possible interpretations were also taken and
of individual franchised properties and in the second case, emerging themes were identified. Coding enabled the data
there was a preference for international master franchise to be broken down further, conceptualized and put back
agreements. Each case therefore provided “certain insights” together in new ways as categories. A coding scheme played
which “other organizations would not be able to provide”
an important role in this process. The coding scheme
(Siggelknow and Rivkin, 2005, p. 20) and thus a valuable data
comprised a three-by-one matrix encompassing role
source to inform the research.
performance, asset specificity, and cultural sensitivity of the
In the first stage of the study, the case (A) comprised a
franchisor as one axis and relationship development the other
multi-branded hotel group which is a publicly listed company
on the London Stock Exchange, but with headquarters in the axis. The coding scheme helped to logically cross-classify the
USA. It is structured into three geographical divisions: the variables, generate themes and illustrate interrelationships
Americas, Asia Pacific and Europe, Middle East and Africa between role performance, asset specificity, cultural sensitivity
(EMEA). The founder of this firm has been identified as one and relationship development. The validity of the study has
of the original pioneers in hotel franchising and approximately been enhanced through employing multiple data collection
90 per cent of its portfolio of hotel units is franchised. Table II method; creating a databank for each case study; presenting
depicts the operating characteristics of Case A. The territory findings both inside the case study organizations and
of the case is bounded (Miles and Huberman, 1994) by the externally at conferences and workshops in order to get
franchisor and its relationships with six international them questioned dialectically; and undertaking a theory
franchisees in Europe. As such, Case A is an embedded driven analysis in order to improve construct definitions and
case where the development of each franchisor-franchisee is also establish a domain to which the study’s findings could to
investigated individually (Rowley, 2002). some extent be generalised.
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Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
284
Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
by the franchisor. Although, placing country managers could Yet a third informant admitted:
be seen as a strong sign of cultural sensitivity, the franchisor [. . .] obviously we wanted an organization that had great global distribution
did not seem to be flexible enough to adapt its management because that is why anybody joins, plus strong marketing.
practices to the foreign franchisees’ business culture. For
example, all the contracts and brochures were published in Access to the franchisor’s distribution system was considered
the franchisor’s home-country language and potential a “very important factor” in the decision making process. The
franchisees, therefore, often had difficulty in understanding franchisor was therefore considered to be “a catalyst for
them. In addition, franchisee informants did not believe that growth” necessary as master franchisees did not consider
the franchisor could ever operate in another language. More themselves to not be “big enough, strong enough or well
importantly, there were issues in the contracts that often upset recognised enough to be able to go out and do it on our own.”
the franchisees or made them feel uncomfortable. For Like individual franchisees, therefore, master franchisees also
example, one of the members of the franchisor organization sought access to tangible and intangible assets such as the
recognised reputation of the franchisor firm and its brands.
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Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
to implementing the franchise agreement, both franchisor and Furthermore, informants suggested that the dialogue that
franchisee members reported there were a number of took place had to be “mutual” and that it was necessary to
“issues”, which emerged due described as informants as “listen with the intent to understand”, not with “the intent to
“territorial issues, cultural issues, technology issues and reply”. While one informant suggested that “our relationships
priority issues”. Furthermore, the way in which the franchisor are such that we have an ongoing dialogue anyway”, another
tried to deal with the issues was by using its authority to volunteered that “you need that personal contact to reinforce
standardise and control the agreement centrally according to relationships”.
home country standards and this served to exacerbate the There were reported to be added benefits to this dialogue
problems between the firms. Master franchisee informants such as the willingness to share confidential information
reported that at this stage it became apparent that the between franchisor and master franchisee members and this
franchisor developed “a sense of we must control the brand was considered a way of further engendering trust because
everywhere”, which in turn, was “quite a problem, . . . from a “the more open a relationship is the more trust you generate.”
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cultural point [of view]”. Informants explained that this Similarly, another informant advised:
approach led to feelings of resentment by master franchisee Trust is only built because you get to know the people and you understand
their reaction so you know how to go about building the relationship.
members who began to question “the value” of the
relationship. A further benefit reported through communication was the
In order to overcome these issues, the franchisor invested in ability to resolve any further “issues” that arose. This situation
resources to facilitate knowledge transfer and organisational was summarised accordingly:
learning in order to better understand the differences in the My counterpart there and I have a good, it goes beyond good, a very good
markets. The franchisor’s senior decision makers were working relationship. So we are not only aware of the issues, [that cause
socialised into the master franchisee organisations through conflict] we are now working towards managing them well.
both formal and informal meetings. For example, a global
brand council, established to support marketing activities
6. Discussion and conclusions
across the brand, implemented more participative decision
making processes. As a result of this approach, a franchisor This paper adopts a holistic perspective by incorporating
informant reflected: three main streams of research namely power-dependence,
So what has happened for us is that [the master franchisees] have become transaction cost theories, and international business and
real managerial and cultural assets for us about how they run their informs our understanding of the development of
companies and why they do it and why we do what we do. So we have a real, relationships in services franchise partnerships. By doing so,
what I would consider to be a healthy debate about how things are done and
a very good exchange of information. it makes several distinct contributions to the services
marketing in general and to the franchise literature in
The sharing of knowledge about each other’s practices served particular. First, informed by the power-dependence and
to strengthen the relationship and was reported to create a transaction cost theories, this study evaluates the influence of
mindset among members which “accepted” and “valued the role performance and asset specificity on the relationship
differences” between the different organizations and the development as applied to individual versus master services
markets they served. One of the master franchisee informants franchising. The findings of the study demonstrates that for
commented on the effectiveness of this approach and stated: both individual franchisees and master franchisees, the
We have established a mutual freedom to interpret the brand and execute the
competence and superiority of a franchisor in certain areas
brand within our areas of responsibility, that are not operating in [the strengthens the franchisee’s belief in the franchisor’s ability
Franchisor home country] which is fine because consumers have different and thus contributes to relationship development. The
habits, there are different social issues, different consumer trends. There’s a findings also suggest that role performance is an important
lot of grey area where we can have local interpretation.
precursor to relationship development as it sets the tone for
the subsequent franchise relationship. In line with prior
However, informants also reported that this approach had the
research on business-to-business relationships and in
potential to “open up anarchy and chaos” unless there was a
particular importer-exporter relationship (Skarmeas and
strong relationship built between the franchise partners.
Robson, 2008), it appears that franchisors can improve their
Franchisor and master franchisee informants further advised relationships with international franchisees by performing
that there “had to trust in the relationship” and you had to their franchisor roles in a competent fashion. A franchisor can
“have the integrity to know there is no hidden agenda”. One provide support to franchisees and contribute to the franchise
informant summed up this situation accordingly: partnership through access to and support with reservation
[. . .] just because we are working under the same brand tag, doesn’t mean to systems, marketing, and training. Training was considered
say we are necessarily working towards the same goals; we are each working
towards our companies own interests. And are those interests aligned? There important in ensuring that brand standards were maintained
has to be a level of trust there. by franchisees and by master franchisees in order to prevent
potential free riding.
In Case B, Informants suggested it took a good deal of time The findings also reveal that idiosyncratic investments have
and effort for that trust to be developed following the a significant influence on relationship development. In
implementation of the agreement. Communication between particular, the brand name and reputation are asset
the members of the franchisor and master franchisee firms specificities (Chen and Dimou, 2004; Monroy and Alzola,
was considered essential to the development of that trust.. As 2005) which act as “points of referrals” that stimulate a
one informant suggested: franchisee to take part in and commit resources to a
[. . .] we have agreed to agree that the only way to make this work is by face- partnership. This finding also adds to the existing
to-face meetings on a regular basis. knowledge base on asset specificity (Heide and John, 1992)
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Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
and indicates that franchisors can improve their relationships Relationships in international contexts involve social
with international franchisees by investing in transaction- exchange and more importantly, these exchanges are
specific assets and more specifically, by enhancing the name culturally driven. As a second contribution, this study offers
and the reputation of their franchise brands further. In insights into how a franchisor’s awareness and understanding
addition, by investing in idiosyncratic assets such as brand of, and sensitivity and adaptation to the franchisee’s business
name, franchisors also invest in training and support to run customs facilitate relational management efforts. Therefore,
individual and master franchised units effectively and protect in international services franchising, particular attention
the brand name. This suggests a relationship between asset should be paid to the “international business perspective” in
specificity and role performance. More importantly, it appears explaining relationship development. Power-dependence, and
that role performance is a holistic construct which comprises transaction cost theories are important theories which
both the use of organizational expertise and competence and contribute to our understanding of relationship development
investment in transaction-specific assets. in franchise partnerships. The significance of international
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While dependency and transaction cost theories enable business perspective is greater as it acts as the cornerstone of
researchers to understand the power and asset specificity our holistic understanding and enables us to understand the
dimensions of relationship development in franchise cultural aspects of relationship development in international
partnerships, they remain partial in explaining relationship services franchising.
development in international markets. This paper Third, this study focused on the stage approach to
demonstrates that the development of the relationships also relationship development, and in line with the findings of
requires “cultural investments” by the franchisor. Within both Doherty and Alexander (2004), this research demonstrated
types of franchise agreements, as sensitivity to international that franchise relationship development goes through several
franchisee’s business culture developed, the relationship phases including of recognition of relationship need, search
tended to improve. This result is consistent with previous for and evaluation of a potential partner and stabilisation
studies undertaken on international partnerships in general where the roles and remits of partners are defined. However,
and franchising in particular, and highlights the critical role of in contrast to Doherty and Alexander’s (2004) research, it
cultural sensitivity plays in franchise relationship development became apparent that the boundaries to the different stages
(Altinay, 2007; Skarmeas and Robson, 2008; Wang and are not always clearly defined and the different stages overlap.
Altinay, 2008). There was evidence of defining the remit and roles of
The findings of the study also indicate a strong link between partnership even at the search for and evaluation of a partner,
cultural sensitivity and role performance for both independent and of the development of trust and commitment at all stages
and master franchisees. In the case of both individual and of relationship development. However, this study does
master franchise partnerships, it was found that insensitivity support Doherty and Alexander’s (2004) finding on the
to the franchisee’s business culture led to the franchisee’s importance of personal chemistry and social bonds to the
negative evaluation of the franchisor’s role performance. development of franchise relationships generally, and to
However, the franchisor’s understanding of the way its master franchise agreements particularly. It builds on their
franchise partner conducts business in terms of language of study however, by emphasising the importance of cultural
business, etiquette and procedures and the adjustments made sensitivity to the stability of franchise relationships. In
for local market customs could enable the franchisor particular, it adds to the previous research (Dwyer et al.,
organization to carry out its role more effectively. This 1987; Kanter, 1994; Ring and van de Ven, 1994) by
evidence corroborates with Eroglu’s (1992) and Altinay’s identifying the role that cultural sensitivity plays within the
(2007) contention that developing home country market- development of trust and ongoing commitment to the
driven franchise strategies tailored to the wants and needs of relationship.
overseas franchisees has become a part of the franchisor’s role Moreover, unlike the arguments of Doherty and Alexander
performance. However, understanding the cultural (2004), this paper suggests that stabilizing the role of
differences and developing strategies tailored to the wants partnership cannot be fully achieved in franchise
and needs of franchisees would not be sufficient to cultivate partnerships as there appears to be a dynamic power
the relationship. As argued by Voss et al. (2006) and also struggle between the franchise partners at the different
demonstrated by the findings of this study, it is crucial that stages of the relationship development process. The dynamic
partners invest time and managerial attention and resources struggle even starts at the early stages of the relationship
to demonstrate cultural sensitivity in relationship development stage, namely the recognition of relationship
development. need, the partner search and assessment process and also
In the case of individual franchise partnership, having affects the franchise partners’ approach to the development of
country managers was considered by franchisor informants as trust and the demonstration of commitment. Trust and
a strong sign of cultural sensitivity and played an instrumental commitment appear to be important elements for relationship
role in facilitating relationship development with the development both for individual and master franchise
franchisees. This was also instrumental in bridging the partnerships. However, in the case of individual franchise
differences between local and foreign markets, thereby partnerships, franchisors are more inclined to demonstrate
supporting the views of Clarkin and Swavely (2006) and trust whereas franchisees would strive to demonstrate
Wang and Altinay (2008). While cultural sensitivity is also willingness for and commitment to the future partnership.
important in the development of master franchise agreements, On the other hand, in master franchise partnerships, there is a
given the importance of the mutuality in the agreement and relatively balanced demonstration of willingness and trust as
relatively balanced power, cultural sensitivity may have a well as commitment by the master franchisors and franchisees
greater impact on relationship development within master to the partnership. These differences could be explained by
franchise agreements. the balance of power and dependency of partners, as
287
Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
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Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
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290
Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
291
Factors influencing relationship development in franchise partnerships Journal of Services Marketing
Levent Altinay and Maureen Brookes Volume 26 · Number 4 · 2012 · 278 –292
franchise agreements – direct and master. International implications for their sustainability. Although
master franchise partnerships, which are growing in complimentarity of resources is frequently used to identify
popularity particularly within the service industries, differ potential partners, a partnership should not be formed based
from individual franchise agreements as they entitle the solely on this mutual dependence. For the partnership to be
franchisee the rights to open franchised units and to grant sustainable, firms need to adopt a systematic approach to and
these rights to third parties as a sub-franchisor. As such, the management of relationship development. This, in turn,
greater degree of control devolved to the master franchisee requires an organization-wide relationship development
may impact on relationship development. approach with a clear strategy, adaptable culture and
The findings demonstrate that for both individual structure, as well as a shared mindset of the importance of
franchisees and master franchisees, the competence and relationship development at different levels of organizational
superiority of a franchisor in certain areas strengthens the
hierarchy, particularly for individual franchise partnerships at
franchisee’s belief in the franchisor’s ability and thus
the pre-contract stage.
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292
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