Josef Windsperger

Centralization of franchising networks: evidence from the Austrian franchise sector

Abstract Based on the property rights approach, residual decision rights in franchising networks must be allocated according to the distribution of intangible knowledge assets between the franchisor and franchisee. Our analysis follows from this hypothesis: the more important the franchisors system-specific assets for the generation of residual surplus, the more residual decision rights are assigned to the franchisor, and the higher is the degree of centralization of the franchising network. This property rights hypothesis is tested in the Austrian franchise sector. The results of the study suggest that the franchisors intangible system-specific know-how and brand name assets have a stronger influence on the allocation of residual decision rights in the franchising network than the franchisees intangible local market assets.

The Structure of Ownership Rights in Franchising: An Incomplete Contracting View ∗

The paper offers an explanation for the structure of ownership rights in franchising networks which emphasize the role of intangible assets. By applying the incomplete contracting theory of the firm we argue that the structure of ownership rights depends on the distribution of intangible assets between the franchisor and the franchisee. The higher the franchisors (franchisees) intangible assets relative to the franchisee (franchisor), the more ownership rights should be transferred to him. This hypothesis was tested by using data from the Austrian franchise sector. The empirical results are supportive of the hypothesis.

The Structure of Decision Rights in Franchising Networks: A Property Rights Perspective

This paper explains the structure of decision rights in franchising networks using property rights theory. Property rights theory explains the allocation of decision rights based on the importance of intangible assets. We submit that franchisees’ fraction of decision rights varies positively with the contractibility of local market assets and negatively with contractibility of system–specific assets. Further, franchisees’ less contractible innovation assets impact decision rights allocations more than contractible operation assets. Hypotheses tested on data from German franchisors are largely supportive. We extend the franchise literature by arguing that the contractibility of local market assets impacts the allocation of decision rights, and that decision rights allocations change for decisions involving different areas of the value chain.

The fee structure in franchising: a property rights view

Abstract The paper offers a property rights explanation for the structure of royalties and initial fees in franchise relationships. We argue that the structure of royalties and fees depends on the distribution of intangible assets between the franchisor and franchisee. Contrary to the agency theory our property rights approach predicts a positive relationship between royalties and fees. This hypothesis was tested by using data from the Austrian franchise sector.

Multi-Unit Ownership Strategy in Franchising: Development of an Integrative Model

In this article, we examine the evolution of multi-unit franchising (MUF) research and develop an integrative model for the franchisors choice of ownership strategy between single-unit and multi-unit franchising. Although several empirical studies were published on MUF in the last two decades, the research deficit primarily results from the lack of theoretical foundation of this ownership strategy. We extend the literature in the following way: First, based on the transaction cost view of governance mechanism, we examine the influence of environmental uncertainty on the choice of ownership strategy. Second, we develop hypotheses based on the resource-based and organizational capabilities view. Third, we investigate the influence of contractibility of resources and organizational capabilities on the choice of ownership strategy. Finally, we apply the screening theory and argue that specific investments of MUF have an ex-post bonding function, based on transaction cost reasoning, and an ex ante screening function.

The Dual Network Structure of Franchising Firms: Property Rights, Resource Scarcity and Transaction Cost Explanations *

This paper formulates and tests various hypotheses from various theories regarding the dual network structure of franchising firms. First, by applying the property rights theory we argue that the contractual mix between company-owned and franchised outlets depends on the distribution of intangible assets between the franchisor and franchisee. The more important the franchisor’s system-specific assets relative to the franchisee’s local market assets for the generation of residual income, the more ownership rights should be transferred to him, and the higher is the percentage of company-owned outlets. Second, we compare these results with the resource scarcity and transaction cost view. According to the resource scarcity view, the proportion of company-owned outlets varies negatively with the franchisor’s restraints in financial, informational and management resources. In addition, transaction cost theory states that the franchisee’s specific investments (as bonding mechanism) mitigate the hold-up risk for the franchisor resulting in a lower degree of vertical integration. These hypotheses are tested by using data from the Austrian franchise sector. The empirical results are generally supportive of the property rights hypothesis. In addition, the informational restraint hypothesis is compatible with the property rights hypothesis regarding the influence of franchisee’s local market know-how advantage on the percentage of company-owned outlets. On the other hand, the financial restraint and transaction cost hypotheses are not supported by our data.

Determinants of Contractual Completeness in Franchising

The aim of the study is to explain the determinants of contractual completeness in franchise relationships by formulating and testing various propositions derived from transaction cost theory, agency theory, property rights theory, organizational capability theory and relational view of governance. The degree of contractual completeness depends on behavioural uncertainty (negatively), trust (positively), franchisees’ specific investments (negatively), environmental uncer-tainty (negatively), intangibility of system specific know-how (negatively) and contract design capabilities (positively). The hypotheses are tested with a data base consisting of 52 franchise systems in Austria. The empirical results support the hypotheses regarding behavioural uncertainty, trust and intangible system-specific know-how.

Determinants of knowledge transfer strategy in franchising: integrating knowledge-based and relational governance perspectives

This study presents an integrative model on the franchisors choice of knowledge transfer strategy by deriving hypotheses from the knowledge-based theory and the relational governance view. First, based on the knowledge-based view, tacitness of system-specific knowledge influences the choice of the knowledge transfer strategy of the franchisor. The higher the degree of tacitness of knowledge, the more knowledge-transfer mechanisms with a high degree of information richness (HIR) are used, such as training, seminars, visits and formal meetings, and the more likely the franchisor chooses a personalization strategy (P-S). Conversely, the lower the degree of tacitness of system-specific knowledge, the more knowledge transfer mechanisms with a low degree of information richness (LIR) are used, such as reports, emails, intranet, databases, and the more likely the franchisor chooses a codification strategy. Second, based on the relational view of governance, trust influences the choice of knowledge transfer strategy of the franchisor. If trust reduces relational risk, more trust reduces the franchisors use of HIR-knowledge transfer mechanisms and increases the franchisors use of LIR-knowledge transfer mechanisms. If trust increases knowledge-sharing between the network partners, it increases the franchisors use of both HIR- and LIR-knowledge-transfer mechanisms. The hypotheses are tested by using data on the use of the P-S in the Austrian franchise sector. The data provide some support for the hypotheses. A new model on the franchisors choice of knowledge transfer strategy, using knowledge-based theory and relational view of governance is developed, and specifically, the knowledge-based view of Windsperger and Gorovaia [(2011). Knowledge attributes and the choice of knowledge-transfer mechanisms in networks: The case of franchising. Journal of Management and Governance, 15(4), 617–640] is extended by considering trust as additional explanatory variable of the knowledge-transfer strategy.

Complementarities and Substitutabilities in Franchise Contracting: Some Results from the German Franchise Sector

According to the property rights approach,decision rights have to be allocated accordingto the distribution of intangible knowledge assetsbetween the franchisor and franchisee andownership rights have to be assigned according to theresidual rights of control (residual decisionrights). Since residual income rights are diluted infranchising relationships, ownership rightsinclude not only residual income rights (initial fees androyalties) but also complementary ownershipsurrogates to simulate the motivation effect of undilutedownership rights. Therefore, under a propertyrights perspective, an efficient contract structure infranchise relationships implies co-locationbetween knowledge assets and decision rights andcomplementarity between residual decision andownership rights. The more important the franchisors(franchisees) system-specific assets (localmarket knowhow) for the generation of residual surplus, themore decision and complementary ownership rightsshould be transferred to the franchisor(franchisee). Three hypotheses were derivedfrom the property rights approach and tested in the Germanfranchise sector. The empirical results arepartly supportive of the hypotheses.

Strategy and Governance of Networks

The book emphasizes research in economics and management of networks as an interdisciplinary field by offering new theoretical perspectives and presenting new empirical results on strategic and governance structure issues in cooperatives, franchising networks, alliances, joint ventures and venture capital relations.