Geographical Dimensions of Business format Franchising

Abstract

The research focuses on three key geographical issues. Paradoxically, geographical dimensions of franchise activity have not been acknowledged in past research despite the fact that franchising is inherently geographical and issues of expansion, location, territory and local environment are central to franchising.

Forty in-depth interviews with franchisors across six different sectors of franchise activity have been conducted. The first issue examines why firms franchise and how spatial expansion is achieved. The findings suggest that franchise firms under go a four-stage spatial expansion life cycle: the initial (pilot), roll out, consolidation and maturity stages. Three strategies were used to achieve network growth: (i) a franchisor-led approach; (ii) a franchisee-led approach; and (iii) a hybrid approach (franchisor and franchisee-led). Methods of growth included utilising single, multi-unit and area operators. These expansion strategies illustrate the locational decision making processes of both the franchisor and the franchisee.

The second issue examines how franchise systems manage the dynamic nature of network growth over time from early to latter stages of expansion. As a franchise network grows and with increased market penetration as a franchise format becomes better known, the basis of a franchise network may need to be restructured (i.e. new units added to existing operational areas). The sample of franchise systems had three models of network allocation: networks allocated on the basis of exclusive territories; networks allocated on the basis of non-exclusive territories; and networks where neither exclusivity or territories were allocated - units were simply licensed to franchisees. Network allocations had different contractual and operational implications for the restructuring process and the ability of a firm to take advantage of new market potential if it arose over time. Therefore, it was necessary for firms to employ restructuring mechanisms to facilitate new expansion opportunities.

The third issue examines the role of the local environment and its effect on format implementation.

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