Governance of international franchise networks: Combining value creation and value appropriation perspectives

• Published in: Journal of business research 2022-02, Vol.139, p.267-279
• Main Authors: Jell-Ojobor, Maria, Hajdini, Ilir, Windsperger, Josef
• Format: Article
• Language: English
• Subjects: Equity versus non-equity mode; Franchising; International governance mode; Value appropriation perspective; Value creation perspective
• ISSN: 0148-2963; 1873-7978
• DOI: 10.1016/j.jbusres.2021.09.001

•The choice of franchise governance structure is crucial for the successful expansion of the international franchise network.•Different levels of control and equity distinguish the franchise modes in host countries.•Strong system-specific knowhow, franchisor’s transaction-specific investments, and high cultural differences increase the choice of higher-control modes.•Foreign partners’ market knowhow, and economic and institutional uncertainties increase the choice of lower-control modes. This study develops a new perspective on the franchisor’s choice of international governance modes as a value creation and value appropriation mechanism. Value creation refers to knowledge creation from the joint use of the franchisor’s intangible system-specific knowhow and foreign partners’ intangible local market knowhow; value appropriation refers to efficient knowledge exploitation based on transaction cost savings under conditions of uncertainty and transaction-specific investments. Based on primary data from 162 international franchise systems headquartered in eight countries, the results highlight the importance of intangible knowledge-based resources (franchisor’s system-specific knowhow and franchise partners’ local market knowhow) and transaction cost factors (transaction-specific investments, environmental uncertainty, and cultural uncertainty) for the franchisor’s choice between equity modes, such as wholly-owned subsidiaries, and joint venture franchising, and non-equity modes, such as single-unit franchising, area development franchising, and master franchising.