Determinants of the governance structure of the international franchise firm

Abstract

Purpose The governance structure of international franchise firms varies from higher control modes, such as wholly owned subsidiaries and joint venture franchising, to lower control modes, such as area development and master franchising. Based on organizational economics, strategic management, and international business perspectives, the purpose of this paper is to use the case study analysis to empirically evaluate an integrative model on the franchisor’s choice of international governance modes. Design/methodology/approach The study applies qualitative methods, such as in-depth case analysis, to investigate a large set of variables that influence the governance structure decision of the international franchise firm. Specifically, it applies a theory-testing case study with two major competitors in the European automotive rental industry, i.e. Europcar and Sixt. Theory-testing case research is justified by the lack of explanatory research due to the complexity of the franchisor-franchisee relationship phenomena, such as the factors that influence the franchisor’s choice of international governance modes. The investigation of the complex governance structure phenomenon requires a holistic analysis. Findings The case study shows that environmental, behavioral, transaction-specific, resource-based (system-specific, market-specific, financial resources), and international strategy considerations are important determinants of the governance mode decision of the international franchise firm. Research limitations/implications The study responds to the recent call in organizational economics, marketing, strategic management, and international business literature to develop and test a multi-theoretical framework to explain the governance structure of inter-organizational networks, such as franchise networks. Originality/value Few previous studies in international franchising have used more than one theoretical perspective to explain the governance structure of the international franchise firm. This study contributes to the theory-testing case study literature by applying a rigorous method of conducting case research. This includes developing a theoretical framework and a systematic research design. A systematic research design requires a holistic analysis by investigating the international franchise governance modes from a variety of theoretical perspectives which are the organizational economics, strategic management, and the strategy-structure perspective.