Journal of Business Research 68 (2015) 15811588

Contents lists available at ScienceDirect

Journal of Business Research

Antecedents of franchise strategy and performance

Chih-Wen Wu
Department of Marketing, National Chung Hsing University, College of Management, Taichung 402, Taiwan

a r t i c l e

i n f o

Article history:
Received February 2014
Received in revised form October 2014
Accepted January 2015
Available online 19 February 2015
Keywords:
Knowledge sharing
Trust
Conict management
Brand reputation
Franchise strategy
Firm performance

a b s t r a c t
Franchising is an important form of entrepreneurship, but literature explaining franchising strategy and performance is scarce. This study adapts the resource-based view and relationship-marketing theory to explain franchising strategy and performance differences in chain stores. This study develops and tests a model explaining
franchisees' performance antecedents and their intention to remain in the franchise system. The model describes
how franchisees' strategies relate to knowledge sharing, trust, conict management, brand reputation, and performance in chain stores. The study uses data from 246 active franchisees from a chain-store franchise system in
Taiwan. Data analysis uses structural equation modeling (SEM) and fuzzy set qualitative comparative analysis
(fsQCA). Results show that knowledge sharing, trust, conict management, and brand reputation are key factors
in reinforcing franchisees' intention to remain and nancial performance within the franchise system. The study
ends with a discussion of theoretical and managerial implications.
2015 Elsevier Inc. All rights reserved.

1. Introduction
Entrepreneurship studies offer important implications for franchising research (Anderson, Dodd, & Jack, 2012; Audretsch, 2012), but franchising research must become more theoretically robust (Nielsen &
Lassen, 2012; Renko, Shrader, & Simon, 2012). Franchising is a business
relationship via a licensing agreement between two independent rms.
Franchising has two primary forms: product distribution and entrepreneurship franchising (Altinay & Brookes, 2012; Altinay & Okumus,
2010). Franchising entrepreneurship is the franchising form most popular with strategic management researchers (Chaston & Scott, 2012;
Galindo & Mndez-Picazo, 2013; Garcs-Ayerbe, Rivera-Torres, &
Murillo-Luna, 2012; Renko et al., 2012; Shane, 1998a). Franchising entrepreneurship has an important effect on the economy (Lee, Hwang
& Choi, 2012; Lee, Olson & Trimi, 2012; Shane, 1998b; Siegel & Renko,
2012).
Franchisees exist because of their operation's size and the type of
contractual agreement with the franchisor (Altinay & Brookes, 2012;
Altinay & Okumus, 2010). Franchisorfranchisee relationships represent a relational exchange partnership (Dyer & Singh, 1998). Strengthening franchisorfranchisee relationships (e.g., through individual
The author thanks Arch Woodside (Boston College), Domingo Ribeiro (University of
Valencia), Kun Huang Huarng (Feng Chia University), and other researchers at the 3rd
Global Innovation and Knowledge Academy Conference for comments on an earlier
draft of this manuscript. The author thanks the two anonymous referees for their valuable
comments on earlier versions of this work. The author acknowledges the nancial support
from the National Science Council (101-2410-H-005-046-) in Taiwan. The author is responsible for any remaining errors.
Tel./fax: +886 4 22840392/752.
E-mail address: chihwwu@dragon.nchu.edu.tw.

http://dx.doi.org/10.1016/j.jbusres.2015.01.055
0148-2963/ 2015 Elsevier Inc. All rights reserved.

franchisees' business expansion) means sharing benets and costs

(Madhok, 2002). Franchise systems represent unique entrepreneurial
business structures because they comprise different organizations that
are legally independent, economically interdependent, and operationally indistinguishable (Brown, Cobb, & Lusch, 2006; Parsa, 1996, 1999).
However, research on franchisees' perceptions of their franchising intention strategy and performance is scant. This study aids the understanding of franchisees' perceptions of their franchising intention
strategy and performance.
The resource-based view (Barney, 1991) and the relationshipmarketing theory (Dyer & Singh, 1998; Lewin & Johnston, 1997) are
the primary theories that explain franchisees' franchise strategy and
performance. Paniagua & Sapena (2014), Rapp, Trainor, & Agnihotri
(2010), and Trainor, Andzulis, Rapp, & Agnihotri (2014) suggest that
rms' abilities to convert resources into business-enhancing capabilities
determine rm performance. The resource-based view examines rms
rather than cooperative organizational forms like franchises. However,
strategic resources such as organizational trust and organizational
learning capability are important success predictors among cooperative
organizational forms (Bhasin, 2012; Dyer & Chu, 2003). Relationshipmarketing theory is a competitive advantage theory that explains how
rms' inter-rm relational resources create prots (Dyer, 1997; Dyer
& Singh, 1998). Relationship-marketing theory recognizes inter-rm relations' importance and explains how franchisees determine their franchise intention (Kim, 2007).
This study makes three strategic management contributions to
research in franchising and entrepreneurship management. First, the research uses the resource-based view and relationship-marketing theory
to explain key success factors. This study thus has theoretical implications that differ from those of previous studies. Second, research in

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C.-W. Wu / Journal of Business Research 68 (2015) 15811588

strategic management must explain performance. However, little

research examines franchisees' performance. Consequently, this study
determines the relative effect of franchisors' strategic resource and
inter-rm relational exchange on franchisees' franchising strategy and
rm performance. Third, this study develops a new scale and validates
this scale using exploratory analysis.
2. Literature review
Researchers emphasize social interactions (i.e., trust and relational
norms) in franchising as a way to attenuate agency problems (Cochet,
Dormann, & Ehrmann, 2008). Grace & Weaven (2011) report that
researchers should focus on how and why franchisees exit. Chiou,
Hsieh, & Yang (2004) focus on relationship-building behaviors that
reduce conict and develop strong franchising partnerships. Gillis &
Castrogiovanni (2012), Lee, Hwang, et al. (2012) and Lee, Olson et al.
(2012) report that franchisees are entrepreneurs because they embrace
risk in joining a franchise system. Entrepreneurship is a broad eld that
encompasses high-risk, high-return projects in the franchising eld (De
Cleyn & Braet, 2012; Fernndez-Mesa, Alegre-Vidal, Chiva-Gmez, &
Gutirrez-Gracia, 2013; Mousa & Wales, 2012).
The resource-based view suggests that rms with valuable, rare,
difcult to imitate, and non-substitutable resources will sustain above
average performance (Barney, 1991; Combs & Ketchen, 1999a). The
resource-based view explains how franchisees and franchisors convert
resources and capabilities to improve their competitive advantage
(Madhok, 2002). Firms' franchising decisions reect which resources
they should use (Schilling & Steensma, 2002; Williamson, 1991). Governance structure can include hybrid organizational forms such as joint
ventures, alliances, or franchising (Ping, 1995; Poppo & Zenger, 1998;
Williamson, 1991) to use the resource.
Marketers use relationship-marketing theory to maximize relationship building with customers, which is important for a franchise system
(Dwyer, Schurr, & Oh, 1987; Morgan & Hunt, 1994). Relationshipmarketing theory posits that relational exchange may lead to competitive advantage (Falbe, Dandridge, & Kumar, 1998). Relational resources
incorporate joint investments and relational capital. Joint investments
improve organizational performance and spread inter-rm knowledge
(Dyer & Singh, 1998). In contrast, relational capital, mutual trust, respect, and friendship stem from close interaction between alliance partners (Kale, Singh, & Perlmutter, 2000).
Brand reputation is a strategic asset that leads to good performance
(Park, Jaworski, & MacInnis, 1986). According to the resource-based
view, franchisors possess and use strategic assets like brand reputation
to improve rm performance (Amit & Schoemaker, 1993; Shocker,
Rajendra, & Ruekert, 1994). Kim & Chung (1997) nd that rms with
brand reputation improvements have greater market share, which fundamentally indicates franchising performance (Michael, 2000a,b; Yoo &
Donthu, 2001).
Franchising research depicts franchisor management as a function
that supports franchisees (Doherty, 2009; Doherty & Alexander,
2004). Franchisors can refer to the relationship with franchisees primarily in contractual terms that franchisors use during negotiation and coercion to achieve contract adherence (Dant, Weaven, Baker, & Jeon,
2013). Accordingly, franchisors can view the relationship as an opportunity to invest in mutually benecial relational resources that encourage
cooperation, trust, and learning (Dyer & Singh, 1998; Gassenheimer,
Baucus, & Baucus, 1996). Higher knowledge ows and transfers between franchisees and franchisors, effective enforcement of contractual
obligations, and willing cooperation in promotions and other programs
to build the brand (Dyer & Singh, 1998; Gmez et al., 2011; Lin & Lee,
2004).
Numerous management studies use return on investment (ROI),
sales, sales growth, and nancial performance as company performance
indicators (Venkatraman & Ramanujam, 1986; Zou & Cavusgil, 2002).
Strategic performance refers to a rm's market share and competitive

position relative to major rivals (Barthlemy, 2008; Combs, Ketchen,

Shook, & Short, 2010; Ferguson & Ketchen, 1999). However, researchers
and practitioners must agree on acceptable performance measures to
capture any effect of franchisees' performance initiatives in chain stores.
However, franchise relationships are difcult to manage. Research on
franchising's consequences for franchisees is scarce (Combs, Michael, &
Castrogiovanni, 2004). Studies concentrate on survival rates for franchisees with independent businesses (Altinay, Brookes, Madanoglu, &
Aktas, 2014) or focus on why individuals select franchising over independent entrepreneurship (Shane, 2001). Few researchers, however, seek to
understand what factors contribute to franchisee performance. Literature
shows a signicant gap regarding factors affecting franchisee's strategy
and performance. Advancing knowledge on factors affecting franchisees'
strategy and performance could help franchisors adopt more supportive
policies and help potential franchisees choose among competing franchise opportunities.

3. Theoretical model and research hypotheses

Franchisors' resources and relational variables are antecedent constructs that relate theoretically to franchise strategy and rm performance. Fig. 1 presents a franchisee response model of the following
variables franchisors' brand reputation, knowledge sharing, trust, conict management, franchisees' intention to remain, and franchisees'
performance.
Empirical evidence implies that improvements in brand reputation
relate to greater intention (Combs & Ketchen, 2003; Lafontaine &
Kaufmann, 1994). A competitive franchise system gives franchisees a
strong brand, scale economies, and efcient franchise system execution
(Falbe et al., 1998). A franchise's brand reputation is the most signicant
advantage for a potential franchisee because of franchisors' brand transfers (Morhart, Herzog, & Tomczak, 2009; Norton, 1988). Merrilees &
Frazer (2013) place franchise brand among top three franchise advantages. Keller & Aaker (1992) and Low & Fullerton (1994) indicate that
consumer brand recognition is a major motive for franchisees to choose
a franchise chain. Research on franchise brands traditionally adopts a
broad management focus and rarely discusses branding issues in franchisees' strategy.
H1. Brand reputation affects franchisees' intention to remain in the
franchise system.
In franchising, franchisors provide at least two important resources:
brand (Jeng, 2011; Michael, 2000a) and operational routines (Knott,
2003). Brand is critical to competitive advantage in industries that franchise (Combs & Ketchen, 1999b; Ulrich & Smallwood, 2007). Brands are
strategic resources, and investments in brand building have cumulative
effects and inhibit new competitors' building parity in brand awareness
(Aaker, 1997; Weaven, Grace, & Manning, 2009). A franchise shares
common brand reputation with its franchisor, and so the franchise benets directly from franchisors' investments in brand. Building on the
resource-based view, this research suggests that rms utilize their
unique resources to develop and implement strategic actions to enhance success (Barney, 1991; Paniagua & Sapena, 2014; Rapp et al.,

H5

Knowledge share
Trust

H4

Conflict

Intention to

H1

H3

remain

Brand
Reputation

H2
Fig. 1. Research framework.

Performance

C.-W. Wu / Journal of Business Research 68 (2015) 15811588

2010; Trainor et al., 2014; Winter, 2000). However, resources' contribution to rm success remains unclear.
H2. Brand reputation affects franchisees' performance in the franchise
system.
Researchers recognize that organizational decisions can affect rm
performance (Leiblein, 2003; Madhok, 2002). Although theories posit
that governance structure (e.g., franchising strategy or ownership)
affects performance, previous studies rarely investigate franchise decisions' performance implications for franchisees (Poppo & Zenger,
1998; Schilling & Steensma, 2002). Franchisees make their strategic
decisions through their intention to franchise. These decisions affect
performance. Accordingly, balancing franchisees' payments to the franchisor (franchisee costs) and rewards (franchisee benets) is a concern
for franchise owners (Fladmoe-Lindquist & Jacque, 1995; Lee & Cavusgil,
2006; Michael, 2000a). Additionally, according to partnership theory
(Dant & Kaufmann, 2003; Garbarino & Johnson, 1999), franchisees remain in the relationship as long as they receive adequate value from
their contributions to the franchisor.
H3. Franchisees' intention to remain in the franchise system positively
relates to franchisees' performance.
Franchising strategy research covers three relational resources:
knowledge sharing, inter-rm trust, and conict management in franchising issues. Knowledge sharing refers to regular patterns of interrm interactions that permit asset and resource transfer, recombination, or creation (Dyer & Singh, 1998; Fan & Ku, 2010). A relational
exchange is the effective use of knowledge sharing (Szulanski, Cappetta,
& Jensen, 2004). Knowledge sharing can create value that safeguards
inter-rm agreements, minimizes transaction costs, and helps increase
competitive advantage (Dyer & Singh, 1998; Hernandez-Maestro &
Gonzalez-Benito, 2011).
Relationships in a franchise system are complex and conicting. The
quantity of benets and costs franchisors share with their franchisees
can result in cooperation or conict (Pech & Slade, 2004). Conicts of
interests of different power sources are very common in the franchise
system. Therefore, establishing a strong partnership in the franchise system to reduce drawbacks of relationship conicts is essential (Yilmaz,
Sezen, & Kabadayi, 2004). Academic literature documents conicts between franchisors and their franchisees (Kaufmann & Rangan, 1990;
Lee, 2001).
Morgan & Hunt (1994) dene trust as willingness to rely on another
party and act in circumstances where reliance makes one party vulnerable to the other party (Doney & Cannon, 1997; Mayer, Davis, &
Schoorman, 1995). Recent research on inter-rm alliances shows that
trust is an important informal governance mechanism that saves transaction costs and increases transactional value (Dyer & Chu, 2003; Dyer &
Singh, 1998; Ganesan, 1994; Gulati, 1995; Poppo & Zenger, 2002).
Davies, Lassar, Manolis, Prince, & Winsor (2011) and Lui, Ngo, & Hon
(2006) argue that trust enhances franchisees' condence in franchisors'
competence and integrity, thereby leading to a greater number of cooperative partnerships.
Research implies that franchisors' knowledge-sharing, trust, and
conict management in the system are major reasons that franchisees
willingly join and remain in the franchise system.
H4. Relational resources positively affect franchisees' intention to remain in the franchise system.
H4a. Franchisors' knowledge sharing positively affects franchisees' intention to remain in the franchise system.
H4b. Franchisees' perceived inter-rm trust in a franchisor positively
affects franchisees' intention to remain in the franchise system.
H4c. Conict management by franchisors positively affects franchisees'
intention to remain in the franchise system.

1583

Knowledge sharing is a strategic resource that enhances rms' longterm competitive advantage (Day, Shocker, & Srivastava, 1979;
Sorenson & Srensen, 2001). Cooperative arrangements between partner
rms can contribute to rm performance because knowledge sharing and
effective franchising strategies generate value from the franchisor's resources (Hernandez-Maestro & Gonzalez-Benito, 2011). Quality of relations between franchisor and franchisee has real economic value and
improves performance (Dyer & Singh, 1998; Lavie, 2006; Madhok &
Tallman, 1998). Franchisors can effectively transfer innovations and generate competitive advantage as knowledge is shared.
Conict, as the perceived level of tension between two parties, is inevitable in exchange relationships (Dwyer et al., 1987). Some level of
conict can be functional especially if parties have adequate conict
management with one another (Dant & Schul, 1992). Maintaining relationships with opportunistic partners and keeping them in check costs
time, money, and effort (Yilmaz & Kabadayi, 2006). Active communication fosters trust by assisting in resolving conicts and by aligning perceptions and expectations (Morgan & Hunt, 1994). Conict management
mechanisms let franchisors reduce costs and add value (Michael, 2000a;
Pech & Slade, 2004).
Accordingly, inter-rm trust results in better rm performance
(Singh & Sirdeshmukh, 2000; Zaheer, McEvily, & Perrone, 1998). Trust
has real economic value (Dyer & Chu, 2003; Zaheer et al., 1998) and is
especially important for high-relational customers as opposed to
weak-relational customers (Garbarino & Johnson, 1999). Therefore,
trust is essential to maintain continuity in an exchange relationship
(Doney & Cannon, 1997; Ganesan, Brown, Mariadoss, & Ho, 2010)
because parties who seek to commit to the relationship value trust
(Chua, Ingram, & Morris, 2008; Jeffries & Reed, 2000).
Empirical studies support the relational resourcesperformance relationship. Reducing costs of maintaining relationships between alliance
partners positively affects performance (Dyer & Chu, 2003). Effective relational exchange adds value and generates competitive advantage by
minimizing transaction costs and maximizing transaction value (Fan &
Ku, 2010). Franchisors develop policies for managing franchisees to reduce agency costs and increase franchisees' performance (Shane, 1996).
Research posits that franchisor investment in strategic resources increases franchisee performance.
H5. Relational resources positively affect franchisees' performance.
H5a. Franchisors' knowledge-sharing positively affects franchisees'
performance.
H5b. Franchisees' perceived inter-rm trust in a franchisor positively
affects franchisees' performance.
H5c. Conict management by franchisors positively affects franchisees'
performance.

4. Research method
The study uses data from a survey of executive franchisees in
Taiwan. Between January and July 2012, 996 franchisees from 2 industries in the Taiwan Annual Chain Store and Franchise Guide (2011) received survey questionnaires. Franchisees were from a major chain
store comprising a convenience store and a chain restaurant in Taiwan.
The nal sample size was 246, representing a response rate of 25.2%.
The sampling method used personal and rm characteristics. Respondents varied in sex (female 48% and male 52%), age (b29 years of age
16.9%, 3039 years of age 71.2%, and 40 years of age 8.5%), and education (high school diploma 0.8%, senior high school 49.2%, college 41.5%,
and university 8.5%). Franchisees' years of franchise experience varied
(b3 years 55.1%, 47 years 26.3%, 810 years 12.7%, and 11 years
3.4%). Industry varied (convenience store 45.2% and restaurant chain
54.8%).

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C.-W. Wu / Journal of Business Research 68 (2015) 15811588

Table 1
Measures used with mean and standard deviation and measurement model.
Construct and scale item loadings

MEAN

S.D.

standardized

Brand reputation (7-point scales anchored by strongly disagree and strongly agree)
1. My franchisor is the best brand in the industry
2. My franchisor enjoys higher brand recognition than do competitors
3. My franchisor's brand has good reputation nationally
4. My franchisor is the rst choice when considering the product or service from my customer perspective

4.7
4.8
4.4
4.9

1.2
1.7
1.8
1.6

0.83
0.85
0.89
0.77

Trust (7-point scales anchored by strongly disagree and strongly agree)

5. The franchisor will act according to the agreement in the contract
6. My franchisors and franchisees treat each other fairly
7. The information provided by the franchisor by the franchisor is credible.
8. The franchisor always takes our store into consideration when it wants to make any important decision.

4.6
4.4
4.5
4.7

1.4
1.6
1.2
1.3

0.84
0.77
0.75
0.74

Knowledge-sharing (7-point scales anchored by strongly disagree and strongly agree)

9. Franchisor encourage franchisees to express their ideas with my company
10. There are established ways for franchisors' or franchisee's innovations to shared to all stores
11. My franchisor help us identify and develop good ideas
12. If a franchisee nds a better way to do, we will share about it quickly

4.7
4.6
4.5
4.3

1.4
1.6
1.2
1.6

0.82
0.77
0.78
0.75

Conict management (7-point scales anchored by strongly disagree and strongly agree)
13. My franchisor have a fair process for resolving differences with franchisees
14. My franchisor works hard to resolve disagreements with franchisees
15. My franchisor communicates with franchisees without difculty

4.2
4.4
4.1

1.6
1.6
1.4

0.85
0.77
0.85

Franchising strategy (intention to remain) (7-point scales anchored by strongly disagree and strongly agree)
16. It is my pleasure to introduce my franchisor to others.
17. I am willing to collaborate with this franchisor in the future
18. I still consider the current franchisor as my rst priority although I can look for other franchisors

4.5
4.3
4.9

1.7
1.9
1.4

0.89
0.85
0.86

Performance (7-point scales anchored by low-high)

Please compare your rm's performance to your competitors' performance over last 5 years
19. Market share
20. Quality of service/product
21. Sales growth
22. Satisfaction of customers

4.6
4.5
4.1
4.4

1.7
1.5
1.4
1.7

0.85
0.82
0.84
0.91

Measures captured franchisees' perceptions of the relationship with

their franchisors. All measures in the model appear in Table 1. Several
scales from prior research composed the survey instrument. Pretesting of the questionnaire increased face validity. Ten franchisees
gave feedback on all survey items to improve questionnaire clarity.
The study used SPSS 14.0 for all correlations, covariance matrices,
and initial reliabilities. Structural equation modeling (SEM) and fsQCA
assessed conrmatory factor analysis and item-level partitioning of variance extracted. The present study used adapted measures validated in
previous studies. Most research scales were measured on a 7-point
Likert scale with anchors of 1 (strongly disagree) and 7 (strongly agree).
4.1. Franchising strategy
Franchising strategy measures intention to remain in the franchise
system (Chiou et al., 2004; Merrilees & Frazer, 2013). This dependent
variable captures intention, resistance, and word-of-mouth. Reliability
of this measure is 0.83.
4.2. Firm performance
Performance is a multi-dimensional construct (Combs, Nakarni, &
Combs, 2005). Franchisor performance reects four self-report measures of franchisees' performance adapted from Aas & Pedersen
(2011) and Pyo (2010). Four performance items (i.e., sales growth, customer satisfaction, product/service quality, and market share) measure
franchiser performance. The reliability of this measure is 0.94.

4.4. Relational resources

The research uses three constructs representing resource types.
Knowledge sharing is the rst construct. Knowledge sharing comprises
four items from Sarkbar, Echambadi, Cavusgil, & Aulakh (2001) that
capture knowledge exchange intensity. The reliability of these items is
0.82. The second construct is trust, which consists of all three items
from Garbarino & Johnson (1999), and Morgan & Hunt (1999). The reliability of these items is 0.87. The third construct is conict management,
comprising three items from Shane (1996) and Knott (2003). The reliability of these items is 0.78.
All 22 standardized loadings are high and have signicant t-values
(p b 0.01) (Table 1). All standard errors are small and acceptable.
Thus, all indicators relate to their specied constructs. Hence, results
conrm empirical relationships among research constructs.

5. Empirical results
This research provides a conrmatory technique that assesses
research constructs' reliabilities and validities. The research uses conrmatory factor analysis (CFA) and path analysis on all research constructs
using AMOS 7. CFA is a good t for the theoretical model. Average
variance extracted (AVE) from constructs exceeds the minimum requirement of 0.50. The convergent validity of each construct and discriminant validity for all constructs appear in Table 2.

4.3. Brand reputation

5.1. Overall model t

Brand reputation refers to strategic assets that create a competitive

advantage. Brand reputation consists of four items adapted from
Barthlemy (2008), Griessmair, Hussain, & Windsperger (2014), and
Merrilees & Frazer (2013). The reliability of this measure is 0.84.

Relevant overall t indices for the models appear in Table 3. The chisquared test yields values of 646.47 for samples (each with 175 degrees
of freedom, p = .00). Considering chi-squared values, root mean square
error of approximation (RMSEA) (0.064), and comparative t index

C.-W. Wu / Journal of Business Research 68 (2015) 15811588

Table 2
Construct measurement in the study.
Measures construct

Cronbach's

AVE

Knowledge share
Trust
Conict management
Brand reputation
Franchise strategy
Performance

0.82
0.87
0.78
0.84
0.83
0.94

0.85
0.68
0.82
0.81
0.72
0.84

(CFI) (0.94) is vital to assess model t. Fit indices yield values that support a good model t for the data set.
5.2. Measurement model t
Reliability estimates for each construct using Cronbach's alpha
(Cronbach, 1951) and composite reliabilities all exceed the threshold of 0.70. Average variance extracted shows indicators' degree of
shared representation with the constructs. The lowest value for average variance extracted is 0.68. All shared variances extracted for
each construct are acceptable because they exceed the recommended 0.50 value (Bagozzi & Yi, 1988; Fornell & Larcker, 1981).
5.3. Structural model t
Table 3 presents results of analyses of causal paths in the structural
model. Results support all ve hypotheses: brand reputation affects
franchisees' intention to remain in the franchise system (H1); brand
reputation affects franchisees' performance in the franchise system
(H2); franchisees' intention to remain in the franchise system positively
relates to franchisees' performance (H3); franchisors' knowledgesharing, trust, and conict management positively affect franchisees' intention to remain in the franchise system (H4a, H4b and H4c); and franchisors' knowledge-sharing, trust, and conict management positively
affect franchisees' performance (H5a, H5b and H5c) (Table 4).
5.4. The fsQCA model
Woodside (2013) suggests including only a small number of variables in multiple regression analysis (MRA) or reporting ndings from
simpler methods. This study presents results from empirical analyses
using SEM and fsQCA. FsQCA uses fuzzy-set theory and differs from conventional statistical methods. Ragin (2008) and Woodside & Zhang
(2013) provide more detail on performing calibrations in fsQCA. To
demonstrate predictive validity, this study conducts prediction analysis
for fsQCA. Consistency and coverage test results reveal relationships between the variables in Table 5. Empirical results (Table 5) show that
fsQCA captures relationships better and has better predictive capabilities than SEM.
6. Discussion and implications
Empirical results enrich current explanations of differences in strategy
and performance. Results have implications for relationship-marketing
theorists, resource-based view researchers, franchisors, and franchisees. This study explains franchisee success by extending the logic of
Table 3
Overall model t.
Chi-square
d.f.
p-Value
RMSEA
CFI
NFI
GFI

646.47
175
0.000
0.065
0.92
0.93
0.94

1585

relationship-marketing theory and the resource-based view and by nding support in empirical data. Organizational success is interesting for entrepreneurship researchers, and franchising is an important source of
entrepreneurial activity. Furthermore, research results have direct implications for franchisors and franchisees. Empirical data suggest that
relationship-marketing theory and the resource-based view provide complementary explanations for franchisee success.
According to the resource-based view and relationship-marketing
theory, franchisors' strategic resources increase franchisee success.
Brand reputation, knowledge sharing, trust, and conict management
positively affect franchisees' intention to remain in the system and franchisees' performance. Results imply a simple additive effect of resourcebased variables on franchisee success.
While this research marks an important rst step, researchers could
seek greater theoretical synthesis. One possibility is that relationshipmarketing and resource-based variables have additive effects on franchisee success. Franchisees with more strategic resources and relationship exchange factors would thereby enjoy better performance. A
second opportunity for further research is to investigate interactions
between relationship exchange and resource variables. Franchisees'
intention to remain is set so that franchisors can earn returns on prior
investments in their franchise system (Lafontaine & Shaw 1999). Although such strategic investments aid franchisors, research nds that
investments in brand or other relational network accompanying high
intention to remain rates.
This study demonstrates that knowledge sharing, trust, conict
management, and brand reputation are indeed important in reinforcing
franchisees' intention to remain and their performance within the franchise system. By monitoring how franchisees perceive them, franchisors
can manage franchisorfranchisee relationships more effectively. For
example, if franchisors understand franchisees' perceptions of franchisor value, franchisors can convey a positive image to franchisees and
thereby achieve greater cooperation.
Brand reputation plays a surprisingly broad role in relationship
building processes and deserves attention in academic research. Results
not only corroborate research in the practical eld, but also provide reasons explaining franchisees' effect on franchisors' commitment resource. Franchisors with well-known brands are likely to enjoy strong
intention to remain from their franchisees. Likewise, franchisees ensure
survival by seeking a franchisor that possesses an emerging brand reputation. Results are reassuring for practitioners and professors. This
study focuses on how franchisors' strategically valuable resources affect
franchisee success. Results are consistent with studies suggesting that
strategic resources from two or more independent rms combine to enhance success in cooperative relationships (Dyer, 1997). Results show
the value of brand reputation as having a signicant association with
better rm performance. Results support the resource-based view in
that brand reputation is an important resource that directly affects
performance.
Knowledge sharing, trust, and conict management positively affect
franchisees' perceived franchising strategy and franchisees' overall performance. More importantly, knowledge sharing, trust, conict management, and brand reputation are important antecedents for franchisees'
intention to remain in the franchise system. In summary, franchisors
should understand that relational factors are the foundation for sound
relationship building in a franchise system. Findings offer evidence that
relational theory has managerial implications for understanding franchising. Hypotheses posit that relational factors improve franchisees'
performance and increase franchisees' intention to remain. Concerning
relational resources, main ndings of this study show that franchisors
with greater knowledge-sharing, trust, and conict management capabilities cause franchisees to have greater intention to remain. Accordingly, such franchisors positively affect franchisees' performance.
Results show that franchisors with valuable knowledge-sharing, trust,
and conict management capabilities can use these capabilities to increase franchisees' performance.

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C.-W. Wu / Journal of Business Research 68 (2015) 15811588

Table 4
Path analysis results.
Path

Standardized path estimate

t-Value

Signicant

H1: Brand reputation franchising intention

H2: Brand reputation performance
H3: Franchising intention performance
H4a: Knowledge share franchising intention
H4b: Trust franchising intention
H4c: Conict management franchising intention
H5a: Knowledge share performance
H5b: Trust performance
H5c: Conict management performance

0.37
0.32
0.34
0.72
0.56
0.38
0.24
0.45
0.48

8.94
7.34
8.65
8.75
10.53
7.72
7.38
8.63
5.92

s
s
s
s
s
s
s
s
s

ns = not signicant; s = signicant; t values all signicant at p b 0.05.

signicant at p b 0.05.
signicant at p b 0.01.

Findings have managerial implications for franchisors and franchisees. Franchisors should manage trust, conict management, and
knowledge sharing to ensure franchisees have greater intention to remain and better performance. Firms with more inter-rm trust have
higher intention to franchise, which suggests franchisors have an interest in building trust with franchisees. Furthermore, franchisors benet
from developing a strong brand reputation, which is an important
investment in chain stores. Firms can benet from developing brand
reputation with franchisees. Thus, developing and maintaining brand
reputation is a priority.
As a franchisor, the goal of collaborative communication with franchisees is to ensure franchisees remain. Understanding the franchising
business model (specically relationship and performance drivers) is
critical because of franchising's importance in the domestic economy,
especially given small businesses' recent hardships. This urges researchers to discern relationship nuances, noting relational variables
that will be insightful for potential benets gained from stronger relationships in the franchising context.

7. Conclusions and research limitations

This study applies the resource-based view and relationshipmarketing theory to franchising. This study also establishes franchisors'
resources and relationships with franchisees to explain franchisees'
strategy choices for franchisees performance. Existing franchising literature offers scarce theoretical explanations for how franchisees determine their franchise strategy and what factors affect franchisees'
performance. This study provides an initial step toward explaining franchising strategy and performance. The study also provides support for
the resource-based view and relationship-marketing theory as explanations for franchisees' performance in chain stores. Understanding why
franchisees succeed is important because franchising is important for

Table 5
FsQCA results.
Items Analysis

2
3
4
5
6
7
8

Consistency Raw
coverage

Combined

Outcome

Performance

Knowledge share trust conict

management brand reputation

0.929114

0.804735 0.883512

0.841887
0.879550
0.892191
0.871446
0.840335
0.842275
0.830415

0.871465
0.875327
0.862268
0.960035
0.873352
0.916355
0.908985

franchise strategy
Brand reputation performance
Franchising strategy performance
Brand reputation
Knowledge share
Trust
Conict management
Franchising strategy

0.875722
0.907087
0.905072
0.944898
0.876670
0.897994
0.884135

economies and because franchisees play a key role in enhancing franchisor success.
This study has several limitations, which imply the need for further
research. First, ndings may be difcult to generalize because the
study only covers Taiwanese chain stores. In the future, researchers
might consider using samples from manufacturers to generalize current
ndings. Further research should test the applicability of the theories in
other countries. Future studies should broaden this study's scope to include different categories of franchise system. Second, the size of the
sample means that ndings have little generalizability. With more resources, further research could increase sample size and consider
other types of rms or industries. Third, this is a cross-sectional study:
all information comes from a mail survey. Therefore, causal attribution
of relationships is weak. Future research should consider using a longitudinal design to test causal relationships. Finally, further research
should explore the relevance of other external and internal factors for
examining antecedents of franchisees' franchising strategy and performance. Despite efforts, response rate is relatively low. This potentially
undermines ndings' external validity. The model assumes unidirectional relationships among constructs, yet bidirectional linkages may
exist and may need further investigation. This study relies on selfreport data from key informants, but future research should employ objective data to triangulate subjective measures and reduce uncommon
method biases.

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