Beyond Locations: The Contingent Effects of Governance Mechanisms in Regional Clustering of Franchised Outlets

Project: Research

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Location has been considered one of the most influential factors in the success of firms’ operations, as reflected by the well-known tricolon “location, location, location,” that determines the success of any business. However, as pointed out in recent marketing research, the effectiveness of a firm’s location strategy not only depends on the geographical juxtaposition of the location but also on how the business is governed. In the current research, we aim to go beyond the locations and examine the joint effects of business locations and mechanisms by which a business is governed. We conducted our research in the context of business format franchising, in which many franchisors (e.g., Starbucks, 7-11, Burger King) have employed a regional clustering strategy, namely locating franchised outlets in a geographically proximate area, to achieve their system expansion objectives. Although regional clustering can increase brand exposure, reduce monitoring costs, and improve access to knowledge and other intangible resources, it can also cause market encroachment and lead to termination of franchised stores. Thus, the purpose of this research project is to examine how franchisors may employ appropriate governance mechanisms for clusters with different properties to enhance franchisee survival rate. Several research questions will be examined in this project. First, if regional clustering confers both advantages and disadvantages on franchisees, what is the overall effect of regional clustering on franchisee survival rate? Second, we will identify three franchise-specific governance mechanisms at the outlet (i.e., headquarters distance), subgroup (i.e., shared ownership), and system (i.e., franchisor-led socialization) levels and conduct empirical tests on the joint effects of each governance mechanism employed and located in a regional cluster on franchisee survival rate. Finally, we will further explore how the moderating effects of governance mechanisms vary across clusters with distinctive geographical and structural properties. Based on our findings, we will offer actionable insights on how firms should select appropriate governance mechanisms that match different cluster properties.We will use the applied research grant to acquire Franchise Disclosure Documents (FDDs) for at least 50 firms over the past 10 years (2008–2018). We will extract information on the numbers, addresses, and owners of all franchised outlets within the United States from the FDDs and convert it to geocoded data (i.e., longitude and latitude) with the Quantum Geographical Information System (QGIS) 2 and R packages. We will also employ a semi-parametric Cox proportional hazards regression method to test our hypotheses empirically.


Project number9043075
Grant typeGRF
Effective start/end date1/01/21 → …