Mitigating the Negative Effects of Regional Clustering in Franchising : The Roles of Governance Mechanisms
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
Original language | English |
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Pages (from-to) | 434-444 |
Journal / Publication | Journal of Retailing |
Volume | 96 |
Issue number | 3 |
Online published | 9 Dec 2019 |
Publication status | Published - Sept 2020 |
Link(s)
Abstract
Many franchisors employ regional clustering as an expansion strategy and benefit from it financially in its early stage. However, the positive effect of regional clustering tends to reach its maximum at a certain point, and franchisors may be forced to slow down expansion because of the escalating intra-brand competition within the cluster. What governance mechanisms should firms employ to mitigate the negative effects of regional clustering and reap more financial benefits from it? Building upon agency theory and emerging literature on regional clustering in marketing, we postulate that the density of regional clustering of franchised outlets has an inverted U-shaped impact on franchisor financial performance. To mitigate the negative effects of regional clustering, we hypothesize that franchisors can employ more flexible contracts that allow franchisees to engage in local innovation. In addition, the services provided by the franchisor help enhance the competitiveness of the franchise system and serve as a buffer for the negative effect of regional clustering. The results from an analysis of 84 franchise systems over a 10-year period (2003–2012) have largely supported our hypothesis. Hence, our findings offer actionable managerial insights on how firms may minimize the negative effects of regional clustering by deploying governance mechanisms properly.
Research Area(s)
- Contract completeness, Financial performance, Franchising, Franchisor services, Regional clustering
Citation Format(s)
Mitigating the Negative Effects of Regional Clustering in Franchising: The Roles of Governance Mechanisms. / Zheng, Xu Vivian; Ji, Li Jenny ; Su, Chenting.
In: Journal of Retailing, Vol. 96, No. 3, 09.2020, p. 434-444.
In: Journal of Retailing, Vol. 96, No. 3, 09.2020, p. 434-444.
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review