The effect of financial resource availability and system size on ownership redirection in franchised channels of distribution

Abstract

Examines the effects of financial resource availability and system size on ownership redirection patterns – the argument that successful franchisors will acquire less successful franchisee units, resulting in corporate ownership – in 12 franchising business sectors. Discusses the theory of ownership redirection in more depth. Hypothesizes that: as franchise systems gain increased financial resources, there is a greater likelihood of ownership redirection favouring the franchisors; and that, as the size of the franchise system increases, there is a greater likelihood of ownership redirection favouring the franchisors. Draws on data from the US “Franchising in the economy”, over the period 1977‐1986. Conducts a LISREL‐based path analytic approach. Finds a more complex interplay of effects than anticipated, particularly that differences occur depending on the business sector – uniform effect patterns occur in educational products and services, laundry and dry cleaning services, and rental equipment; conversion orientation patterns occur in hotels, motels and campsites; cautious redirection patterns occur in the automotive products and services industry; and, finally, strategic dilemma patterns occur in food retailing. Concludes that further research is required to substantiate (or not) the theory on ownership redirection.