Thesis sumary: Factors influencing franchisee’s intention to maintain participation in the franchise system in Ho Chi Minh city

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Design a theoretical framework of factors influencing the franchisee's intention to maintain participation in the franchise system; determine the significance of the influences of the factors on the franchisee's intention to participation in the franchise system; propose managerial implications to improve the intention to maintain participation in the franchise system and policy implications of franchise operations for the government.

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Nội dung Text: Thesis sumary: Factors influencing franchisee’s intention to maintain participation in the franchise system in Ho Chi Minh city

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINHCITY ----------------- TRAN THI TRANG FACTORS INFLUENCING FRANCHISEE’S INTENTION TO MAINTAIN PARTICIPATION IN THE FRANCHISE SYSTEM IN HO CHI MINH CITY Major: Commercial Economics Code: 62.34.01.21 THESIS SUMARY Ho Chi Minh City –2018
The Thesis was completed in: University of Economics HCMC Tutors: 1. Professor Vo Thanh Thu 2. Ph.D Ta Thi My Linh Opponent 1: Opponent 2: Opponent 3: The thesis will be protected in front of the Council at: At ……… h ……… Date ……… Month ……… Year The thesis can be found at:
LIST OF RESEARCH PAPERS A. Key research papers relate to the thesis 1. Tran Thi Trang, 2016. Factors Influencing Franchisee’s Intention to Maintain Participation in the Franchise System: Case in Viet Nam. Journal of Science and Technology. No. 8(105), page 108-112. 2. Tran Thi Trang, 2016. The effect of commitment and franchising law enforcement on franchisee's intentions to remain in the franchise system. Proceedings of the 5th International conference on emerging challenges: partnership enhancement. ISBN: 978-604-93-8961-0, page 111-116. 3. Vo Thanh Thu & Tran Thi Trang, 2015. Influence of Quality Relationship and Big Five Factors to Decision of Intention to Maintain Participation in the Franchise System. Journal of Economics Development. No.10, P.92-110. B. Other research papers relate to the thesis 4. Tran Thi Trang, 2015. The State Management to Franchise Activities and Recommendations. Review of Finance. No. 611, page 20-22. 5. Vo Thanh Thu, Tran Thi Trang & etc., 2015. Franchising in Ho Chi Minh city - Problems and Solutions to promote development. Research project (Department of Science and Technology Ho Chi Minh City). 6. Nguyen Dong Phong, Vo Thanh Thu & Tran Thi Trang, 2015. Franchise Business Guide. UEH Publising House. 7. Tran Thi Trang and Vo Thanh Thu, 2015. Franchising – Problems and recommendation. Proceedings of the 5th International conference on emerging challenges: Managing to Success. ISBN: 978-604-938-723-4, page 473-480. 8. Tran Thi Trang, 2014. Service quality in convenience franchising stores. Proceedings of the 5th International conference on Green Technology and Sustainable Development. ISBN: 978-604-732817-8, page 650-654
1 CHAPTER 1: INTRODUCTION 1.1. Theoretical background There have existed numerous scholarly studies on the maintenance and development of franchising but most authors argue that profitability and business performance are common goals and interests which both franchisors and franchisees concern about. These are also the most important factors to maintain a relationship since the loss of one party will negatively affect the other and vice versa. Other scientists claim that the quality of franchise maintenance and development depends on the quality of the relationship between Franchisee - Franchisor (Rubin, 1978; Shane, 1996). This relationship is characterized by the following three elements: (1) The quality of the franchise contract that stipulates the responsibilities, the right to decide and the sharing of resources between the franchisor and franchisee (Rubin, 1978; Pizanti et al., 2003), (2) The development of relationship between Franchisee - Franchisee and (3) The relationship quality in franchise operations depends highly on Franchisee (Kaufmann et al., 1995, Nathan, 2004). Despite different opinions about franchise, the scientists all agree some common characteristics: Franchise business model helps quickly expand business scale and develop brand through Franchisees’ investment in the system and thus a franchise system needs to be stable and grow in terms of the number of Franchisees. Choosing Franchisees with sufficient financial capacity, management capacity to participate in a franchise system is very essential. Theorists in franchising are also interested in exploring how these Franchisees continue to maintain a symbiotic relationship and the cooperation - building - development of franchise system. This is an
2 important issue, vital for the development of a franchise system. There are many studies on maintaining the cooperation in business in general and maintaining participation in the franchise system in particular such as Adeiza et al. (2017), Erlinda et al. (2016), Jena et al. (2011), Hanafiah (2009) , Lee et al. (2008), Venetis et al. (2004), Ulaga et al. (2006), Chiou et al. (2004), Morrison (1997),... In franchise operations, for Franchisor, Franchisee is both a customer and a member of franchise system. Therefore, unlike normal business activities, the customers (the franchisees) need to be carefully selected so that they can participate in the long-term development of the franchise system. Factors influencing Franchisee's intention to maintain participation in the franchise system in the above mentioned studies are primarily associated with the relationship between Franchisor - Franchisee (trust, satisfaction, commitment), and intention to maintain participation in the franchise system of the Franchisee is indeed the result of this relationship. In addition, there are other factors that affect the intention to maintain the Franchisee's participation in the franchise system such as Communication, Service Support of Franchisor, Competitive Advantage of Franchisor, Commitment of franchise system, Relationship between Franchisor and Franchisee, Satisfaction, Individual Characteristics of Franchisee,... However, the above authors failed to mention legal factors of franchising as well as how Franchisee’s legal implementation affects the Franchisee' intention to maintain participation in the franchise system. Besides that, the individual characteristics of Franchisee and quality of relationship between Franchisor and Franchisee are mentioned separately to study influences on the intention to maintain participation in the franchise
3 system. Individual characteristics of Franchisee are related to the selection of Franchisee of Franchisor for the franchise system. Simultaneously, in a franchise system, there is not only the Franchisor-Franchise relationship but also the relationships between franchisees. Hence, correlation between individual characteristics, quality of relationship between Franchisor and Franchisee and intention to maintain participation in franchise system are issues that need be studied more clearly. Moreover, in developing countries like Vietnam, culture, language, law, people, income, living standards, ... are different from developed countries. Therefore, in franchise operations, intentions to maintain Franchisee’s participation in franchise system will have common features but there may exist particular factors, which also need to be further explored through the scholarly studies and tested through empirical studies. Franchising is a business model that plays an important role in creating jobs and contributes to economic development (Shane et al., 2006). The franchise business model is applied in various business fields such as restaurants, hotel services, retails, personal services, automobiles, real estates, commercial services,... In Vietnam, namely in Ho Chi Minh City, franchise business is in the early stage of development. Nonetheless, franchise operations in Vietnam are still spontaneous, not professional, and lack of sustainability. One of the main causes of this failure is that Franchisor fails to build a good relationship with Franchisee and also fulfill necessary commitments in franchise business, leading to avoidance to maintain Franchisee’s long-term participation. As a result, the thesis “Factors influencing Franchisee’s intention to remain in the franchise system in Ho Chi Minh City” was studied to explore and test key factors
4 contributing to Franchisee’s intention to maintain long-term participation in franchise system considered as the vital condition of a franchise system. 1.2. Research purposes - Explore the effect of new factors consisting of Franchise Law Enforcement, Individual Characteristics, and Quality of Relationship between Franchisor and Franchisee on Franchisee’s intention to maintain participation in franchise system by modifying the inherited scales from previous studies. - Two factors including Quality of Relationship between Franchisor and Franchisee and Franchisee's individual characteristics influencing Franchisee’s intention to maintain participation in franchise system are considered to be two multidirectional concepts. 1.3. Research objectives - Design a theoretical framework of factors influencing the franchisee's intention to maintain participation in the franchise system. - Determine the significance of the influences of the factors on the franchisee's intention to participation in the franchise system. - Propose managerial implications to improve the intention to maintain participation in the franchise system and policy implications of franchise operations for the government. 1.4. Research object and scope 1.4.1. Research object Factors influencing Franchisee’s intention to maintain participation in the franchise system. 1.4.2. Research scope
5 - Research problem: Factors affecting the intention to maintain Franchisee’s intention to maintain participation in the franchise system. - Time dimension: Actual practice of franchising from 2007 up to now. - Space dimension: + Overview of the current status of franchise operations in Vietnam in general and HCMC in particular + Survey and test the framework of factors affecting the intention to maintain participation in the franchise system in HCMC. - Research sample: Franchisee – management team or manager of the franchise store who manages and proposes decisions for franchise business operations of the organization. 1.5. Research methodology The thesis employed both research methods: qualitative research with individual in-depth interview technique in the qualitative research phase and quantitative research was then conducted within two phases: preliminary qualitative research with 95 franchisees in Ho Chi Minh City and subsequentlyy formal quantitative research with survey techniques with 187 enterprises and franchisees, selected by snowball sampling method and simple random method.
6 CHAPTER 2: LITERATURE REVIEW – THEORETICAL FRAMEWORK Intention to maintain participation in the franchise system is viewed as the franchisee's behavior in planning or making decisions to re-sign the franchise contract or expand cooperation with the Franchisor in the franchise system which they are participating in. When the franchisee acts this way, the franchisee intends to maintain its participation in the franchise system. 2.1. Factors influencing Franchisee’s intention to maintain participation in the franchise system Table 2.4: Factors influencing Franchisee’s intention to maintain participation in the franchise system No Factor Author and Year of publication Quality of Adeiza et al., (2017), Chen (2011), relationship between 1 McDonnell et al., (2011), Ulaga et al., Franchisor and (2006) Franchisee Erlinda et al., (2016), Victoria 2 Trust Bordanaba-Juste et al., (2008), Chiou et al., (2004), Morrison (1997) Chen (2011), Huang et al., (2009), Lee et al., (2008), Chiou et al., 3 Satisfaction (2004), Hing (1999), Morrison (1997), Justis et al., (1991)
7 Victoria Bordanaba-Juste et al., 4 Commitment (2008) Quality of service, Venetis et al., (2004), Justis et al., 5 training, and training (1991) program Competitive advantage, Erlinda et al., (2016), Huang et al., 6 Franchisor’s brand (2009), Chiou et al., (2004) image Franchisee’s individual 7 characteristics Chen (2011), Morrison (1997) (personality, age, education) Communication, Huang et al., (2009), Victoria 8 information exchange Bordanaba-Juste et al., (2008), Chiou and cooperation et al., (2004) Business 9 Huang et al., (2009) environment 10 Long-term direction Ono et al., (2009) 11 Opportunism Ono et al., (2009) Perceptual 12 Hanafiah et al., (2009) independence 13 Family care Hanafiah et al., (2009) Source: synthetized by the author 2.2. Theoretical framework development 2.2.1. Literature review
8 2.2.1.1. Motivation theory Intention to perform a behavior is a major factor of future behavior (Ajzen et al., 2005) and it contains three stages: (i) Formation of the motor; (ii) act to select or make decisions; (iii) Implementation of intentions (Thomas Waweru Gakobo et al., 2016). Thus, forming the motivation is the first step in shaping intentions or planning or making a decision to take an action. Motivation is a theoretical concept used to explain why people conduct specific actions at a particular time (Beck, 2004). According to Petri et al. (2004), motivation is considered as a concept that describes the direct impacts of external and internal environments of an organization on behavior so as to explain the difference in the level of behavior. and indicate its existence. Motivation theories based on need satisfaction: motivation encourages people to act out of desire for need satisfaction. Process of need execution, which is complex, is defined as a process in which an individual has a need for something and find a way to satisfy it. In business, motivation is proven to have a strong impact on behavior (Herron et al., 1993; Renko et al., 2011). Bird (1998) argues that the intention of the founder is to determine the form and direction of an organization. In franchising, two theories of motivation which can be used to understand the motivation of Franchisee’s participation in the franchise system encompass content theory and process theory of motivation. In particular, motivation theories play an crucial role since they help to understand influences on the formation process of Franchisee’s intention. 2.2.1.2. Theory of planned behavior
9 Theory of planned behavior is the theory of the relationship between attitudes and behaviors, behavioral control behavior, and subjective factors influencing individual’s planned behavior (Ajzen, 1991). Researchers in various fields such as social psychology (Ajzen, 2002), tourism (Hsu, 2012), festivals and events (Horng et al., 2013; Shen, 2014), have successfully applied theory of planned behavior to clarify the impact of motivation on planned behavior and behavior. Theory of planned behavior is an extension of the theory of reasoned action (TRA) when adding perceived behavior control (Ajzen, 2002). In addition, this theory also examines the relationship between trust and ownership of the necessary resources as well as the opportunity to perform a particular behavior. A number of previous studies have demonstrated the impact of behavioral control factors on individual’s planned behavior. It means that planned behavior is expected to be higher when an individual holds control of a particular behavior (Buttle et al., 1996; Horng et al., 2013; Shen, 2014). According to Ajzen (1991), theory of planned behavior recognizes three key components that formulate the notion of intention related to attitudes toward behavior, subjective factors and behavioral control. In franchising, theory of planned behavior contributes to predict the attitudes and behaviors of franchisees in the intention to maintain participation in the franchise system. 2.2.1.3. Agency theory Agency theory was introduced by Jensen and Meckling in 1976. This theory refers to an agreement between a principal to another agent on behalf of them to implement some services and also empower agents some authority and self-determination within the agreed scope. Agency theory indicates that the purpose of contracts
10 with an agent is to allow transactions to be completed in an integrated manner. In the franchise operation, the nature of agency relationships is undoubtedly clear: Franchisors rely on Franchisees to represent them in order to perform certain services on their behalf, and simultaneously give franchisees certain rights and make their own decisions in the agreed scope. Agency theory also assumes that the problems arising in relationship between Franchisee - Franchisee is considered from the difference in purpose, information and risks of the parties (Bergen et al., 1992). Utilizing agency theory is seen as a tool to help franchisers to control the operations of the franchisee. 2.2.1.4. Relationship quality Dwyer et al. (1987) conducted the first study on relationship quality. By 1990, Crosby and Epsom had developed a system of the relationship quality theory. According to them, relationship quality is defined as the assessment of relationship strength and the expansion of relationships to meet the expectations and needs of the stakeholders. Quality of relationship between customers and companies is a measure of whether or not customers want to maintain a relationship with the service provider (Roberts et al., 2003). Relationship quality is considered in three main aspects: satisfaction, trust, and commitment (Hennig et al., 1997; Smith, 1998; Liang et al., 2005). In many industries today, relationship quality is a tool to maintain long-term relationships between sellers and buyers (Dwyer et al., 1987). This is similar to quality of relationship between Franchisor - Franchisee in the franchise business. Franchisee is the customer and the franchise contractor with Franchisor. Franchise
11 relationship is the type of long-term cooperation relationship. The timing of the relationship between the two parties reflects the quality of relationship between them (Ernández Monroy et al 2005). 2.2.1.5. Big Five personality traits This theory refers to the fundamental differences of the individual through five characteristics: extraversion, consensus, conscientiousness, emotional stability, and imagination (Costa et al., 1992). In franchising, Peterson et al (1990) state that Franchisee’s personality is one of the relationships that affect their perception of franchising. Studying the individual characteristics of Franchisees helps to understand the motivation for joining the franchise system (Lee, 1999). Previous research has shown that based on individual characteristics, it is possible to predict interoperability (Morrison, 1997), the Franchisee’s desire to maintain and develop the franchise system (Weaven et al., 2009). Additionally, according to Nguyen Dong Phong et al. (2009), franchising is a method of business that is legally symbiotic and different. Therefore, using this theory helps the franchisor to predict and decide which franchisees can join cooperation in building and developing the franchise system. 2.2.2. Hypothesis development Based on the literature review and research related to the intention to maintain participation in the franchise system, the author advocates the previous views and results of research conducted by Chen (2011) and Morrison (1997). Once franchisees have individual characteristics that are consistent with the franchisor's business practices and personal characteristics, both parties will create a good
12 relationship and tend to continue to cooperate in the future. Therefore, two hypotheses are proposed as follows: Hypothesis H1: Individual characteristics have the positive effect on the quality of relationship between Franchisor and Franchisee. Hypothesis H2: Individual characteristics have the positive effect on the intention to maintain the Franchisee’s participation in the franchise system. The level of understanding, trust and enforcement of franchise law, and the implementation of the franchise contract of Franchisee affect their relationship quality with the franchisor. In addition, when the franchisees have the belief that franchise law will protect their legal rights, they will be assured and tend to continue to participate in the franchise system. However, in many studies on domestic and foreign franchise activities, research has not yet considered how the implementation of franchise law affects the intention to maintain participation in the franchise system as well as the quality of relationship between the two parties. For the above reasons, the author suggested the following two hypotheses: Hypothesis H3: Franchise law enforcement has the positive effect on the quality of relationship between Franchisor and Franchisee. Hypothesis H4: Franchise law enforcement has the positive effect on the intention to maintain the Franchisee’s participation in the franchise system. The remarkable point in franchise operations is the symbiotic relationship between franchisor and franchisee. A franchise system is only considered successful when more and more franchisees are joining and maintaining the franchise system. Meanwhile, the intention to maintain the Franchisee’s participation in the franchise
13 system depends highly on their perception of the current relationship with the franchisor. The two parties often have different views and motives, but they all share one goal and the common interests in achieving business efficiency. Therefore, the two parties must have a certain binding and it is obviously necessary to maintain the long- term relationship quality to grow firmly in the market. As a result, relationship quality is becoming an important element for successful long-term cooperation in the franchise business (Ernández Monroy, 2005). The better quality of Franchisor – Franchisee relationship is the more possibilities Franchisee continues to cooperate and maintain participation in the franchise system. Thus, it can be hypothesized as follows: Hypothesis H5: Quality of Franchisee – Franchisee Relationship has the positive impact on the intention to maintain participation in the franchise system. Individual characteristics Extraversion, consensus, conscientiousness, H2 (+) emotional stability, and imagination. H1 (+) Quality of Franchisor- Franchisee’s Franchisee H5 (+) Intention to Relationship Maintain - Trust Participation in the - Satisfaction Franchise System H3 (+) - Commitment H4 (+) Franchise Law Enforcement Figure 2.1: Theoretical Framework
14 CHAPTER 3: RESEARCH METHODOLOGY 3.1. Research methods and sampling methods 3.1.1. Research methods - The qualitative research method was conducted by individual in- depth interviews with experts in the field of franchising to confirm the scientific nature of the theoretical framework and with 10 representative survey subjects to ensure the questionnaire was clear and easy to understand for the respondents. - Quantitative research methods were conducted at the stage of preliminary quantitative research aimed at preliminarily evaluating scales and subsequently formal quantitative research helps to test the theoretical framework and hypotheses. 3.1.2. Sampling methods - For franchise operations from foreign-owned companies entering Vietnam: Using a simple random sampling method. - For domestic franchise operations: Using a snowball sampling method. 3.2. Qualitative research - Qualitative research techniques: Qualitative research was conducted through individual in-depth interview techniques. - Data collection subjects for qualitative research are experts participating in individual in-depth interviews. To adjust the measurement scales to suit the surveyed subjects, the author discussed with 10 franchisees in Ho Chi Minh City and then the observed variables were last modified and designed into the preliminary questionnaire.
15 - The results of the study after the interviews with experts helped confirm the theoretical framework proposed in Chapter 2 and add five observed variables for the Four Scales of Trust, Satisfaction, Franchise Law Enforcement, and Intention to Maintain Franchisee’s Participation in the Franchise System. Thus, the theoretical framework has 10 measurement scales with a total of 49 observed variables. 3.3. Quantitative research 3.3.1. Preliminary quantitative research - Methods for conducting preliminary quantitative research: Measurement scales are adjusted through its reliability and validity (Exploratory Factor Analysis - EFA). - Results of preliminary qualitative research: The results of the reliability evaluation of the measurement scales show that from the first 49 observed variables, there were 14 rejected observed variables, of which “imagination” was rejected. Thus, the formal theoretical framework will consist of nine measurement scales with 35 observed variables. 3.3.2. Formal quantitative research - Questionnaire design: The formal questionnaire consisted of 35 questions appropriate with 35 observed variables of 9 measurement scales in the theoretical framework. Besides that, two filter questions and some related information were also included in the questionnaire. - On the survey method, direct interview method is considered as the method with the highest response rate. As described in section 3.1.2, this study uses a simple random sampling method (for franchise brands from foreign-owned companies entering
16 Vietnam) and snowball sampling method (for domestic franchise brands). - Sample size: The data analysis method used for this study is an analysis on Structural Equation Modeling (SEM). Bollen (1989) suggests that a sample size has at least 5 samples for an estimated parameter (Nguyen Dinh Tho et al., 2011). In this study, there were 35 estimated parameters and thus the sample size has at least 175. - Formal quantitative research: Measurement scales are further verified by Cronbach Alpha's reliability coefficient and Exploratory Factor Analysis (EFA). These measurement scales are then further validated by means of Confirmatory Factor Analysis (CFA). When using the CFA method, the study will measure the validity of the model with market information, evaluate scale reliability, convergent and discriminant validity. After validating the convergent validity, unidimensionality and discriminant validity, observed variables that satisfy conditions will be used to test the theoretical framework.
17 CHAPTER 4: RESEARCH RESULTS OF FACTORS INFLUENCING FRANCHISEE’S INTENTION TO MAINTAIN PARTICIPATION IN THE FRANCHISE SYSTEM 4.1. Descriptive analysis The quantitative research conducted a survey of 200 franchisees in Ho Chi Minh City, resulting in the collection of 178 valid samples. 4.2. Scale reliability According to the preliminary quantitative research in section 3.5.1, nine measurement scales should be evaluated for the reliability of the scale for the theoretical framework. Factors influencing the intention to maintain particpation in the franchise system. Results of the scale reliability test showed that two observed variables were rejected after the scale reliability was measured: PL5 (Franchise Law Enforcement) and Y3 (Intention to Maintain Participation in the Franchise System). Thus, 33 remaining observed variables met the scale reliability and will be used in the Exploratory Factor Analysis (EFA). 4.3. Exploratory Factor Analysis - Exploratory factor analysis is used for individual characteristics, relationship quality, franchise law enforcement: At the first EFA, three observed variables which did not achieve the discriminant validity were HL4, DT3 and TA5. The results of the fourth EFA showed that eight factors were extracted. Obviously, the observed variables of measurement scales such as extraversion, consensus, conscientiousness, emotional stability measured the individual characteristics; observed variables of measurement