Multi-Unit Ownership Strategy in Franchising: Development of an Integrative Model

Abstract

In this paper, we examine the evolution of multi-unit franchising (MUF) research and develop an integrative model for the franchisor’s choice of ownership strategy between single-unit and multi-unit franchising. Although several empirical studies were published on MUF in the last two decades, the research deficit primarily results from the lack of theoretical foundation of this ownership strategy. We extend the literature in the following way: First, based on the transaction cost view of governance mechanism, we examine the influence of environmental uncertainty on the choice of ownership strategy. Second, we develop hypotheses based on the resource-based and organizational capabilities view. Third, we investigate the influence of contractibility of resources and organizational capabilities on the choice of ownership strategy. Finally, we apply the screening theory and argue that specific investments of MUF have an ex-post bonding function, based on transaction cost reasoning, and an ex ante screening function.

Keywords: Multi-unit franchising, agency theory, transaction cost economics, resource-based theory, property rights theory