Do franchisees deviate from the franchisors business regulations and is the deviation significant to affect the Franchisor’s reputation? A case study of McDonald’s franchised outlets.
Franchising relationships are increasingly becoming common among the multinational companies. Franchising refers to a business model in which one firm (the franchisor) allows another independent entity (the franchisee) to trade in the franchisor’s business name and brands for a particular period. The franchisor and the franchisee sign an agreement defining the terms to regulate their relationship. These terms include the scope of the franchisee’s rights and responsibilities as well as the extent to which the franchisor controls franchisee’s operations. Additionally, franchising relationships are regulated by various legal requirements of particular countries or states. In the US, for example, Franchising is regulated by the federal law under the Federal Trade Commission (FTC) rule. Further, different US states have enacted own franchising laws that may vary slightly from one state to another. For this reason, franchising agreement is structured in a way that it is adherent to the particular state’s law of the state in which the franchise operates. Similarly, the international franchise also puts into consideration the specific legal requirements in the host countries.
Franchising is one of the most common market entry strategy practiced by the modern businesses. As Solis‐Rodriguez & Gonzalez‐Diaz (2012) explain, the franchise is an easy and less costly way to enter into an unfamiliar market. However, franchising is faced with numerous challenges, including the difficult in the harmonization of the respective business managements. As Winsor et al. (2012) notes, the franchisee is usually an independent entity but is forced to run their business in a similar manner with the franchisor’s regulations. There is, therefore, the likelihood of conflict and disagreements between the two entities. As Solis‐Rodriguez & Gonzalez‐Diaz (2012) explain, conflict of interest and the reluctance of the franchisee to abide by the franchisor’s business model have led to a failure of numerous franchisees. Often, franchisees claim that the franchisor is overly controlling and interferes with their individual efforts to grow their business. In a recent poll conducted by the Wall Street analysts, for example, most of the McDonald’s franchisees expressed displeasure with their franchisor. Half of the surveyed franchise operators complained about McDonald’s policies such as increased pay for the employees. However, franchisees fail to understand that their individual conducts can impact the reputation and hence, the business of the franchisor. It is this complaint from the McDonald’s franchisees, as established by the Mark Kalinowski of Janney Capital Markets that prompted the researcher to investigate how the individual franchisees affect the McDonald’s corporation.
Why are franchises becoming so prevalent in the modern economy? Different scholars have sought to evaluate why corporate sell franchise rather than opening self-owned branches. According to Beckmann and Zeyen (2014), cooperates opt to sell franchise so as to expand their business by utilizing someone else’s resources. Similarly, Cumberland and Githens (2014) observe that franchising increases the franchisor’s rate of growth which creates an active image for the clients and the general (Sherman, 2004). The franchisees bear all the startup cost and the subsequent running expenses such as the salaries and wages. However, customers are not interested in finding out the franchise relationships and perceive franchises as an expansion of the parent company. This notion enables the parent corporation to market its business effectively following its ability to open several outlets within a short time.
The franchise require little or no start-up capital, but also involves a minimal cost of management. As Meiseberg and Dant (2015) illustrate, the franchisee is in charge all the management work and may not require any input from the franchisor. Additionally, the franchisor is entitled to a share of the franchise’s profit, despite their little input to the operation of the franchise. As scholars elaborate, sometimes the proportional profit earned in a franchise is larger than the net profit that would be made in a company’s owned out (Méndez, Galindo & Sastre, 2014).
Although franchising have been cited as a cheaper method of reaching out to the customers than other methods such as the wholly owned subsidiary, scholar have proven that franchise also have numerous drawbacks to the corporation. As Combs et al. (2011) elaborate, franchising a business is a tough challenge to the business owners. Firstly, the corporation has to carry out background research on prospective franchisees so as to ensure that they are capable and responsible. This includes a rigorous application procedure that varies from one company to another. Contrary to many people’s notion that franchising involves less management input since the franchisee is in charge of all the administrative roles, Antia, Zheng, and Frazier (2013), notes that managing a franchise does not end with the appointment of a franchisee. According to them, the franchisor has to investigate continually how the franchisee runs their business. This involves asking for reports from the franchisor and also conducting private investigations (Evanschitzky, Caemmerer, & Backhaus, 2015).
Although the franchisor has a legal right to regulate the operations of a franchisee, scholars note that there is still a degree of risk involved in sharing confidential information with an independent entity. As Antia, Zheng, and Frazier (2013) explain, the franchisor is often required to share confidential business strategies to ensure that the franchisee business is consistent with the franchisor’s goals and strategies. However, the franchisee can exit the franchising relationship despite having accessed particular information. According to Frazer et al. (2012), franchise operators are threats to the company upon the expiry of the franchise period. Franchise operators end up opening their own business that competes effectively with the franchisors.
According to a theoretical study by Garg, Priem, and Rasheed (2013), franchise allows the franchisor to expand more rapidly. However, other scholars argue that franchising limits the franchisor’s ability to exploit the market potential. As Alon (2012) explains, the franchisees are entitled to regional exclusivity. A franchisor is barred from opening a branch within a given radius from the franchisee’s premise. However, the franchisee may not be able to exploit their exclusive area to its full potential due to the limitation of factors such as capital and labor resources. Additionally, the profit margin of the franchisor from a franchisee is usually minimal. In most cases, the franchisor is entitled to only 10-15% of the franchisee’s total profit (Alon, 2012).
Even though the franchisee-franchisor relationship is governed by a specifics terms of agreements, the franchisor cannot adequately control the franchise just as they would with a fully owned branch (Batik & Edwards, 2012). Often, franchisee deviates from the code of conduct of the franchisor in various ways including, compromise on the quality of products and services. Yet, the conducts of the franchisee are associated with the franchisor. As Hodge, Oppewal, and Terawatanavong (2013) illustrate, the franchisee’s mischief such as poor customer service can affect the public image of the company.
The proposed research examines whether franchisees adheres to the business practices and regulations of the franchisor. Notably, the study examines whether McDonald’s franchises deviates from the company’s business culture and whether their deviation is harmful to the company. The proposed research intends to
- Critically examine ways in which McDonald’s franchisees fail to adhere to the corporation’s culture and business regulations
- Analyze how the franchisee’s way of doing business impact McDonald’s corporation image.
- Recommend measures that McDonald’s business should take in regulating their franchised outlets
- Outline ways in which a Franchisees deviates from the franchisors business culture.
From the previous studies, it has been proven that franchised outlets do not adhere to the set rules of the franchisor company. Additionally, the franchisee deviation from the company’s traditional ways of doing business is negatively affecting the corporation prominence. However, how do the McDonalds franchisees deviate from the company’s policies? The researcher identifies specific ways in which McDonald’s franchised outlet conduct business contrary to the company’s culture. The researcher also suggests ways through which the corporation should review their relationship with the franchised outlets so as to protect the company’s name and public reputation.
As aforementioned, McDonald’s will be used a case study to show how franchisees way of doing differs from the franchisor’s culture, despite the franchisor’s legal control over the franchisee’s operations. Therefore, the desertion will apply a correlation design, particularly case study control research. This design allows the researcher to relate the sampled outlet’s way of doing business with the McDonald Corporation’s business culture. Predominantly, the desertion will examine two significant aspects, mainly; the outlets commitment to the employee and the respect for their customers. According to the previous studies, McDonald Corporation has always shown greater respect and value for the employees. From what Gerhard et al. (2012) found out, McDonald’s regard their employees as a vital asset for the success of the business. As a result, the company listens to its employee’s grievances and maintains a cordial relationship between employees and the management. Additionally, the Corporation has high regard for the customers and is always determined to satisfy their needs. Thus, the dissertation examines these two aspects in the franchised outlets.
Based on the research question, the researcher intends to incorporate both qualitative and quantitative aspects of research. The qualitative analysis will involve the researcher’s observation of the general conduct of the franchised outlets. As Berg and Lune (2013) elaborate, qualitative aspect allows for a logical interpretation from the general to the particular view. It is preferred in this context because the researcher is not aware of the ways in which the deviation occurs. On the other hand, the researcher will also examine the how franchised outlets relate with employees and the clients. These will involve gathering information from employees and customers. The data obtained from the employees and the customers will be analyzed quantitatively.
For the simplicity of the study, the researcher’s samples tow franchised outlets of the McDonald’s. The details of which store is franchised and which one is entirely owned will be obtained from the McDonald’s head office. Although the company does not make such details public, the researcher anticipates being given access to such information because the company will also benefit from this study. Further. The company has a history of collaborating with analysts who wishes to use it in case studies (Gerhard et al. 2012). Based on the fact that the proposed study is motivated by a recent study by, in which McDonald’s franchise operator complained about the involvement of the corporation in their operation, the present study samples most complaining franchise. The researcher’s sample is, therefore, based on the findings of Kalinowski survey. The present sample includes one outlet whose operator seemed comfortable with the franchisor’s regulations and one that found the laws oppressive. By involving two franchisees with differing opinions concerning the franchisor, the researcher will be able to make standard and unbiased observation.
Additionally, the researcher will sample a few customers who are regular visitors to the sampled stores. Customers will be included in the sample if they are regular visitors to the studied store and have also visited one of the McDonald’s owned outlets. They will be asked to rate the services rendered in the subject store as compared their experience with the owned store. For the purpose of confidentiality, stores will not be identified as either owned or franchised. Rather, for every franchised store, the researcher will identify a neighboring owned store and provide the customer with the two stores for comparison. For instance, the client will only be required to compare a franchised store in Los Angeles with an owned store in the same town; all stores will be differentiated by their respective branch names.
The major data segment in the study will be collected through the researcher’s observation and logical inference from the outlet’s records. This will be documented in written forms. The researcher’s view will be augmented by an oral interview with the respective franchise operators. Any oral interview will be recorded and preserved in video clips. Additionally, data will be collected from the customers and the employees who will be required to respond to the questionnaires. Staffs and clients will be interviewed on their own free will, that is, no participant will be coaxed to provide information.
The customers will be interviewed on their visit to the respective franchised store. However, the researcher acknowledges the probability that a customer who visits the store to the time of the study has a prior experience with an owned store is low. Therefore, the study will be continuous. The data obtained will be examined using grounded theory to allow for the analysis to continue even as customers continue to respond to the questionnaire. The duration of the study will be one month, within which the analyst anticipates to have gathered sufficient information. Based on the available information on the McDonald’s restaurants, the researcher is certain that one month is an ample time for the study. The number of customers served in any given outlet for a period of one month has been found sufficient.
There are two sets of data collected in this research. The first set, the researcher’s observation, and logical inference is valid based on the rules of the qualitative research. However, its reliability may be challenged on the basis of the subjectivity to the researcher’s reasoning. The second category includes the data collected from the employees and the customers. This data is valid and reliable because the participants are assured of anonymity. For this reason, they are likely to give honest and accurate information.
Based on the nature of the research question, a descriptive research design would also be appropriate. In descriptive research, the researcher would only base the study’s findings on observation and logical reasoning (Nazari, & Gorman, 2013). However, the descriptive design would only fit in the qualitative aspect of this study. In order to include the quantitative aspect, the analyst resorts to case study control so as to be able to generalize the findings in McDonald’s franchised store to any all franchises.
Any study that involves human participants must observe particular ethical requirements. For instance, the issue of informed consent applies to this study. The researcher will ensure that every participant is informed of the purpose of the study. However, customers need not know that the study examines the difference between franchised and owned store since the company has not made such information public. Nonetheless, customers will be informed that the study is aimed at establishing differences between branches of the same company. This way, the researcher will be able to obtained informed consent without compromising on the confidentiality policy of the company.
The participants will also be assured of their anonymity. Participant’s confidentiality is not only used as an ethical consideration for the participants, but also to ensure that the participants have a composed environment to volunteer information freely (Saunders et al., 2011). Finally, the report will be written in plural to avoid issues of gender bias that is associated with gender-specific pronouns.
There are various issues that may be attributed to this dissertation. For instance, the combination of the qualitative and quantitative research aspects may involve the complex harmonization of the data. Additionally, the researcher may face the challenge of identifying customers who have visited a set of studied outlets since many customers are accustomed to shopping in a specific outlet. Time management may also be a challenge owing to the fact that the researcher will study two different outlets simultaneously. To overcome this challenge, the researcher will stick to the Gantt chart below;
|Start Date||End Date||Description||Duration|
|5/6/2015||8/6/2015||Visit to McDonalds head office||3|
|9/6/2015||13/6/15||Visit to outlet one||4|
|16/6/15||20/6/15||Visit to outlet two||4|
|21/6/15||30/6||Follow up on the two outlets||9|
Figure 1. A bar showing the number of days assigned to each research
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