Over the last few years the trend of Finnish businesses moving into franchising has gained momentum. The economic crisis of the early 1990s and the integration of Finland into the European Union has begun to convince businesses that competition can only be met effectively by increasing the level of affiliation and pursuing joint efforts to utilize the advantages of networking and achieve the optimal company size. The advance of the single European market is opening new opportunities for national and international strategic alliances and other forms of collaboration. Finland and other North European countries are experiencing trends that appear likely to promote the growth of franchising. These factors are in part similar to those that made franchising so successful in the USA. Examples of the developments include the general worldwide decline of manufacturing, its replacement by the growth of the service sector, the rising participation rate of women entrepreneurs, accelerating deregulation of industries, expanding urbanization, increasing mobility, and the higher rate of unemployment.
According to the Finnish Franchise Association statistics of 1995, there are some 70 business format franchisors and the total amount of franchisee-owned outlets is 1,300. Retail trade franchising represents some 30 percent of franchisors and 45 percent of franchisee-driven outlets. The number of these franchisors went up by 65 percent from 1994 to 1995. Cafes and restaurants total some 25 percent of Finnish franchisors and 20 percent of franchise outlets. Their annual growth was 33 percent. Services cover a wide range of different business concepts. The number of those franchisors went up by 43 percent from 1994 to 1995. The total sales figures of Finnish franchising have shown a growth of two digit percentage every year in the 90´s.
In Finland, as in most North-European countries, there is very little research-based information on franchising. Our study hopes to provide some initial insights by setting out to explore the typical entrepreneurial characteristics of Finnish franchisees and the perceived advantages and disadvantages in their businesses. We are also interested to find out whether there is any dimensionality in the advantages, disadvantages, and characteristics, and if so, do the dimensions indicate ambiguity and contradictions?
We suggest that the inherent character of franchising in itself generates ambiguity and contradictions. Our definition of paradox follows Webster's Third New International Dictionary (1981): "Paradoxes are tenets or propositions that are contrary to received opinion. Often they are also statements or sentiments that are seemingly contradictory, self-contradictory or opposed to common sense". Meanwhile, we define a reaction pair as a simultaneous existence of one domaining phenomenon or development and the opposite, counteracting and/or reverse phenomenon or development.
Advantages from Franchisee View
In their extensive survey, Stanworth et al. (1995) discovered that over half of their 728 franchisee respondents in the USA and the UK saw running a franchise as operating an independent business though sometimes with strings. Very few felt that operating a franchise was like running a managed outlet for a large company. Those who had no experience of self-employment were more likely to perceive their situation as more dependent on the franchisor. This may reflect their greater need to follow the franchisor´s dictates closely at least until they gain more experience. When people were asked why they wanted to buy a franchise, a high proportion of respondents stressed reasons such as "a proven business system" and a "known trade name". The chance to be "your own boss" or "personal independence" was nevertheless selected by 26 percent of the US respondents and 28 percent of the UK respondents. Those who had never before been self-employed were more likely to see "being your own boss" or "independence" as the main motivation. Furthermore, Stanworth et al. (1995) suggested that "independence" is less likely to be a motivation for those who have already experienced self-employment. Instead, they are more likely to opt for economic security. This fits well with the theories which suggest that the motivational drives of franchisees will change as they become more experienced and particularly more successful.
Numerous other studies have previously explored the motivations of existing and potential franchisees. For instance, in his study on the advantages of franchising from the franchisee view, Knight (1986) showed that the benefit of access to a "known trade name" was rated as the greatest advantage, with "greater job satisfaction," "independence," and "you can develop a franchise more quickly than an independent business" close behind. Moreover, Diaz & Burnick (1969, 18) have argued that "It is apparent that they [franchisees] were attracted to franchised businesses because the `franchise package´ was recognized as superior to the `package´ that the franchisee as an individual could create through his singular efforts".
The "franchise package" is related to the notions of learning process and capability transfer. In all human endeavour a learning process is involved. It includes going through a series of trial and error encounters where knowledge is gained by trying and failing and eventually succeeding. This process is often called the learning curve. The franchisor has already gone through the learning curve and learned how to be successful in a specific business area. One of the essences of modern franchising is the transfer of the information gained by going through this learning curve. This information is priceless to one who has limited knowledge and experience in a certain type of business.
In sum, even though both a proven business formula and franchisor support may originally be a source of satisfaction at the early stage of a franchisee learning process, it may gradually turn into a source of dissatisfaction. The fees paid for training and other forms of franchisor support may at first be regarded as justified, but as time goes by they might appear somewhat unfair. Consequently, the franchisee learning process, per se, might be creating additional contradictory features in the delicate franchisor-franchisee relationship.
Disadvantages from Franchisee View
Paradoxically, a research by Dant et al. (1992) showed that higher franchisee success might be related to a perception of both high autonomy and high dependence on the franchisor, varying across domains of activity. Similarly, Dandridge & Falbe (1994, 42) argued that in order to succeed franchisees need to surrender some freedom and are required to become team players for their own benefit as the larger system benefits as a whole. On the other hand, especially in a growing franchise faced with dynamic markets the franchisee is left with much responsibility for local, geographically limited initiative and risk, to earn profit from local sales growth (Dandridge & Falbe, 1994, 42).
In taking that local entrepreneurial responsibility, the franchisee gains insight and experience which can have a valuable influence on the franchisor. Thus, as Dandridge & Falbe (1994, 42) pointed out, in a growing franchise system the franchisor will find entrepreneurial behavior by the franchisee especially desirable. In addition, the unstable market situation often calls for high cooperation and integration between the franchisor´s and the franchisee´s strategies. It becomes obvious that the franchisor needs to promote a climate of trust and cooperation for mutual benefit.
Nevertheless, this is not always easy in the harsh reality of the marketplace. Conflicts are inherent in the franchisor-franchisee relationship since all the aspects of the relationship that are good for the franchisor may not be equally good for the franchisee (Falbe & Dandridge, 1992, 48). One of the most basic conflicts is a failure of either the franchisor or franchisee to live up to terms of the legal agreement. This agreement is very specific regarding what franchisors and franchisees may or may not do. Common areas of disagreement that may accelerate into disruptive conflict are first, failure to agree on objectives, and second, failure to agree regarding the operation of the franchise system. Differences over operations may range from violations of the agreement regarding operations, to a failure to commit to the franchisor´s concept of the operation of the business. The franchisee does not understand or refuses to accept the vision and the concept that the franchisor holds for the business.
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Last Updated 03/04/98