Master Thesis
Advanced International Business and Management (Dual Award) University of Groningen and Newcastle University Business School
Lieke Noteboom
S2395479/140173987 l.noteboom@student.rug.nl l.noteboom@newcastle.ac.uk liekenoteboom@hotmail.com +31 628650952 Supervision: Dr. B.J.W. Pennink Dr. H. Bahemia January 2015RUG
NUBS
INFLUENCE OF CULTURAL DIFFERENCES ON
RELATIONSHIP DEVELOPMENT OF
D
UTCH
FRANCHISORS IN
C
HINA
:
AN IN
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DEPTH
Abstract
The purpose of this research was to explain the relation between cultural differences and the strength of the franchising relationship and the relationship development stages of Dutch franchisors and Chinese franchisees. In order to explain differences in culture, the dimensions of Hofstede (1980) are used and to identify the influence on the relationship development the franchising relationship stages of Blut et al. (2011) are used. The research draws on evidence from in-depth interviews collected within four different cases. The findings suggest that cultural differences, depending on the relationship development stage, will either strengthen or weaken the franchisor-franchisee relationship.
Acknowledgement
During the time of writing my master thesis, I was living in Shanghai, China. This time is of tremendous value in which I learned a lot. By living in China while conducting research on cultural differences, it gave me the opportunity to experience it all by myself. This gave me a better understanding of the cultural differences, as I had to cope with them every day.
Writing my master research, the final stage of my study and thereby the final stage of my beautiful student life, I can tell you that I have developed personally and professionally enormous throughout my study. Whereby the cherry on the cake was writing my research. Without the support of my family and friends I would not have been able to finalize my master research, and therefore I would like to take the opportunity to thank several people.
First of all, I would like to thank Jan Hakvoort, who supported and motivated me throughout the whole process. In addition the time in Shanghai would not have been the same without him. Also I would like to thank Martine Smeijers for being the best study buddy.
Furthermore, I would like to thank my parents to always be there for me during my student time. Moreover, I would like to thank my supervisors Bartjan Pennink and Hanna Bahemia for their support, guidance, and feedback during the process of my research. Finally, a special thanks go to the interviewees who have shared their knowledge and experience with me.
The only thing I have left now is to wish you a pleasant reading.
Shanghai, January 2015
Lieke Noteboom
Table of contents
1. Introduction ... 6
2. Theoretical background ... 11
2.1 Theoretical lens: Agency Theory ... 11
2.2 Franchising ... 12
2.2.1 Definition of franchising... 12
2.2.2 Forms of franchising ... 14
2.2.2.1 Product-distribution franchising ... 14
2.2.2.2 Trade mark franchising ... 14
2.2.2.3 Business format franchising ... 15
2.2.3 Reasons for franchising ... 16
2.2.3.1 From a franchisors perspective ... 16
2.2.3.2 From a franchisee perspective ... 17
2.2.4 Strategic and managerial challenges of franchising ... 17
2.2.5 Franchise relationship... 19 2.3 Culture ... 21 2.3.1 Power distance ... 22 2.3.2 Individualism ... 23 2.3.3 Masculinity ... 24 2.3.4 Uncertainty avoidance... 24 2.3.5 Pragmatism ... 25 2.3.6 Indulgence ... 25 2.4 Franchising in China ... 26
3. Proposition development and conceptual framework ... 27
3.1 Culture and relationship development in international franchising ... 27
3.1.1 Phase 1: Honeymoon ... 30
3.1.2 Phase 2: Routine... 31
3.1.3 Phase 3: Crossroad ... 32
3.1.4 Phase 4: Stabilization ... 33
3.2 Conceptual model ... 34
3.3 Conceptual model in practice ... 37
4.4.2 Golden Tulip ... 42
4.4.3 Vitaminstore ... 43
4.4.4 Experts franchising in China ... 43
4.5 Time horizon and ethics ... 44
4.6 Data collection and data analysis ... 44
4.6.1 Data collection ... 44
4.6.2 Data analysis ... 47
4.7 Validity and reliability ... 48
5. Findings ... 50 5.1 Franchising relationship ... 50 5.2 Masculinity ... 52 5.3 Power distance ... 54 5.4 Uncertainty avoidance ... 56 5.5 Phase 1: Honeymoon ... 58 5.6 Phase 2: Routine ... 60 5.7 Phase 3: Crossroad ... 61 5.8 Phase 4: Stabilization ... 63 6. Discussion ... 64 7. Conclusion ... 67 7.1 Limitations... 69
7.2 Directions for future research ... 70
8. References ... 71
9. Appendices ... 85
9.1 Appendix A – Hofstede’s cultural dimensions (Hofstede, 2014) ... 85
9.2 Appendix B – Research process onion (Saunders et al., 2012) ... 85
1. Introduction
The entry mode choice (i.e., the selection of an institutional arrangement for organizing and conducting business transactions) is seen as one of the most critical decisions for companies who intend to invest in foreign markets (Root, 1994; Luo, 2001). It determines the extent to which the company gets involved in developing and implementing the strategy in the foreign markets, the level of control at the foreign operation, and the degree to which it succeeds in the target market (Chang and Rosenzweig, 2001). A lot of research has been done on the entry mode choice of companies and most literature distinguishes between equity and non-equity modes to enter foreign markets (e.g., Pan and Tse, 2000; Khemakhem, 2010; Baena,
Junquera, Menon, and Ramirez, 2012). Equity modes involve companies taking some degree of ownership at the foreign operations (e.g., wholly owned subsidiaries and joint ventures). In contrast, non-equity modes do not involve ownership (e.g., exporting, licensing and
franchising) (Khemakhem, 2010). This research will focus on a non-equity entry mode: franchising.
Franchising is an important way of doing business in various countries and industries (Combs and Ketchen, 2003), and it has emerged as a highly significant strategy for economic
development, job creation and business growth (Hoffman and Preble, 1991). It is an organizational model to enter a market which is new, unknown, and/or different in several aspects from the home country. As such, it creates opportunities for entrepreneurs (Combs and Ketchen, 2003). These local entrepreneurs, franchisees, are granted the right to operate one or multiple units of the chain at a specified location while investing their own funds (Michael, 2003). Franchising as a business format has expanded significantly both in terms of market coverage and volume (Aydin & Kacker, 1990) and over the past two decades it
industrialized countries in the international marketplace (Hoffman and Preble, 2001; Baena, 2012).
The positive growth of franchising as an entry strategy is in line with the predictions of Hoffman and Preble (1995), who conducted a global survey of franchise associations around the world. In 2004 they conducted another research which used surveys and archival data findings regarding the state of franchising in 40 countries. The findings of the research show that franchising has exceeded the growth expectations, however there exist considerable regional differences in franchising activities (Hoffman and Preble, 2004).
Despite the fact that in recent years the literature has highlighted the need to examine the scope of franchising from an international perspective, further research in this issue is still required (Doherty, 2007; Alon, 2010; Baena, 2012). In international franchising, which is seen as a method for expanding national borders with minimized risks and costs, people from different countries and cultures will work together within the same system (Kedia, Ackerman, Bush and Justis, 1994). According to Norton, it is seen as a minimal risk and cost strategy, often used to expand to geographically distant locations. The franchisor gives the
responsibility to the franchisee to run the local unit independent as the franchisee is familiar with the country, environment, market and norms and beliefs in the host country (1988). However, according to Zwisler, Lyerly and Flaherty (2011), one of the main considerations for international franchising are the costs of adapting to the host country, government
regulations and differences in culture, language and climate. As the nature of the relationship between the franchisor and the franchisee relies on the agency theory, in which the franchisor (principal) delegates the franchisee (agent) the authority to implement the franchisor’s
distance further enhances difficulties in the franchising relationship, as it limits the ability to gather and receive complete and timely information (Fladmoe-Lindquist, 1996). In addition, the study from Hoffman and Preble (2004), proves that franchising firms tend to export their business formats to neighboring countries or to countries with similar cultural characteristics. However, they did not examine why franchising firms tend to export their business to
countries with similar cultural characteristics. This topic, the influence of culture on the internationalization of franchising, is still an under researched subject. However it is an interesting topic as when business transactions are made cross-border, it always involves interaction with different societal value systems (Tihanyi et al., 2005). Existing literature showed that cultural differences between the franchisor and the franchisee can create internal uncertainty as well as problems in business conduct (Baena, 2013). Besides the majority of recent research at the relationship development has been in the context of business-to-consumer markets (O’Malley and Tynan, 2000), while the current work focuses on the business-to-business context of the franchisor-franchisee relationship in international franchising.
With nearly 1,4 billion inhabitants, China has the biggest population and accounts for 19.3% of the world’s total population (World Population Statistics, 2014). In recent years the large population together with the rapid economic growth have encouraged an increasing number of foreign franchisors to expand into China (Smith and Li, 2014). This makes China the most franchised country in the world in terms of number of systems and therefore an interesting country for this research (Wang, Zhu and Terry, 2008).
In human sciences, the concept of culture itself is elusively all-embracing but contradictory, and claimed to be virtually discarded by anthropologists and sociologists (Freilich, 1989). Others believe that there is a general agreement on the definition of culture. “Culture is a historically transmitted pattern of meanings embodied in symbols, a system of inherited conceptions expressed in symbolic forms by means of which men communicate, perpetuate, and develop their knowledge about and attitudes toward life”(Geertz, 1993: 89). A shorter definition provided by Kuper (1999: 227) is that “culture is a matter of ideas and values, a collective cast of mind” which is similar to the definition of Hofstede (1980: 9) " Culture is the collective programming of the mind which distinguishes the members of one group of people from another".
Based on these definitions, major cultural differences mean that the cultural value, behavioral norms and beliefs in one country differ a lot from those in another country. This corresponds to the definition of Spencer-Oatey (2000: 4) “Culture is a fuzzy set of attitudes, beliefs, behavioural norms, and basic assumptions and values that are shared by a group of people, and that influence each member's behaviour and his/her interpretations of the "meaning" of other people's behavior”.
This research is focusing on the influence of cultural differences on the cooperation within a franchise system between Dutch franchisors and Chinese franchisees. The empirical part is conducted to disclose below the surface information and to give a better understanding of how in international franchising, the relationship development is influenced through cultural differences in the social relations of the partners.
According to Hall (1981), the most frequently used model in cross-cultural studies is
Hofstede’s theory (1980). Hofstede conducted a survey to determine the patterns of cognitive, emotional and subconscious activities of humans. To categorize the differences he provided six cultural dimensions (see appendix A). The Netherlands and China have the following scores on Hofstede’s cultural dimensions, see Table 1 (Hofstede, 2014a).
Table 1: The Hofstede's cultural dimensions of the Netherlands and China
Country PDI IDV MAS UAI LTO/PRA IND
China 80 20 66 30 87 24 Note. PDI –Power Distance; IDV = Individualism; MAS = Masculinity; UAI = Uncertainty Avoidance; LTO/PRA = Long-Term Orientation/Pragmatism; IND = Indulgence
Source: Hofstede, 2014a
Table 1 shows that there are significant cultural differences between the Netherlands and China, and according to Adsit , London, Crom and Jones (1997), culture may affect the behavior of individual managers and subordinates as they interact with others. In this research these interactions are seen as the relationship between the franchisor and franchisee.
The majority of recent research at the relationship development has been in the context of business-to-consumer markets (O’Malley and Tynan, 2000), while few studies focused on the business-to-business context. The few studies into business-to-business relationships have focused on the conceptual development of models describing evolutionary process (Batonda and Perry, 2003b). Although time is implied as a key factor in the advancement of
relationships and the establishment of relational norms it has received limited attention (Samouel, 2007). Also the study of Doherty and Alexander (2004) emphasize the hitherto neglected franchisor-franchisee relationship development of time in the international franchising context. Moreover, difficulties in the franchising relationship increase as the geographical and cultural distance increase (Fladmoe-Lindquist, 1996). Cultural differences are an important but understudied subject in this field. Therefore this research will try to fill this gap by answering the following research question:
How do differences in culture between Dutch and Chinese influence the relationship development of a Dutch franchise system expanded into China?
limitations of the research, and suggestions for future research will be presented in the concluding chapter 7.
2. Theoretical background
This section, the theoretical background is sub divided in four paragraphs. The first paragraph describes the theoretical lens of the research. Followed by paragraph two where an extensive description of franchising will be given (e.g., a definition, forms of franchising, reasons for franchising, challenges for franchising and the franchising relationship). Paragraph three will describe Hofstede’s (1980) six cultural dimensions and the implications of the differences for business between China and the Netherlands. The final paragraph gives more background information on franchising particularly in China.
2.1 Theoretical lens: Agency Theory
This research will give an in-depth understanding of the influence of cultural differences on the relationship development of Dutch franchisors and Chinese franchisees. The theoretical lens of this research will be the agency theory (AT) as it has been used most frequently in the franchising literature (Blair, 2005). Agency theory is based on the relationship between one party (the principal) who delegates work to another (the agent) (Doherty and Quinn, 1999). In this research the principal-agent relationship can be viewed as the franchisor-franchisee relationship. While there is large support for an agency perspective as an explanation of franchising in the domestic context (Lafontaine, 1992; Doherty and Quinn, 1999), there has been limited attention for an agency perspective as an explanation of international franchising. Therefore this research will use AT as a theoretical lens.
As the franchisor-franchisee relationship relies on the agency theory, information asymmetry and conflict of interests might arise. Information asymmetry has an influence on the
are: failing to pay royalties, not adhering to the quality standards of the franchise agreement, and releasing of proprietary information of the franchisor to outsiders.
2.2 Franchising
Different types of researchers came up with reasons to franchise: marketing researchers see it as a method of distribution, finance researchers as a capital structure issue, and management researchers typically see it as a growth strategy (Combs and Ketchen, 2003). This part of the literature background will give a clear definition of franchising which will be used in this research. Furthermore, an overview of different ways and reasons to franchise will be given. Finally, challenges for franchising and background regarding the franchise relationship will be presented.
2.2.1 Definition of franchising
When franchising became a subject for academic research in the 1970s, the main discussion point was how to define franchising. In the past years a lot of research has been done in the field of franchising, which results in a vast array of various definitions (Hoy and Stanworth, 2002). The discussion how to define franchising has diminished and has been replaced by a taken-for-granted meaning which merely distinguishes between different manifestations of franchising (Stanworth and Curran, 1999).
Hunt (1972), one of the earliest researchers on franchising, has given one of the first
definitions on franchising, by writing down basic characteristics of a franchise relationship. His definition contained of three different points:
1. A contract exists which delineates the responsibilities and obligations of both parties.
2. A strong continuing cooperative relationship exists between them.
3. The franchisee operates the business substantially under the trade name and marketing plan of the franchisor. (Hunt, 1972, p. 33)
In this definition only the third characteristic distinguishes franchising from other forms of business relationships. Besides, Hunt does not mention anything on the fee structure and demarcated location to operate for the franchisee. Caves and Murphy (1976) disagreed with this definition of franchising, in particular the part of the ‘continuing cooperative
“A franchise agreement is one lasting for a definite or indefinite period of time in which the owner of a protected trademark grants to another person or firm, for some consideration, the right to operate under this trademark for the purpose of producing or distributing a product or service.” (Caves and Murphy, 1976, p. 572)
This definition contains a lot of elements used nowadays to define franchising, but it also contains weaknesses. For instance, in this definition the emphasis is on the protected trademark which directs the attention away from the more important procedures and organizational prescriptions in written form (the franchise agreement).
A few years later Rubin (1978) offered another widely cited definition:
“A franchise agreement is a contract between two (legal) firms, the franchisor and the franchisee. The franchisor is a parent company that has developed some product or service for sale; the franchisee is a firm that is set up to market this product or service in a particular location. The franchisee pays a certain sum of money for the right to market this product” (Rubin, 1978, p. 224).
This definition distinguishes the parent company (franchisor) and a firm (the franchisee) which shows more or less that the franchisor is dominant and the franchisee operates under the franchisor. However, the franchisee is an independent small firm which is self funded. Stanworth and Curran (1983) included this aspect in their definition.
“A business form essentially consisting of an organization (the franchisor) with a market-tested business package centered on a product or service, entering into a continuing contractual relationship with franchisees, typically self-financed and independently owner-managed small firms, operating under the franchisor’s trade name to produce and/or market goods or services according to a format specified by the franchisor” (Stanworth and Curran, 1983, p. 11).
ownership, licensing, franchise agreement and fee structure. In comparison with the
aforementioned different definitions and in combination with the view of the researcher there are three elements, ‘cornerstones’, missing, namely that the franchisee is independent,
operates in a specific territory, and is part of a system. A definition which covers these seven ‘cornerstones’ cannot be found and therefore the researcher came up with an own definition which will be used in this research:
Franchising is a business form whereby the franchisor owns a business concept which will be licensed to a franchisee to operate in a specific territory. The franchisee pays a fee to the franchisor and in return it will operate independent but will be part of the franchise system. Agreements and promises are set in advance in a legal contract, the franchise agreement.
2.2.2 Forms of franchising
According to Price (1997), franchising can be divided in first generation franchising and second generation franchising. Whereby the latter consist of business format franchising and the first generation franchising refers to product-distribution franchising and trade-mark franchising. Kneppers-Heijnert (1988) also distinguishes these three different types of franchising and in the next section a description of each will be given.
2.2.2.1 Product-distribution franchising
Product-distribution franchising, also referred to as product-trade name franchising, refers to alliances in which the franchisor’s product or service under the franchisor’s trademark is distributed by the franchisee (Hoffman and Preble, 1991). The most important characteristics of this form of franchising are: (1) the products are licensed; (2) the franchisees are not part of the system with a consistent identity, they operate under their own names; (3) leading to the franchisee is not following standardized methods and ways of presentation; (4) the products of the franchise agreement adapt or renew the assortments of the franchisee which is an existing retailer; and (5) fees are not paid by the franchisees (Kneppers-Heijnert, 1988).
2.2.2.2 Trade mark franchising
use a certain production system to produce and sell certain goods while the franchisor arranges the presentation and promotion of the goods.
Both forms of first generation franchising have several advantages: the firms (franchisees) often have access to economies of scale in purchasing, market penetration at lower cost, cost sharing, and access to capital at a lower rate (Hoffman and Preble, 1991).
2.2.2.3 Business format franchising
Business format franchising is a strategy of replication in which the replicator (franchisor) sells the right to other firms (franchisees) to use its business format (Croonen and Brand, 2013). In this form, second generation franchising, the franchisee is provided with a product or service, trademark, methods of operations, and ongoing guidance by the franchisor (Hoffmann and Preble, 1991). The format reflects a certain identity toward customers
(Kneppers-Heijnert, 1988) which makes a business format franchise system consistent in their out sending message. It is the most common used form in franchising (Webber, 2013), and therefore used in this research.
According to Kaufmann and Eroglu (1998) a business format consists of four elements in which the first three elements are directly visible to customers, the identity of the format in the market, and the latter one is about internal procedures which help in the effective functioning of the franchisee units.
Product/service deliverables are referred to as the core of the business format, it reflects the uniqueness of the concept, the competitive advantage (e.g., a unique menu, a 24/7 offer of service, and the quality of the products).
Benefit communicators are the tangible and visible concepts of the format. The way the system is presented can illustrate what the concept is about (e.g., the green colors of the Subway chain whereby green illustrates healthy food or a mint on the pillow in a hotel could stand for elegance or prestige).
Format facilitators consists of the policies and procedures, the back office procedures, that form the foundation of the efficient functioning of the system as a whole (e.g., data collection, financial reporting requirements, and royalty payment procedures).
2.2.3 Reasons for franchising
As mentioned before, different types of researchers came up with reasons to franchise: marketing researchers see it as a method of distribution, finance researchers as a capital structure issue, and management researchers typically see it as a growth strategy (Combs and Ketchen, 2003). The following section will describe the reasons to franchise subdivided by the franchisors perspective and the franchisees perspective.
2.2.3.1 From a franchisors perspective
A franchisor is defined by Webber (2013, p. 12) as a person or company that has created a commercial business and who wishes to allow other persons or companies to operate a business under their brand. Combs and Ketchen (2003) argue that franchising is an attractive growth strategy for a franchisor if the person or the company has a successful business idea with replication possibilities. According to Kaufmann and Eroglu (1998) the major reason and benefit for the franchisor is capitalizing. The advantage of capitalizing derived from both the economies of scale associated with large systems and the benefits from small localized operations make franchising an attractive growth strategy. Besides it offers the franchisor a way to overcome capital scarcity through faster market penetration (Webber, 2013)
Furthermore, it can be difficult to operate in an uncertain environment without local knowledge. A franchisor benefits from the franchisee in ways of local adaptation/ local networks (Kaufmann and Eroglu, 1998; Webber, 2013), for wealth creation in dynamic and uncertain environments (Sorenson and Soensen, 2001), and offers an easy way to adapt to new requirements of trading in a knowledge-based economy (Jacobs, 1999). In franchising as a strategy the franchisees are part of the system and they work closely together with the franchisor (i.e., there exists a relationship between the two parties). As already mentioned earlier, in this relationship the franchisor benefits from the local knowledge of the franchisee, but another victorious point for the franchisor is that they can benefit from the innovative ideas of the franchisee (Kaufmann & Eroglu, 1998).
advantages for both parties of the relationship. Besides, emerging markets are facing exceptional growth which makes them interesting for business. The advantages emerging markets offer franchisors, are among others providing relatively unsaturated markets, liberalized markets, and huge demand for western-style goods and services (Alon, 2004; Welsh, Alon and Falbe, 2006).
2.2.3.2 From a franchisee perspective
A franchisee is defined by Webber (2013, p. 13) as a person or company that agrees to purchase the rights to operate an independent business using the franchisor’s specialist know-how and brand in exchange for a financial consideration. Operating under a franchise business format provides the franchisee with consistency, as the changes to the business format are very difficult for the franchisor (Croonen, 2006). Using a tried-and-tested format and relying on a franchisor’s well-developed know-how provides additional benefits to the franchisee such as increased likelihood of acceptance by customers and overall business success that reduce the perceived risk accompanying the investment (Webber, 2013). Another advantage mentioned by Webber (2013), is that a franchisee obtains the right to operate under a well-known brand name, which can be an important source of competitive advantage.
As mentioned in the previous section (2.1.3.1), franchisors derive benefits from economies of scale, but they are not the only one. Franchisees also derive benefits from economies of scale that can provide cost advantages in marketing, product development, and purchasing (Dada, Watson, and Kirby, 2012), besides franchisees have the opportunity to get access to scarce resources (Combs and Ketchen, 2003).
A last advantage for the franchisee, mentioned by Webber (2013), is that franchisees are easy to finance because banks are aware that the risks attached to franchising are much lower than to any other business start-up.
2.2.4 Strategic and managerial challenges of franchising
Within the franchising strategy franchisors are facing several challenges: (1) positioning in the market; (2) standardization versus local responsiveness; (3) rate of innovation; (4) system growth; and (5) strategic participation by franchisees (Bradach, 1998; Croonen, 2006).
In franchising it is extremely important for the franchisor to position the franchise system relative to its competitors (Kaufmann and Eroglu, 1998). As mentioned by Croonen (2006), companies need to decide whether they use a low positioning strategy or a high positioning strategy, where the latter is often used for franchising. According to Kaufmann and Eroglu the creation of a uniform positioning is central to clearly articulate the franchising concept and to communicate it consistently across time and space. The collection of the unique elements of the franchise system (e.g., product/service deliverables, benefit communicators, and system identifiers) build the consistent image towards the competitors and consumers (1998).
(2) Standardization versus local responsiveness
The second challenge franchisors are facing in their strategy is the level of standardization (Croonen, 2006). Where Bradach (1998) makes a distinction between uniformity of the system (e.g., the similarity of the different units within the franchise system) and local responsiveness (e.g., the adaptation of the local characteristics which are different for every franchise unit). On the one hand, the franchisor needs to identify which elements are core for the business format, which elements must be enforced through the whole system (e.g., trade name and basic assortment). And on the other hand, a clear identification of the peripheral element of the business format is needed (e.g., hours of operation and parking facilities) (Kaufmann and Eroglu, 1998).
(3) Rate of innovation
According to Bradach (1998) the rate of innovation, also referred as system wide adaptation, contains the level of product innovations which are introduced in the franchising system. Bradach focuses on a micro level, the innovations which are new to the organization while Croonen (2006) focuses on a broader view because innovation became very important in recent years. Croonen distinguishes three different kind of innovation: products/services that are new to the system, product/service groups that are new to the system and adaptation of the business format as a whole.
(4) System growth
as quantitative versus qualitative growth. Whereby quantitative growth consists of growth in terms of adding units to the system and qualitative growth consists of increasing the quality of the existing units and business owners. This research will focus on the quantitative
international growth as the focus will be on Dutch franchise systems expanding franchise units into China.
(5) Strategic participation by franchisees
The fifth and final challenge for franchisors mentioned by Croonen (2006) is the strategic participation by franchisees. The challenge for the franchisor is to manage the franchise relationship and give boundaries to the autonomy of the franchisee. The next section will go deeper into the relationship of franchising as that is the focus of this research.
2.2.5 Franchise relationship
The language of relationship is equal to the language of social relations (O’Malley and Tynan, 2000). Yau et al. (2000) elaborate more on this and state that the relationship develops
through interpersonal interaction, which facilitates the creation of social relationships and emotional bonds through enhancing trust, commitment, and communication. In franchising a central challenge for the franchisors is to establish and sustain a good relationship with the franchisee (Blut et al., 2011). This is because otherwise there is an increasing probability franchisees engage in negative behaviors such as reducing investments or opportunism, or even quit the relationship and leave the system (Shane, Shankar and Aravindakshan, 2006).
This research considers the franchisor-franchisee relationship as a business-to-business relationship in which there are mutual benefits that require sustained relationships (Doherty and Alexander, 2004). These relationships are close, long-term and exhibit high levels of trust, commitment, mutuality, satisfaction and cooperation (O’Malley and Tynan, 2000).
However, these findings on relationship development cannot be aligned to the franchise relationship as they differ substantially (Windsperger, 2001). In contrast to buyer-seller relationships, the franchise relationship will follow a U-shaped curve over time (see fig. 1) (Blut et al., 2011). As this research will focus on the development of the relationship over time, the phases of Blut et al. (2011) will be used. As can be seen in figure 1 the relationship in franchising develops over time. At the beginning of the relationship, the honeymoon phase, a positive relationship between the franchisor and franchisee exist. Franchisees are excited and fascinated to start in the new surrounding (Black and Mendenhall, 1991), and this
excitement will be more fueled by convincing promises the franchisor makes (Grünhagen and Dorsch, 2003). The relationship will be fostered more in this phase through high levels of relational goodwill (Blut et al., 2011), and a high level of other relational properties such as satisfaction and trust (Klineberg and Hull, 1979). In the routine phase the relationship
between the franchisor and franchisee decreases. In this phase, the relationship already exists for one to four years. After the exciting start of the franchise relationship the franchisee is now confronted with disillusionment, frustration and/or cultural shock (Grünhagen and Dorsch, 2003). Besides, they are overwhelmed by challenges (Blut et al., 2011) and their high expectations toward profits, training and support are often not met (Schell and McGillis, 1995). Resulting in a decrease of the relationship between the franchisor and franchisee as can be seen in figure 1 as the descending line after the honeymoon phase. The decreasing
relationship between the franchisor and franchisee goes further down in the crossroad phase. Need for independence and self-determination increased as the franchisee is able to operate the business without support of the franchisor (Peterson and Dant, 1990). The relationship is decreasing, to reach its lowest level as the franchisee does not value the franchisor. The franchisor benefits from system-wide sales, and the franchisee only from the local franchise unit sales (Castrogiovanni and Justis, 1998). Resulting in the fact that the franchisee will put less effort in the franchise unit and/or act with self-interest (Diaz-Bernardo, 2012), which negatively influence the franchisor-franchisee relationship (Blut et al., 2011).
procedures and values (Tikoo, 2002). So figure 1 presents how the relationship between franchisor and franchisee develops over time in the different phases.
Figure 1: Franchise relationship life cycle
Source: Blut et al., 2011
2.3 Culture
This research defines culture as: a fuzzy set of attitudes, beliefs, behavioral norms, and basic assumptions and values that are shared by a group of people, and that influence each member's behavior and his/her interpretations of the "meaning" of other people's behavior (Spencer-Oatey, 2000: 4). Firms expanding to different countries are facing challenges related to culture as every country has its own individual identity and specific cultural characteristics (Dana and Wright, 2009). Cultural characteristics influence the behavior of humans as well as their decisions (Levy, Schon, Sully and Boyacigiller, 2007). So cultural differences influence the behavior of humans, looking from a broader perspective: cultural differences are
Focusing on franchising in this research, the study of Hoffman and Preble (2004), found empirical evidence that franchising firms tend to export their business formats to neighboring countries or to countries with similar cultural characteristics. This research is not only
focusing on franchising, but more specific on the relationship in franchising. As pointed out by Hoffman and Preble (2004), cultural differences do have an influence on franchising, but is this also the case with relationships in franchising? Accordig to Lorange and Roos this
question can be answered positively. As their study claims that the major point which affects relationships are the differences in culture between partners (1993). Partners must proactively manage cultural differences in demonstrating awareness of and sensitivity to, among others, business practice, political and legal differences, language and adapt according to local market conditions (Batonda and Perry, 2003a). Franchisors failing to take cultural differences into account will have a higher failure rate due to the differences in business tradition,
business environment, regulations and restrictions, cultural gaps and operational difficulties (Pine et al., 2000). As Batonda and Perry (2003a) stated, understanding of culture can overcome barriers at the stages of network development, this research will try to give an in-depth understanding of the influence of cultural differences between Dutch franchisors and Chinese franchisees on the strength of the relationship and relationship development stages.
According to Browaeys and Price (2008), different cultural frameworks are developed over the years to compare cultures, and to measure the impact of culture on management. The culture variables defined by Hofstede (1980) will be used in this research (e.g.,
individualism/collectivism, power distance, uncertainty avoidance, masculine/feminine, pragmatism, and indulgence), as they affect the feasibility and acceptance of a franchise system (Heung, Zhang and Jiang, 2008). Besides, the model of Hofstede (1980) is the most frequently used model in cross-cultural studies (Hall, 1981). The next sub sections will describe the different cultural dimensions developed by Hofstede and their relation to the Dutch and Chinese culture as those countries are the target of analysis for this research.
2.3.1 Power distance
The Netherlands scores low on the power distance dimension with 38. This influences business conduct with Dutch people as they assume interpersonal equality. There is a great distrust of authority (e.g., acceptance of in-group power difference is low). In business Dutch people have no preference with whom they deal. In comparison, China scores very high with a score of 80 on this dimension. This means that Chinese people accept power distribution and inequalities within organizations and society. Also this implies that there is a great acceptance of hierarchical structures in China. In business this results in a preference to deal with people who have the same status (e.g., Hofstede, 1980, 1994; Yau, 1988; Frankie et al., 1991; Batonda and Perry, 2003a; Browaeys and Price, 2008).
2.3.2 Individualism
According to Hofstede (2014b) , the fundamental issue addressed by individualism is: “the degree of interdependence a society maintains among its members”. With a score of 80 on this dimension, The Netherlands scores high and can be seen as a highly individualist society. In contrast, Chinese people are more seen as collectivistic as China scores very low on this dimension with a score of 20. This low score on individualism can be compared to a high level on embeddedness based on Schwartz’s values at the culture level, which states that protecting the public image and social order is of high importance in China. When doing business with Chinese people it is of importance to take into account the collectivistic view of Chinese people. They are family and group oriented and overall they value relationships over contracts. There are many Chinese indigenous concepts derived from their high level of collectivism which are important in doing business, such as face, harmony, guanxi (interpersonal connections), and renqin (compassion) (Leung, 2008).
Where Chinese people make friends slowly and with difficulties where the bond is strong, Dutch people make friends relatively easily whereby the bond is weak. This has as
implication that a Dutch franchisor has to invest a long time to create a strong bond with a Chinese franchisee. Besides, in the Netherlands there is a weak strength of mutual
2.3.3 Masculinity
The Netherlands is seen as a feminine country with a low score of 14 on the
masculine/feminine cultural index. In contrast, China is seen as a more masculine country with a score of 66. According to Hofstede (2014b), the fundamental issue in this dimension is: ”what motivates people, wanting to be the best (masculine) or liking what you do (feminine)”. Where Dutch people value service, solidarity and quality of life resulting in a cooperative way of conducting business, Chinese people value assertiveness and competition and will do everything about the success rate and ‘being the best’. This can be of great importance for replicating the business format from the Netherlands to China. For instance, where the focus in the Netherlands lies on good services, in China the focus should shift to a more price competition to win customers. Furthermore, the gender roles are spelt out in China, and when needed, aggressive behavior will be used to pursuit personal or financial benefits (e.g.,
Hofstede, 1980, 1994; Yau, 1988; Frankie et al., 1991; Batonda and Perry, 2003a; Browaeys and Price, 2008).
2.3.4 Uncertainty avoidance
According to Hofstede (2014b) uncertainty avoidance is: “the extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these” reflected in the uncertainty avoidance index. The
Netherlands has a medium score with 53 on this dimension where China has a low score of 30 on this dimension. This implies that people from both cultures behave different towards unstructured situations and risk awareness/taking. Chinese people are used to work in an uncertain environment and the length of time is of secondary importance to the end result. In contrast Dutch people feel more comfortable with planning and avoiding risk and the best work environment for Dutch people is one where rules are clear. Besides Dutch people value contracts, while Chinese people perceive rules and laws as flexible which could cause
2.3.5 Pragmatism
Long-term orientation versus short-term orientation is replaced in 2010 by pragmatism versus normative after the research by Minkov and Hofstede (2010). Nowadays, the country scores used by Hofstede are the scores of Minkov’s research (Hofstede, 2014b).
Hofstede (2014b) describes pragmatism as: “ how every society has to maintain some links with its own past while dealing with the challenges of the present and future”.
China scores with 87 high on this dimension. This can be related to the fact that Chinese people are known for their emphasis on hard work and thrift (Leung, 2008). The pragmatic nature of China implies that Chinese people believe that truth depends on the situation,
context and time (Hofstede, 2014a). Chinese people focus on the long-term which can be seen in building relationships. Chinese invest a lot in relationships and are most of the time long lasting. Another statement which underpins the long-term focus of Chinese is made by Leung (2008: 187): “Chinese are willing to invest heavily in the education of their children over a long period of time”. Furthermore, Chinese are focused towards the future with preference to persistence and saving (Browaeys and Price, 2008).
The Netherlands has a medium-high score on pragmatism with a score of 67. This implies that people from the Netherlands show an ability to easily adapt traditions to changed conditions. Besides, Dutch people are more likely to save and invest, and perseverance for the objectives to be achieved (Hofstede, 2014a). Lastly, Dutch people put less emphasis on protecting face, and there is no emphasis on gift giving and doing favors (e.g., Hofstede, 1980, 1994; Yau, 1988; Frankie et al., 1991; Batonda and Perry, 2003a; Browaeys and Price, 2008).
However, the results on this dimension differ not that much between the Netherlands and China so it will be likely that people from both countries act more or less in the same way on the pragmatism dimension.
2.3.6 Indulgence
that Dutch people have an indulgent culture and are likely to behave optimistic. In other words, Dutch people attach value to a free and open culture, enjoying life and having fun. In contrast, China scores very low with 24 which implies that China is a country with a
restrained culture. This implies that Chinese are likely to have pessimistic characteristics. Besides, in contrast to Dutch people, Chinese do not put much emphasis on leisure time and control the gratification of their desires. Therefore, Chinese people can have the perception that their actions are restrained by social norms and could feel that indulging themselves is wrong.
The importance of this chapter is to explore the cultural differences between China and the Netherlands as those two countries are the target group for this research. This research will give an in-depth understanding of the influence of cultural differences between Dutch franchisors and Chinese franchisees on the strength of the relationship and relationship development stages.
Franchisors failing to take cultural differences into account will have a higher failure rate due to the differences in business tradition, business environment, regulations and restrictions, cultural gaps and operational difficulties (Pine et al., 2000). Besides an understanding of culture can overcome barriers at the stages of network development, (Batonda and Perry, 2003a), and therefore an exploration of the cultural differences between China and the Netherlands will add value to this research.
2.4 Franchising in China
Franchisors wishing to grow must increasingly look to markets such as China, as China is one of the top export markets (Hoffman and Preble, 2004). The first franchise operation in China was opened in the late 1980s by US fast food pioneers KFC and McDonalds (Wang, Zhu and Terry, 2008). Nowadays, there are a lot of foreign franchise systems in China, and according to Smith and Li (2014) the combination of the large population of China with the rapid economic growth is the reason for the increasing number of foreign franchisors expanding into China.
franchisors operating in China were taking advantage of the lack of franchise laws and regulations through providing low quality goods/services or acting unfair against Chinese franchisees. In order to counteract these unfair practices, the Chinese government imposed registration and disclosure requirements on franchisors operating in China (Smith and Li, 2014) .
In 2004 China has 1.900 franchise systems, with 82.000 outlets, and a growing percentage of 49% annually (Franchise.org, 2014). The growing number of franchise systems in china is due to the introduction of regulations and laws (Hoffman and Preble, 2004). The first regulation which protected property rights was imposed by the Ministry of Internal Trade in 1997 (Franchise.org, 2014). Nowadays the key regulations on franchising in China include: (1) The Regulation on Administration of Commercial Franchises (regulation), (2) the Administrative Measures for the Registration of Commercial Franchises (registration measures), and (3) the Administrative Measures for Information Disclosure of Commercial Franchise (Disclosure Measures) (Smith and Li, 2014).
The currently existing requirements to offer franchise systems in China are the following (Smith and Li, 2014):
- The franchisor must be a business enterprise;
- The franchisor must have at least two directly-operated outlets;
- The franchisor must have a registered trademark, patent, or other business resource; and
- The business must have operated at least for one year under the franchised brand.
3. Proposition development and conceptual framework
This section will provide a theoretical background for the seven propositions developed. Followed up the causal model and conceptual model are presented, and the section will be ended with a link to the empirical data in the paragraph ‘conceptual model in practice’.
franchisors failing to take cultural differences into account, as the failure rate is higher due to differences in business tradition, business environment, regulations and restrictions, cultural gaps and operational difficulties (Pine et al., 2000). On the other hand, geographical and cultural distance may drive the spread of international franchising, as well as the level of the host country’s uncertainty avoidance, individualism, political stability, market potential, unemployment rate, and efficiency of contract enforcement (Baena and Cervino, 2014). Understanding of the differences in societal value will help to understand and describe the whole exchange process (Batonda and Perry, 2003a). Researchers came up with factors that an international franchisor needs to consider when doing business with a cultural disperse country. According to Hoffman and Preble (2004) the religious preferences and price sensitivity play an important role when franchising in China. Price sensitivity does not only play an important role in business-to-consumers, but also in business-to-business. According to Dunfee and Warren (2001), the competition of the Chinese market is leading to a more market-driven economy where price plays an important role. As the franchisee is highly focused on price, conflicts can arise from both sides (e.g., the franchisor and the franchisee side). Price sensitivity can be linked to the masculinity dimension of Hofstede (1980). China is a masculine country (Hofstede, 2014a), and therefore Chinese people value price and competition. In relation to this, one of the suggestions to be a successful franchisor in China is to minimize the price of the final products and the franchising fee (Franchise.org, 2014). In contrast the Netherlands is seen as a feminine country, and business emphasis is placed on high quality of the products (Hofstede, 2014a). Policing quality standards is seen as one of the main risks for a franchisor when globalizing their franchising format (Stanworth et al. 2001). As China is seen as a masculine country where emphasis is placed on price sensitivity and in The Netherlands emphasis is placed on quality of the products, the following proposition has been formulated:
P1: Differences in the masculinity score between the Dutch franchisor and Chinese franchisee negatively influence the strength of the franchise relationship.
Chinese accept power distribution and inequalities within organizations and society
(Hofstede, 2014a). This is in line with the research of Fletcher and Melewar (2001), who state that in China, as an emerging country, there is a great acceptance of hierarchical structure which influences relationships. This research assumes that the acceptance of hierarchical structure of Chinese franchisees positively influences the acceptance of support and guidance from the Dutch franchisor. This implies that the franchisor is seen as the boss, whereby the Chinese franchisee accepts the hierarchical structure and will listen to the franchisor. Through this acceptance, it is assumed that the franchisee will accept the standardized contract and franchise system of the franchisor to follow and to carry out in China. This allows the franchisor to keep a high standardized level within the franchise system. The high
standardization level of the franchise system is seen as a positive element, as standardization is the core characteristic of franchising (Kaufmann and Eroglu, 1998). A high level of
standardization enables the franchisor to obtain image consistency to establish a strong system and brand. Positioning in the market is one of the main challenges franchisors are facing (Croonen, 2006), and according to Kaufmann and Eroglu, the creation of a uniform positioning is central to clearly articulate the franchising concept and to communicate it consistently across time and space. The collection of the unique elements of the franchise system (e.g., as described in paragraph 2.1.2.3 business format franchising: product/service deliverables, benefit communicators, and system identifiers) build the consistent image towards the competitors and consumers (1998).
As the franchisor tries to have a high standardized format to create image consistency, and as the Chinese franchisee scores high on the power distance dimension, this research assumes that this is positively related with the acceptance of the standardization level. Therefore the following proposition is developed:
P2: Differences in the power distance score between the Dutch franchisor and Chinese franchisee positively influence the strength of the franchise relationship.
Another cultural dimension that is assumed to influence the strength of the franchisor-franchisee relationship is the uncertainty avoidance dimension. China scores low on this dimension (Hofstede, 2014a), which means that they are not bothered by uncertainty and ambiguity (Leung, 2008). Prominent in the Chinese culture are personal connections,
(Wang, Zhu and Terry, 2008: 180). This philosophy is influencing business in China as Chinese people have a perception of laws and rules being flexible. Chinese will engage in unethical business behavior and corruption when success levels diminish (Leung, 2008). This is in conflict with the Dutch culture as they have an emotional need for rules and value contracts (Hofstede, 2014a). Furthermore, the Chinese franchisee not following the law can negatively influence the whole franchise system. As the Chinese franchisee commits fraud, this will attract negative attention from the media, and all the other franchisees will be influenced by the far-reaching negative effects (Frazer and Winzar, 2005). Hence, the following proposition is formulated:
P3: Low score of the Chinese franchisee on uncertainty avoidance is negatively influencing the strength of the Dutch-Chinese franchisor-franchisee relationship.
An important topic in franchising is the relationship between the franchisor and franchisee as both of the partners need to know how to handle the relationship (Heung, Zhang and Jiang, 2008). The impact of culture on how international relationships develop is under-researched (Batonda and Perry, 2003a), and more research is needed on the franchisor-franchisee
relationship development (Heung, Zhang and Jiang, 2008). According to Sashi and Karuppur (2002) in the franchisor-franchisee relationship it is important to demonstrate sensitivity to the franchisee’s culture. Relationship development will be positively influenced by cultural sensitivity as it facilitates recognition of good intentions and goodwill (Doherty, 2009). However, little is known about how the franchisor-franchisee relationship develops over time (Dant, 2008) and without an understanding of the dynamics of franchise relationships, it is difficult for the franchisor to manage the relationship (Blut et al., 2011). As presented in figure one, franchise relationships develop through a life cycle of four stages: (1) honeymoon; (2) routine; (3) crossroad; and (4) stabilization. Cultural differences enlarge the complexity in franchise relationships (Altinay and Wang, 2006), and the next part of this research will show the relation of the cultural dimensions of Hofstede with the different stages of the U-curve theory developed by Blut et al. (2011)
3.1.1 Phase 1: Honeymoon
and Mendenhall, 1991). Excitement will be more fueled by convincing promises the franchisor makes (Grünhagen and Dorsch, 2003). The reason franchisors are making
substantial promises can be related to one of the franchisors challenges mentioned by Croonen (2006): system growth. System growth can be achieved by adding units to the system
(Bradach, 1998), which will increase the total sales of the franchise system.
In the honeymoon phase, high levels of relational goodwill (Blut et al., 2011), and other relational properties such as satisfaction and trust exist (Klineberg and Hull, 1979), which will foster the relationship. Fichman and Levinthal (1991) argue that the commitment to a
relationship stimulate the excitement of the franchisee in the first phase, the honeymoon phase. Whereby the commitment is triggered by prior favorable beliefs, high initial investments dedicated to a relationship, goodwill, and/or psychological justification. In franchising these high initial investments can be translated to the fees the franchisee has to pay before entering the system. It is also confirmed by Lewis and Lambert (1991) that up-front fees have a motivational effect. The franchisee is highly motivated, however, they are relatively inexperienced with respect to the franchise system culture, and rules and policies of the franchise system (Blut et al., 2011). Therefore, the Chinese franchisee heavily depends on the Dutch franchisor’s guidance, and welcome their advice (Frazer, 2001). This research relates the dependency of the franchisee to the preference to avoid uncertainty of the Dutch franchisor (Hofstede, 2014a). As rooted in the Dutch culture, there is an emotional need for rules, which limits autonomy of the Chinese franchisee. The limited autonomy will be accepted by the franchisee as they are heavily dependent on their franchisor because of their lack of experience regarding the franchise system operation (Blut et al., 2011). Hence, the following propositions has been formulated:
P4: High score of the Dutch franchisor on uncertainty avoidance is positively related to the relationship development in the honeymoon phase.
3.1.2 Phase 2: Routine
challenges (Blut et al., 2011) and their high expectations toward profits, training and support are often not met (Schell and McGillis, 1995).
China is seen as a masculine society, which implies that Chinese people will be driven by success, achievement and competition (Hofstede, 2014a). As the success of the franchisee decreases, the demand for self-determination will increase (Blut et al., 2011). Hence, the following proposition has been formulated:
P5: High score of the Chinese franchisee on masculinity is negatively related to the relationship development in the routine phase.
3.1.3 Phase 3: Crossroad
The third phase, also referred to as the maturity phase, the franchisee is established in the host country for four to eight years. The decrease of the relational outcomes from the routine phase will proceed, so that the relational outcomes even drop further in the crossroad phase (Blut et al., 2011). The need for independence and self-determination will increase as the franchisee is able to operate the business without support of the franchisor (Peterson and Dant, 1990). Development of understanding how to successfully operate the franchisee is gained through experience in combination with training of the franchisor (Blut et al., 2011). Issues within the relationship will arise as the franchisee does not value the franchisor, and as the franchisor benefits from system-wide sales, and the franchisee only from the local franchise unit sales (Castrogiovanni and Justis, 1998). As china is seen as a country with a very pragmatic culture, Chinese franchisees will have perseverance for achieving better results (e.g., higher amount of sales) (Hofstede, 2014a). The goodwill and positive effect of psychological justification from entering the franchise system is diminished, resulting in no more restraints for the Chinese franchisee to engage in negative behavior (Blut et al., 2011). The franchisee will put less effort in the franchise unit and/or act with self-interest (Diaz-Bernardo, 2012).
standards of the franchise agreement, and releasing of proprietary information of the franchisor to outsiders are possible opportunistic actions carried out by the franchisee (Storholm and Scheuing, 1994). This research assumes that the perseverance of the Chinese franchisees negatively influences their behavior and thereby the relationship. Hence, the following proposition has been formulated:
P6: The very high score of the Chinese franchisee on pragmatism is negatively related to the relationship development in the crossroad phase.
3.1.4 Phase 4: Stabilization
The fourth and last stage of the relationship development of the franchisor-franchisee relationship is the stabilization phase, also referred to as the termination/mastery stage. The franchisee is established in the host country for over eight years.
Learning and relationship-building efforts, by both the Chinese franchisee and Dutch
franchisor, contribute to a positive development of relationship properties (Blut et al., 2011). The stabilization phase is characterized by strong relational norms, high levels of tangible and intangible inputs to the franchise relationship, and common goals that have developed over time which contribute to cooperative and trustworthy behavior (Jap and Ganesan, 2000). Through the experience of the previous phases the franchisee is able to make realistic expectations (Blut et al., 2011).
In terms of knowledge of intangible local market assets, franchisees operating in the stabilization phase of franchising might be better able to successfully operate the franchise unit than the franchisor (Windsperger and Dant, 2006). Information asymmetry could have negative influences on the franchisor-franchisee relationship (Quinn and Doherty, 2000), however, as assumed the collectivistic nature of the Chinese franchisee will focus on cooperation and relationship with the franchisor (Hofstede, 2014a). Increasing
interdependence between the franchisor and franchisee is caused by the more integrated level of inter-firm communications and shared relational norms (Jap and Ganesan, 2000). Both the franchisor and the franchisee made appropriate adjustments and over time they learned about each others’ procedures and values (Tikoo, 2002). The franchisor is part of the franchise system and expected to act in the interest of the group, as that is one of the main
As China is seen as a highly collectivistic culture with a score of 20 on the individualism dimension, the following proposition has been formulated:
P7: Low score of the Chinese franchisee on individualism is positively related to the relationship development in the stabilization phase.
3.2 Conceptual model
The franchisor-franchisee relationship development over time is an understudied topic in the international franchising literature (Doherty and Alexander, 2004). As culture may affect the behavior of individual managers and subordinates as they interact with others (Adsit ,
London, Crom and Jones, 1997), this research assumes that culture influences the franchisor-franchisee relationship. Moreover, as difficulties in the franchising relationship increase through geographical and cultural distance (Fladmoe-Lindquist, 1996), this research tries to give an understanding of the influence of culture on the strength of the franchise relationship and on the relationship development stages. To give a better understanding and to be more precise, this research is demarcated by focusing on two countries: China and the Netherlands. Cultural differences between a Dutch franchisor and his Chinese franchisee will be studied and their influence on the strength of the relationship and relationship development over time.
On the basis of the preceding literature, we can derive a general causal model and a more specific conceptual model. The causal model expresses the relation between the dependent and independent variables (Tacq, 2011). The causal model in this research will consist of the independent variable, the differences in culture between China and the Netherlands, which influence the dependent variables: the strength of the relationship and the relationship stages of development (see figure 2).
3.3 Conceptual model in practice
The aforementioned conceptual model is derived from a critical review of current literature. In the empirical part all the concepts of this model will be measured (e.g., the different concepts of culture and their influence on the strength of the franchise relationship and the relationship development stages). In addition, suggestions, conclusions and interpretations will be derived from the empirical data to find out if the suggested relation do make sense, and what the relation means. In which way the data will be collected will be extensively described in the next section, the methodology.
4. Methodology
Research can be defined as: “something that people undertake in order to find out things in a systematic way, thereby increasing their knowledge” (Saunders et al., 2012: 5). This research will find out the way cultural differences between China and the Netherlands influence the franchisor-franchisee relationship development. As research is based on logical relationships and not just beliefs (Ghauri and Gronhaug, 2010), propositions derived from literature will be tested. The way these propositions will be tested is
39 4.1 Research philosophy
According to Grix (2002), the starting point of all research is defining one’s ontology position. To identify the ontological position of a research, the following question must be answered: What is the nature of the social and political reality to be investigated? (Hay, 2002). A full definition of ontology is given by Blaikie (2000: 8), who is suggesting that ontological claims are: “Claims and assumptions that are made about the nature of social reality, claims about what exists, what it looks like, what units make it up and how these units interact with each other”.
This research focuses on the interaction and thereby the relationship between the Dutch franchisor and Chinese franchisee. The interaction between both parties will be influenced by culture, as culture may affect the behavior of individual managers when interacting (Adsit , London, Crom and Jones, 1997). In terms of the ontology position we can state that this research takes the perspective of constructivism, in which is assumed that social phenomena and their meanings are continually being accomplished by social actors (Grix, 2002).
Therefore, this research is based on the assumption that human experience is socially
constructed and embedded in interactions between individuals which is influenced by culture. As the franchisor and franchisee work together, they will be constantly influenced by culture.
Epistemology is seen as the researcher’s view regarding what constitutes acceptable
knowledge (Saunders et al., 2012), and concerning processes and developing new theories or models (Grix, 2002). Blaikie (2000: 8) defines the concept of epistemology as “claims about how what is assumed to exist can be known”. This research is based on the epistemological subjectivism (interpretivism) perspective which assumes that how we perceive the world is affected by our conceptual baggage that has social and cultural origins (Bryman and Bell, 2003).
to understand differences between humans in our role as social actors (Saunders et al., 2012: 137).
4.2 Research approach
A widely accepted view in scientific research is that there are many research approaches and many ways of producing knowledge (Thomas, 2004). Academic research is mainly focusing on the deductive approach or on the inductive approach. In the deductive approach hypothesis and theories are developed whereby the conclusion is being true as the hypothesis are true (Ketokivi and Mantere, 2010). In contrast, with an inductive approach the conclusion is derived from a finite number of observations (Ketokivi and Mantere, 2010).
The strength of an inductive approach is developing an understanding of the way in which humans interpret and being influenced by their social world (Saunders et al., 2012). As this research will focus on how franchisors and franchisees are influenced by their culture, (i.e., their social world), an inductive approach is seen as most suitable.
As the development of the franchisor-franchisee relationship is an under researched topic there is a need to create a better understanding. A better understanding can be created by conducting research with an inductive approach, as it allows the researcher to find out “what is happening; to seek new insights; to ask questions and to assess phenomena in a new light” (Robson, 2002: 59). With inductive approaches a qualitative nature is common (Blumberg, Cooper and Schindler, 2011) as it enables the researcher to gain in-depth information (Strauss and Corbin, 1990). As this research will provide in-depth information on the influence of different cultural dimensions on the relationship development between a Dutch franchisor and Chinese franchisee the most appropriate approach is inductive research.
4.3 Methodological choice
