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Is the Theory of Entrepreneurship Applicable to Franchising?

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New Developments in the Theory of Networks

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Abstract

This essay takes an entrepreneurship viewpoint toward franchising. The applicability of the general theory of entrepreneurship presented by Shane (“A general theory of entrepreneurship. The individual-opportunity nexus”. Edward Elgar, Cheltenham, 2003) is explored in the franchising context. Shane introduced a model of the entrepreneurial process in response to the failure of prior research to provide one. According to Shane, prior research has tended to look at only part of the entrepreneurial process, with the result that no general theory of entrepreneurship has been developed. Studies that consider franchising as a form of entrepreneurship are rare, as are studies on the entrepreneurial process of a franchisee. This conceptual study examines whether Shane’s framework is applicable to franchising research, and why. The proposals put forward here have implications for franchising researchers, franchisors, people interested in becoming franchisees, and for organisations planning to franchise their business.

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Notes

  1. 1.

    In New Venture Strategies from 1980, Karl Vesper saw franchising as one of the main strategic forms of competitive advantage, the so-called “entry wedge”, with the aid of which a new enterprise can be founded, giving rise to new entrepreneurship amid existing market competition, without special innovation (Vesper 1980, pp 192–194, 217–224). Vesper’s view is in line with that of Baumol (1986). According to Baumol (1986), entrepreneurs can be divided into two groups on the basis of the nature of the business idea of the enterprise founded: initiative (i.e. innovative), and imitative entrepreneurs. Franchisors could therefore be seen as being initiative, and franchisees as imitative entrepreneurs. In franchising, a business concept and operation that is already working and possibly successful, is reproduced in a new market area. In this way franchising contributes to the efficient dissemination of innovations.

  2. 2.

    Entrepreneurship and entrepreneurial in the English language are often normative statements concerning people who take care of their firms in a certain way. There are other languages, such as Finnish, where no other terms or synonyms (with connotations of growth orientation or self-employment) for entrepreneur exist. International comparisons are difficult, because the core term, entrepreneurship, is very culturally oriented (Huuskonen 1992, 194; see also Gibb 2002).

  3. 3.

    Carland et al. (1984) raised a discussion on definitions of entrepreneur and small business owner and their differences. The discussion was commented on by Gartner (1988) and again by Carland et al. (1988), and has continued among entrepreneurship researchers ever since (see e.g. Cunningham and Lischeron 1991; Gibb 2002; McKenzie et al. 2007). When entrepreneurship researchers have defined entrepreneur and entrepreneurial venture, the central issues in the discussion have been, for instance, the personality traits and characteristics of the owner/founder of the company; the innovativeness, newness, and creativity of the owner/founder and the company; purpose of establishing and managing the company; and profitability and growth goals of the owner/founder and the company. On the other hand, many researchers have not provided any definitions at all, which has also led to heterogeneous selection in sampling. Thus, the comparability of the studies has been problematic.

  4. 4.

    According to Hoy and Shane (1998; see also Hoy 1995) a venture is an entity distinct from the individual entrepreneur. It involves the process or organising but may not result in an organisation. Furthermore, it may be a business firm, but may also be some other type of non-economic organisation. The concept of venture in entrepreneurship literature depicts an entity with features distinct from traditional views of the firm or organisation. Hoy and Shane (1998) concluded that venture studies address value creation through start-up and acquisition, but can also include entrepreneurial activities both prior to and subsequent to the point of creation.

  5. 5.

    The seven research streams are: incubator organizations, business plans, investment criteria, success factors, corridor principle, corporate culture, and life cycle models (Hoy and Shane 1998).

  6. 6.

    see e.g. Oxenfeldt and Kelly 1969; Hunt 1972, 1973, 1977; Lillis et al. 1976; Dant et al. 1992, 1996; Lafontaine and Kaufmann 1994; Dant and Kaufmann 2003; Castrogiovanni et al. 2006; Bürkle and Posselt 2008.

  7. 7.

    Recent research on franchise contracts utilises property rights theory, which provides a view of a more balanced relationship between the two business parties (see e.g. Windsperger and Yurdakul 2007).

  8. 8.

    In line with Stanworth et al. (1984), Pizanti and Lerner (2003) suggested that in the relationship between franchisor and franchisee, control and autonomy should be perceived as dialectically coexisting rather than as dichotomous concepts.

  9. 9.

    Risk is a multifaceted concept. Entrepreneurs face risk in five areas: (1) financial, (2) social and familial, (3) emotional and physical, (4) career or future employability, and (5) organisational (Bird 1989, p 85).

  10. 10.

    This was later supported by, for instance, Bürkle and Posselt (2008).

  11. 11.

    For instance, people working in non-commercial endeavours (e.g. charitable and other not-for-profit organisations) can be called entrepreneurs. Similarly, being called an entrepreneur does not necessitate the creation of a new and innovative enterprise. Moreover, entrepreneurship may also happen in a corporate setting: the construct of corporate entrepreneurship means the entrepreneur-like activities or traits of ongoing firms. The term intrapreneur is often used in this context (see Pinchot 1986).

  12. 12.

    Cf. for example, Peterson and Dant 1990; Tuunanen and Hyrsky 2001, on perceptions of previous business owners and non-owners on the advantages and disadvantages of franchising.

  13. 13.

    In his study, Williams considered the term entrepreneur to be a synonym for self-employed person. Moreover, by independent ownership he referred to solely-owned businesses. He excluded jointly-owned businesses from his analysis.

  14. 14.

    Kaufmann emphasised that self-employment is not the equivalent of entrepreneurship, yet he did not define the two terms more specifically.

  15. 15.

    Entrepreneurship has also been seen as a career, for instance by Bird 1989; Katz 1994; Dyer 1994; Henderson and Robertson 1999; Feldman and Bolino 2000; Carter et al. 2003.

  16. 16.

    The view represented by Shane is called discovery view of entrepreneurship and it is in marked contrast to an alternate creative view, according to which opportunities do not exist in any objective form, but are merely a social construction (Venkataraman 2003, p xi).

  17. 17.

    Previous to but similar to Shane’s assumptions was Huuskonen (1992) notion that if a person abandons the intention to become an entrepreneur, the negative decision may not be permanent. The decision is linked to background, personal and environmental factors, and the process may start again later. The findings of Huuskonen are by and large congruent with those of Bird (1989).

  18. 18.

    Entrepreneurial decision-making has also been called judgemental decision-making (Casson 1982, 1995) and effectuation (Sarasvathy 2001).

  19. 19.

    One third (even up to one half) of the franchisees have previous entrepreneurial experience (see e.g. Stanworth and Curran 1999). This clearly supports the notion of serial entrepreneurship in relation to franchising. In addition, some franchisees that decide to discontinue their franchised business and exit the franchise relationship may start a stand-alone business. Investment-type franchise opportunities relate to portfolio entrepreneurship.

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  1. Jyväskylä University School of Business and Economics, University of Jyväskylä, 35, FI-40014, Jyväskylä, Finland

    Jenni Torikka

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  1. , School of Business and Economics, University of Jyväskylä, MaE, Jyväskylä, 40014, Finland

    Mika Tuunanen

  2. Fak. Sozial-u.Wirtschaftswiss., Inst. BWL / LS Organisation, Universität Wien, Brünner Str. 72, Wien, 1210, Austria

    Josef Windsperger

  3. Centre Recherche en Economic et, Management (CREM), Universite de Rennes 1, rue Jean Macé 11, Rennes CX, 35708, France

    Gérard Cliquet

  4. School of Management, Erasmus University Rotterdam, Burg. Oudlaan 50, Rotterdam, 3000 DR, Netherlands

    George Hendrikse

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Torikka, J. (2011). Is the Theory of Entrepreneurship Applicable to Franchising?. In: Tuunanen, M., Windsperger, J., Cliquet, G., Hendrikse, G. (eds) New Developments in the Theory of Networks. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2615-9_10

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