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Franchising contracts in fashion supply chain operations: models, practices, and real case study

Abstract

Franchising, defined as a special operations model in the manufacturer-retailer supply chain, is playing an increasingly important role in the fashion industry nowadays. However, regardless of the popularity of franchising in practice, the literature on franchising operations is still relatively limited. Motivated by this research gap, we conduct a comprehensive review on the literature discussing the application of franchising contracts in the fashion industry. In the meantime, the case of Guangzhou Jinyu Garments Co., Ltd. (GJG) is also examined. Based on the combination of both the literature review and the case study, managerial insights are generated concerning how the franchising contracts are implemented in the fashion industry. Besides, key factors influencing the implementation of franchising contracts in the fashion industry are identified, referring to the channel structure, channel operations and channel interaction. The future research opportunities are also discussed.

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Notes

  1. 1.

    The hold-up problem is a situation where two parties may be able to work most efficiently by cooperating but refrain from doing so because of concerns that they may give the other party increased bargaining power, and thereby reduce their own profits.

  2. 2.

    The only cross-provincial agent is based on Gansu province, which simultaneously handles GJG’s franchising business in Qinghai province and Ningxia province.

  3. 3.

    The trustee can attain her profit under the agreed Key Performance Indicator (KPI), e.g. monthly or annual sales revenue or net profit.

  4. 4.

    Designed for one franchisee type and does not consider the individual rationality constraint of the others.

  5. 5.

    A separating equilibrium contract where each franchisee selects the contract expressions designed strictly for her type.

  6. 6.

    The contract must satisfy the participation constraint for all the types of franchisees.

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Acknowledgements

The authors are grateful to Mr. Yong Hou and Ms. Bing Yang, the President and Vice President of Guangzhou Jinyu Garments Co., Ltd, the company where one author has ever work, for their valuable support and sincere assistance for completing the case study. Meanwhile, the authors are also grateful to the editor and the three anonymous reviewers for all their kind and constructive comments and suggestions for improving the quality of the paper.

Funding

The work described in this paper was supported by a grant from the Research Committee of The Hong Kong Polytechnic University under the account code RUHT.

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Correspondence to Sai-Ho Chung.

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Chen, Y., Chung, SH. & Guo, S. Franchising contracts in fashion supply chain operations: models, practices, and real case study. Ann Oper Res 291, 83–128 (2020). https://doi.org/10.1007/s10479-018-2998-5

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Keywords

  • Literature review
  • Case study
  • Franchising contract
  • Fashion industry