Skip to main content
SpringerLink
Log in

Antecedents and consequences of external risk perception in franchising: evidence from the hospitality industry

  • Empirical Article
  • Published:
Service Business Aims and scope Submit manuscript

Abstract

In this article, we contribute to the understanding of the role that external risk perceptions play in decisions regarding the combination of company-owned and franchised units in the hospitality industry, and to knowledge of the impact of specific CEO characteristics on perceptions of environmental uncertainty. We examine the effects of tenure, an entrepreneurial nature and the innovative attitude of the CEO on the perception of external risk, and address the direct and indirect consequences of such perceptions of external risk on the configuration of the network of outlets. Our results show a significant relationship between the characteristics of the CEO and the perception of risk but, contrary to expectations, risk perception is associated with a lower degree of franchised outlets within the ownership mix.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

References

  • Agarwal S, Ramaswami SN (1992) Choice of foreign market entry mode: impact of ownership location and internationalization factors. J Int Bus Stud 23(1):1–27

    Article  Google Scholar 

  • Alon I, Mckee D (1999) Towards a macro environmental model of international franchising. Multinatl Bus Rev 7(1):76–82

    Google Scholar 

  • Anderson E, Gatignon H (1986) Modes of foreign entry: a transaction cost analysis and propositions. J Int Bus Stud 17(3):1–26

    Article  Google Scholar 

  • Barr PS, Stimpert JL, Huff AS (1992) Cognitive, change strategic action, and organizational renewal. Strateg Manag J 13(1):15–36

    Article  Google Scholar 

  • Begley TM, Boyd DP (1987) A comparison of entrepreneurs and managers of small business firms. J Manag 13(1):99–108

    Article  Google Scholar 

  • Birkinshaw J, Holm U, Thilenius P, Arvidsson N (2000) Consequences of perception gaps in the headquarters-subsidiary relationship. Int Bus Rev 9(3):321–344

    Article  Google Scholar 

  • Boeker W (1997) Strategic change: the influence of managerial characteristics and organizational growth. Acad Manag J 40(1):152–170

    Article  Google Scholar 

  • Bollen KA (1989) Structural equations with latent variables. Wiley, New York

    Google Scholar 

  • Botti L, Briec W, Cliquet G (2009) Plural forms versus franchise and company-owned systems: a DEA approach of hotel chain performance. Omega Int J Manag Sci 37(3):566–578

    Article  Google Scholar 

  • Bradach JL (1997) Using the plural form in the management of restaurant chains. Adm Sci Q 42(2):276–303

    Article  Google Scholar 

  • Brouthers KD (1995) The influence of international risk on entry mode strategy in the computer software industry. Manag Int Rev 35(1):7–25

    Google Scholar 

  • Brown JR, Dev CS (1997) The franchisor—franchisee relationship: a key to franchise performance. Cornell Hotel Restaur Adm Q 38(6):30–38

    Article  Google Scholar 

  • Browne MW, Cudeck R (1993) Alternative ways of assessing model fit. In: Bollen KA, Long JS (eds) Testing structural equation models. Sage, Newbury Park, CA

    Google Scholar 

  • Calderón ME, Huerta PA (2010) Derechos de entrada e inversión en un periodo de crecimiento económico: percepción de los potenciales franquiciados. Cuad Econ Dir Empresa 43 (Junio):93–114

    Google Scholar 

  • Caliendo M, Fossen FM, Kritikos AS (2009) Risk attitudes of nascent entrepreneurs—new evidence from an experimentally validated survey. Small Bus Econ 32(2):153–167

    Article  Google Scholar 

  • Carpenter MA, Fredrickson JW (2001) Top management teams, global strategic posture, and the moderating role of uncertainty. Acad Manag J 44(3):533–545

    Article  Google Scholar 

  • Castrogiovanni GJ, Combs JG, Justis RT (2006) Shifting Imperatives: an integrative view of resource scarcity and agency reasons for franchising. Entrep Theory Pract 30(1):23–40

    Article  Google Scholar 

  • Caves R, Murphy W (1976) Franchising: firms markets and intangible assets. South Econ J 42:572–586

    Article  Google Scholar 

  • Chan PS, Justis RT (1993) To franchise or not to franchise? Manag Decis 31:22–26

    Google Scholar 

  • Cho TS, Hambrick DC (2006) Attention as the mediator between top management team characteristics and strategic change: the case of airline deregulation. Organ Sci 17(4):453–469

    Article  Google Scholar 

  • Cicic M, Patterson PG, Shoham A (1999) A conceptual model of the internationalization of services firms. J Glob Mark 12(3):81–106

    Article  Google Scholar 

  • Combs JG, Castrogiovanni GJ (1994) Franchisor strategy: a proposed model and empirical test of franchise versus company ownership. J Small Bus Manag 32(2):37–49

    Google Scholar 

  • Combs JG, Ketchen DJ (1999a) Explaining interfirm cooperation and performance: toward a reconciliation of predictions from the resource-based view and organizational economics. Strateg Manag J 20(9):867–888

    Article  Google Scholar 

  • Combs JG, Ketchen DJ (1999b) Can capital scarcity help agency theory explain franchising? Revisiting the capital scarcity hypothesis. Acad Manag J 42(2):196–207

    Article  Google Scholar 

  • Combs JG, Ketchen DJ (2003) Why do firms use franchising as an entrepreneurial strategy? A meta-analysis. J Manag 29(3):443–465

    Google Scholar 

  • Combs JG, Michael SC, Castrogiovanni GJ (2004) Franchising: a review and avenues to greater theoretical diversity. J Manag 30(6):907–931

    Article  Google Scholar 

  • Contractor FJ, Kundu SK (1998) Modal choice in a world of alliances: analyzing organizational forms in the international hotel sector. J Int Bus Stud 29(2):325–356

    Article  Google Scholar 

  • Daft R, Sormunen J, Parks D (1988) Chief executive scanning environmental characteristics and company performance: an empirical study. Strateg Manag J 9(2):123–139

    Article  Google Scholar 

  • Dahlstrom R, Haugland SA, Nygaard A, Rokkan AI (2009) Governance structures in the hotel industry. J Bus Res 62(8):841–847

    Article  Google Scholar 

  • Dant RP, Kaufmann PJ (2003) Structural and strategic dynamics in franchising. J Retail 79(2):63–75

    Article  Google Scholar 

  • Das TK, Teng BS (2001) Strategic risk behaviour and its temporalities: between risk propensity and decision context. J Manag Stud 38(4):515–534

    Article  Google Scholar 

  • Dess GG, Beard DW (1984) Dimensions of organizational task environments. Adm Sci Q 29:52–73

    Article  Google Scholar 

  • Duncan RB (1972) Characteristics of organizational environments and perceived environmental uncertainty. Adm Sci Q 17(3):313–327

    Article  Google Scholar 

  • Eisenmann TR (2002) The effects of CEO equity ownership and firm diversification on risk taking. Strateg Manag J 23(6):513–534

    Article  Google Scholar 

  • Eroglu S (1992) The internationalization process of franchise systems: a conceptual model. Int Mark Rev 9(5):19–30

    Article  Google Scholar 

  • Erramilli MK (1991) The experience factor in foreign market entry behaviour of service firms. J Int Bus Stud 22(3):479–502

    Article  Google Scholar 

  • Erramilli MK, Rao CP (1993) Service firms’ international entry-mode choice: a modified transaction-cost analysis approach. J Mark 57(3):19–38

    Article  Google Scholar 

  • Finkelstein S, Hambrick DC (1990) Top-management-team tenure and organizational outcomes: the moderating role of managerial discretion. Adm Sci Q 35(3):484–503

    Article  Google Scholar 

  • Gallén T (1997) The cognitive style and strategic decisions of managers. Manag Decis 35(7):541–551

    Article  Google Scholar 

  • Ghosh D, Ray MR (1997) Risk ambiguity and decision choice: some additional evidence. Decis Sci 28(1):81–104

    Article  Google Scholar 

  • Gifford S (2003) Risk and uncertainty. In: Acs ZJ, Audretsch DB (eds) Handbook of entrepreneurship research: an interdisciplinary survey and introduction. Kluwer Academic Publishers, the Netherlands

    Google Scholar 

  • Gordon SS, Stewart WH, Sweo R, Luker WA (2000) Convergence versus strategic reorientation: the antecedents of fast-paced organizational change. J Manag 26(5):911–945

    Article  Google Scholar 

  • Haleblian J, Finkelstein S (1993) Top management team size CEO dominance and firm performance: the moderating roles of environmental turbulence and discretion. Acad Manag J 36(4):844–863

    Article  Google Scholar 

  • Hambrick DC, Fredrickson JW (2005) Are you sure you have a strategy? Acad Manag Exec 19(4):51–62

    Article  Google Scholar 

  • Hambrick DC, Fukutomi GD (1991) The seasons of a CEO’s Tenure. Acad Manag Rev 16(4):719–742

    Google Scholar 

  • Hambrick DC, Mason PA (1984) Upper echelons: the organization as a reflection of its top managers. Acad Manag Rev 9(2):193–206

    Google Scholar 

  • Hoover VL, Ketchen DJ Jr, Combs JG (2003) Why restaurant firms franchise: an analysis of two possible explanations. Cornell Hotel Restaur Adm Q 44(1):9–16

    Article  Google Scholar 

  • Hsu L, Jang S, Canter D (2010) Factors affecting franchise decision in the restaurant industry. J Hosp Tour Res 34(4):440–454

    Article  Google Scholar 

  • Hu L, Bentler PM (1999) Cutoff criteria for fit indexes in covariance structure analysis: conventional criteria versus new alternatives. Struct Equ Model 6(1):1–55

    Article  Google Scholar 

  • Jöreskog KG, Sörbom D (1982) Recent developments in structural equation modeling. J Mark Res 19(4):404–416

    Article  Google Scholar 

  • Kelloway E (1998) Using LISREL for structural equation modeling: a researcher’s guide. Sage, Thousand Oaks, CA

    Google Scholar 

  • Kim WC, Hwang P (1992) Global strategy and multinationals’ entry mode choice. J Int Bus Stud 23(1):29–54

    Article  Google Scholar 

  • Koh HC (1996) Testing hypotheses of entrepreneurial characteristics: a study of Hong Kong MBA students. J Manag Psychol 11(3):12–25

    Google Scholar 

  • Lafontaine F, Kaufmann P (1994) The evolution of ownership patterns in franchise systems. J Retail 70(2):97–113

    Article  Google Scholar 

  • Lashley C, Morrison A (2000) Franchising hospitality services. Elsevier, Oxford

    Google Scholar 

  • León F, Villar C, Pla J (2011) Entry mode choice in the internationalisation of the hotel industry: a holistic approach. Serv Ind J 31(1):107–122

    Article  Google Scholar 

  • Lillis CM, Narayana CL, Gilman JL (1976) Competitive advantage variation over the life cycle of a franchise. J Mark 40(4):77–80

    Article  Google Scholar 

  • Martin RE (1988) Franchising and risk management. Am Econ Rev 7(5):954–968

    Google Scholar 

  • Maruyama M, Yamashita Y (2010) The logic of franchise contracts: empirical results of Japan. Jpn World Econ 22(3):183–192

    Article  Google Scholar 

  • Michael S (1996) To franchise or not to franchise: an analysis of decision rights and organizational form shares. J Bus Ventur 11(1):57–71

    Article  Google Scholar 

  • Miller KD (1992) A framework for integrated risk management in international business. J Int Bus Stud 23(2):311–331

    Article  Google Scholar 

  • Milliken FJ (1990) Perceiving and interpreting environmental change: an examination of college administrators’ interpretation of changing demographics. Acad Manag J 33(1):42–63

    Article  Google Scholar 

  • Mullins JW, Cummings LL (1999) Situational strength—a framework for understanding the role of individuals in initiating proactive strategic change. J Organ Change Manag 12(6):462–479

    Article  Google Scholar 

  • Oxenfeldt A, Kelly A (1969) Will successful franchise systems ultimately become wholly-owned chains? J Retail 44(4):69–83

    Google Scholar 

  • Perales N, Vázquez L (2003) Determinantes de la intensidad franquiciadora: un enfoque de agencia. Investig Econ 27(1):151–172

    Google Scholar 

  • Pfeffer J, Salancik GR (1978) The external control of organizations: a resource dependence perspective. Harper & Row, New York

    Google Scholar 

  • Pine R, Zhang HQ, Qi P (2000) The challenges and opportunities of franchising in China’s hotel industry International. J Contemp Hosp Manag 12(5):300–307

    Article  Google Scholar 

  • Pla-Barber J, Sánchez-Peinado E, Madhok A (2010) Investment and control decisions in foreign markets: evidence from service industries. Br J Manag 21(3):736–753

    Article  Google Scholar 

  • Pol H, Datta DK (2006) CEO experiences: effects on the choice of FDI entry mode. J Manag Stud 43(4):755–778

    Article  Google Scholar 

  • Rodríguez A, Caballer C, Guadalajara N (2011) Assessing the intangibles transferred in franchise businesses. Serv Bus 5(1):29–46

    Article  Google Scholar 

  • Roh YS (2002) Size growth rate and risk sharing as the determinants of propensity to franchise in chain restaurants International. J Hosp Manag 21(1):43–56

    Article  Google Scholar 

  • Safón V (2009) Las franquicias, ¿oportunidad o riesgo en el sector industrial? Un estudio del riesgo percibido por los franquiciadores y sus consecuencias en la red. Econ Ind 374:95–102

    Google Scholar 

  • Sánchez-Gómez R, Suárez-González I, Vázquez-Suárez L (2008) El diseño contractual de la relación de franquicia. Universia Bus Rev 19:60–83

    Google Scholar 

  • Sánchez-Peinado L, Sánchez-Peinado E, Escribá-Esteve A (2010) Factores determinantes de la intención de cambio estratégico: el papel de los equipos directivos. Cuad Econ Dir Empresa 42:75–112

    Google Scholar 

  • Shane S (1998) Explaining the distribution of franchised and company-owned outlets in franchise systems. J Manag 24(6):717–739

    Article  Google Scholar 

  • Shane S, Shankar V, Aravindakshan A (2003) The effects of new franchisor partnering strategies on franchise system size. Manag Sci 52(5):773–787

    Article  Google Scholar 

  • Sheng S, Brown JR, Nicholson CY, Poppo L (2006) Do exchange hazards always foster relational governance? An empirical test of the role of communication International. J Res Mark 23(1):63–77

    Article  Google Scholar 

  • Simons R (1991) Strategic orientation and top management attention to control systems. Strateg Manag J 12(1):49–62

    Article  Google Scholar 

  • Simsek Z (2007) CEO tenure and organizational performance: an intervening model. Strateg Manag J 28(6):653–662

    Article  Google Scholar 

  • Sitkin SB, Pablo AL (1992) Reconceptualizing the determinants of risk behavior. Acad Manag Rev 17(1):9–38

    Google Scholar 

  • Sitkin SB, Weingart LR (1995) Determinants of risky decision making behavior: a test of the mediating role of risk perceptions and risk propensity. Acad Manag J 38(6):1573–1592

    Article  Google Scholar 

  • Smith KG, Grimm CM (1987) Environmental variation strategic change and firm performance: a study of railroad deregulation. Strateg Manag J 8(4):363–376

    Article  Google Scholar 

  • Sorenson O, Sorensen JB (2001) Finding the right mix: organizational learning plural forms and franchise performance. Strateg Manag J 22(6–7):713–724

    Article  Google Scholar 

  • Tushman ML, Rosenkopf L (1996) Executive succession strategic reorientation and performance growth: a longitudinal study in the US cement industry. Manag Sci 42(7):939–953

    Article  Google Scholar 

  • UNWTO (2009) UNWTO Tourism Highlights Edition 2009. http://wwwunwtoorg/facts/menuhtml. Downloaded on March 9 2010

  • Vernon R (1985) Organizational and institutional responses to international risk. In: Wortzel HV, Wortzel LH (eds) Strategic management of multinational corporations: the essentials. John Wiley, New York

    Google Scholar 

  • Wagener S, Gorgievski M, Rijsdijk S (2010) Businessman or host? Individual differences between entrepreneurs and small business owners in the hospitality industry. Serv Ind J 30(9):1513–1527

    Article  Google Scholar 

  • Wiklund J, Shepherd D (2003) Aspiring for and achieving growth: the moderating role of resources and opportunities. J Manag Stud 40(8):1919–1941

    Article  Google Scholar 

  • Yadav MS, Prabhu JC, Chandy RK (2007) Managing the future: CEO attention and innovation outcomes. J Mark 71(4):84–101

    Article  Google Scholar 

  • Zahra SA (1996) Governance ownership and corporate entrepreneurship: the moderating impact of industry technological opportunities. Acad Manag J 39(6):1713–1735

    Article  Google Scholar 

  • Zahra SA (2005) Entrepreneurial risk taking in family firms. Fam Bus Rev 18(1):23–40

    Article  Google Scholar 

Download references

Acknowledgments

The authors appreciate the valuable contribution of the anonymous reviewers of Service Business, who provided very interesting suggestions and ideas. The authors have also benefited from the research Project ECO2009-07055, funded by the Spanish Ministry of Science and Innovation.

Author information

Authors and Affiliations

  1. Department of Management, Faculty of Economics, University of Valencia, Avda. De los Naranjos, s/n, 46022, Valencia, Spain

    Vicente Safón & Alejandro Escribá-Esteve

Authors
  1. Vicente Safón
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Alejandro Escribá-Esteve
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Vicente Safón.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Safón, V., Escribá-Esteve, A. Antecedents and consequences of external risk perception in franchising: evidence from the hospitality industry. Serv Bus 5, 237–257 (2011). https://doi.org/10.1007/s11628-011-0112-z

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11628-011-0112-z

Keywords

Search

Navigation