Economics and Management of Networks Contributions to Management Science www.springer.com/series/1505 WHUKoblenz–OttoBeisheimGradua- J.Windsperger/G.Cliquet/ teSchoolofManagement(Ed.) G.Hendrikse/M.Tuunanen(Eds.) StructureandDynamics EconomicsandManagement oftheGermanMittelstand ofFranchisingNetworks 1999.ISBN978-3-7908-1165-0 2004.ISBN978-3-7908-0202-3 A.Scholl K.Jennewein BalancingandSequencing IntellectualPropertyManagement ofAssemblyLines 2004.ISBN978-3-7908-0280-1 1999.ISBN978-3-7908-1180-3 M.J.Thannhuber E.Canestrelli(Ed.) TheIntelligentEnterprise CurrentTopics 2005.ISBN978-3-7908-1555-9 inQuantitativeFinance 1999.ISBN978-3-7908-1231-2 C.Clarke AutomotiveProductionSystems W.Bühler/H.Hax/R.Schmidt(Eds.) andStandardisation EmpiricalResearch 2005.ISBN978-3-7908-1578-8 ontheGermanCapitalMarket 1999.ISBN978-3-7908-1193-3 M.LütkeEntrup AdvancedPlanning M.Bonilla/T.Casasus/R.Sala(Eds.) inFreshFoodIndustries FinancialModelling 2005.ISBN978-3-7908-1592-4 2000.ISBN978-3-7908-1282-4 S.Sulzmaier U.M.Löwer Consumer-OrientedBusinessDesign InterorganisationalStandards 2001.ISBN978-3-7908-1366-1 2006.ISBN978-3-7908-1653-2 C.Zopounidis(Ed.) G.Reepmeyer NewTrendsinBankingManagement Risk-sharing 2002.ISBN978-3-7908-1488-0 inthePharmaceuticalIndustry 2006.ISBN978-3-7908-1667-9 U.Dorndorf ProjectScheduling E.Kasper withTimeWindows InternalResearch 2002.ISBN978-3-7908-1516-0 &DevelopmentMarkets 2006.ISBN978-3-7908-1728-7 B.Rapp/P.Jackson(Eds.) OrganisationandWork L.Coleman Beyond2000 Why Managers and Companies Take 2003.ISBN978-3-7908-1528-3 Risks M.Grossmann 2006.ISBN978-3-7908-1695-2 EntrepreneurshipinBiotechnology M.A.Bader 2003.ISBN978-3-7908-0033-3 Intellectual Property Management in H.M.Arnold R&DCollaborations TechnologyShocks 2006.ISBN978-3-7908-1702-7 2003.ISBN978-3-7908-0051-7 DavidL.Cahill T.Ihde CostumerLoyaltyinThirdParty DynamicAllianceAuctions LogisticsRelationships 2004.ISBN978-3-7908-0098-2 2007.ISBN978-3-7908-1903-8 · Gérard Cliquet George Hendrikse · Mika Tuunanen Josef Windsperger (Editors) Economics and Management of Networks Franchising, Strategic Alliances, and Cooperatives With38Figuresand81Tables Physica-Verlag ASpringerCompany SeriesEditors WernerA.Müller MartinaBihn Editors Prof.Dr.GérardCliquet Prof.Dr.GeorgeHendrikse IGR-IAE ChairEconomicsofOrganization UniversityofRennes1 RSMErasmusUniversity 11rueJ.MacéCS70803 Burg.Oudlaan50,RoomT8-56 35708Rennes,Cedex7 3062PARotterdam France TheNetherlands [email protected] [email protected] Dr.MikaTuunanen Prof.Dr.JosefWindsperger FacultyofBusinessand CenterofBusinessStudies InformationTechnology UniversityofVienna DepartmentofBusiness BrünnerStr.72 andManagement 1210Vienna UniversityofKuopio Austria Mikrokatu1F [email protected] 70211Kuopio Finland mika.tuunanen@uku.fi FundingfromtheAustrianMinistryforEducation,ScienceandCultureisgratefullyacknowledged. LibraryofCongressControlNumber:2006938808 ISSN1431-1941 ISBN978-3-7908-1757-7Physica-VerlagHeidelbergNewYork Thisworkissubjecttocopyright.Allrightsarereserved,whetherthewholeorpartofthematerialis concerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation,broad- casting,reproductiononmicrofilmorinanyotherway,andstorageindatabanks.Duplicationof thispublicationorpartsthereofispermittedonlyundertheprovisionsoftheGermanCopyright LawofSeptember9,1965,initscurrentversion,andpermissionforusemustalwaysbeobtained fromPhysica-Verlag.ViolationsareliabletoprosecutionundertheGermanCopyrightLaw. Physica-VerlagispartofSpringerScience+BusinessMedia springer.com ©Physica-VerlagHeidelberg2007 Theuseofgeneraldescriptivenames,registerednames,trademarks,etc.inthispublicationdoes notimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. Typesetting:Camerareadybytheauthor Production:LE-TEXJelonek,Schmidt&V¨ocklerGbR,Leipzig Cover-design:ErichKirchner,Heidelberg SPIN11820109 88/3100YL-543210 Printedonacid-freepaper Table of Contents Introducing ‘Economics and Management of Networks’.......................1 Josef Windsperger and Gérard Cliquet PARTA: FRANCHISING Plural Form Plural Form in Franchising: An Incomplete Contracting Approach..................................................................................................13 George Hendrikse and Tao Jiang Franchisee Versus Company Ownership – An Empirical Analysis of Franchisor Profit..................................................................31 Thomas Ehrmann and Georg Spranger Existence of the Plural Form Within Franchised Networks: Some Early Results from the US and French Markets.........................51 Rozenn Perrigot and Gérard Cliquet Governance Structure Issues The Governance Structure of Franchising Firms: A Property Rights Approach......................................................................................69 Josef Windsperger and Askin Yurdakul Governance Inseparability in Franchising: Multi-case Study in France and Brazil.....................................................................................97 Paulo F. Azevedo and Vivian L.S. Silva Entrepreneurial Autonomy, Incentives, and Relational Governance in Franchise Chains.........................................................117 Olivier Cochet, Julian Dormann, and Thomas Ehrmann Beneficially Constraining Franchisor’s Power...................................145 Thomas Ehrmann and Georg Spranger VI Table of Contents Performance and Efficiency in Franchising A Cointegration Analysis of the Correlates of Performance in Franchised Channels........................................................................169 Rajiv P. Dant, Manish Kacker, Anne T. Coughlan, and Jamie Emerson Franchised Network Efficiency: A DEA Application to US Networks...........................................................................................191 Carlos Pestana Barros and Rozenn Perrigot Entrepreneurship and Strategic Management Issues Franchising as Entrepreneurial Activity: Finnish SME Policy Perspective.............................................................................................213 Mika Tuunanen Creating Franchised Businesses Through Franchisee Training Program – Empirical Evidence from a Follow-up Study....................235 Jenni Torikka Understanding Strategic Interactions in Franchise Relationships.........................................................................................269 Evelien Croonen PARTB: STRATEGICALLIANCES Governance Structure Issues Administrative and Social Factors in the Governance Structure of European R&D Networks..................................................................293 Nieves Arranz and J. Carlos Fdez. de Arroyabe Firm and Industrial Organization Frontiers: An Empirical Model of Inter-firm Network in the Winter Sports Industry...........................313 Rachel Bocquet The Influence of Financial Institutions and Investor Behaviour on Company Management Practice.....................................................343 Tahir M. Nisar International Audit Firms as Strategic Networks – The Evolution of Global Professional Service Firms..................................................367 Hansrudi Lenz and Marianne L. James Table of Contents VII Performance of Joint Ventures International Joint Venture Performance: Impact of Performance Measures and Foreign Parent, Target Country and Investment Specific Variables on Performance..................................393 Jorma Larimo PARTC: COOPERATIVES Strategic and Governance Structure Issues Orientation in Diversification Behavior of Cooperatives: An Agent-Based Approach...................................................................421 George Hendrikse, Ruud Smit, and Mark de la Vieter Organization and Strategy of Farmer Specialized Cooperatives in China...................................................................................................437 Yamei Hu, Zuhui Huang, George Hendrikse, and Xuchu Xu List of Contributors...............................................................................463 Introducing ‘Economics and Management of Networks’ Josef Windsperger and Gérard Cliquet1 The design and management of networks, such as alliances, franchising chains, cooperatives, joint ventures, venture capital relations and virtual organizations, have become very important research topics in the field of organizational econom- ics and management in the last decade (Hendrikse 2003; Nooteboom 1999; Gran- dori 2004; Baker et al. 2004; Windsperger et al. 2004; Blair and Lafontaine 2005; Robinson 2005). The second international conference on Economics and Man- agement of Networks (EMNet) took place at the Corvinus University Budapest from September 15 to September 17, 2005. EMNet-conferences serve in promot- ing communication among researchers in economics and management of networks and should provide a forum to present current research and to discuss issues of common interest, such as relevant developments in organizational economics and management. A selection of theoretical and empirical papers from areas in eco- nomics and management of franchising, strategic alliances and cooperatives are published in this book. The current trend in economics and management of networks is twofold: On the one hand, there is a strong tendency toward theoretical approaches developed in economics and management, such as property rights theory, agency theory, sig- nalling theory, screening theory, transaction costs theory, resource-based and or- ganizational capability theory, social exchange theory, tapered integration theory and population ecology theory. On the other hand, there is also a strong tendency toward the application of new research methods, such as agent-based modelling, cointegration analysis, data envelopment analysis, case study methods, time series studies as well as survival analysis. Starting from this status of research the current book has two aims: First, the book emphasizes research in economics and management of networks as a theory- driven field by offering new theoretical perspectives on governance structure is- sues in franchising, alliances, venture capital relations and cooperatives. Second, 1 Josef Windsperger is at the Center for Business Studies, University of Vienna, Aus- tria,[email protected]; Gérard Cliquet is at the Institute of Management, CREM (Centre de recherche en économie et management), University of Rennes 1, France, [email protected]. 2 Josef Windsperger and Gérard Cliquet the book is an effort to present new research results on efficiency and performance of franchising networks and joint ventures as well as on entrepreneurship and stra- tegic issues in franchising and cooperatives. The book is structured as follows: Franchising (cid:120)(cid:3) Plural form and governance structure issues (cid:120)(cid:3) Efficiency and performance measurement (cid:120)(cid:3) Entrepreneurship and strategic management issues Strategic Alliances (cid:120)(cid:3) Governance structure issues in R&D-networks, inter-firm networks in the sports industry, investor-investee relations, and in global professional ser- vice firms (cid:120)(cid:3) Performance of joint ventures Cooperatives (cid:120)(cid:3) Strategic and governance structure issues Franchising Franchising is a widespread organizational form viewed today as a source of eco- nomic dynamism and employment. It is tackled here through plural form, govern- ance, performance, entrepreneurship and strategic issues. Plural Form Plural forms organizations are becoming increasingly more popular in retail and service chains as well as in the academic literature. Hendrikse and Jiang highlight positive externalities whereas Ehrmann and Spranger point out the positive influ- ence of the plural form on the franchisor’s profit. Perrigot and Cliquet present a first attempt by comparing this organizational form in two countries. Hendrikse and Jiang model plural form franchising from an incomplete con- tracting perspective along the lines of Hart and Moore (1990). Plural form fran- chising is special because there are two decision rights regimes within one chain, i.e. local managers as employees of company-owned outlets and managers as em- ployers/entrepreneurs of independent outlets, as well as different income rights for these two classes of network members. Compared to previous research (e.g. Shane 1998; Lafontaine and Slade 2001; Dant and Kaufmann 2003), they argue that not locational or other differences between units are necessary for the emergence of plural form franchising, but positive externalities being specific for the plural Introducing ‘Economics and Management of Networks’ 3 form. Their results are compatible with the synergistic view of plural form (Brad- ach 1997; Cliquet 2000). Ehrmann and Spranger examine ownership structures of franchise chains and evaluate their impact on franchisor profit. Specifically, they compare pure and plural forms of franchising. Empirical results of this study indicate the superiority of company-owned businesses over franchised units in generating franchisor prof- its. In addition, plural systems compensate for losses from franchising with profits from company units and outperform purely franchised competitors in overall prof- itability. Despite a clear financial inferiority of franchise outlets, franchisors do not convert plural structures into wholly-owned chains. Perrigot and Cliquet compare the degree of plural form, as measured by the rate of company-owned units in franchise networks, between US and French retail and service networks. They show some important differences between US and France: Plural form is more broadly used in France than in the US, perhaps due to the difference in the territory area or for tax or social cost reasons. Plural form is more broadly used in the retail sector than in the service sector, perhaps due to the greater involvement of the franchisees towards their customers in the service sec- tor. They conclude that the determinants of the plural form seem to vary according to the market characteristics; these results may support the monitoring cost hy- pothesis based on the agency theory. Governance Structure Issues Franchising has fascinated scholars for a long time as far as governance structure is concerned. Windsperger and Yurdakul add an ownership right approach and Azevedo and Silva the notion of portfolio of governance mechanism. Cochet, Dormann and Ehrmann show that chains counterbalance the loss of control inher- ent to autonomy with relational governance mechanisms. Ehrmann and Spranger emphasize a need for cooperation in the franchisor-franchisee relationships despite the freedom to behave opportunistically. Windsperger and Yurdakul argue that previous studies in franchising research (Brickley et al. 1991; Lutz 1995; Shane 1998; Affuso 2002; Lafontaine and Shaw 2005) do not explain the governance structure of franchising firms as an institu- tional entity. This study fills this gap in the literature. According to the property rights view, an efficient governance structure of the franchising firm implies allo- cation of residual decision rights according to the distribution of intangible assets between the franchisor and the franchisee and transfer of ownership rights accord- ing to the distribution of residual decision rights. Windsperger and Yurdakul em- pirically investigate the influence of intangible knowledge assets on residual deci- sion rights by using a logistic and ordinal regression model and the relationship between residual decision and ownership rights by using a simultaneous equation model on a sample of 83 firms from the Austrian franchise sector. The empirical results are supportive of the hypotheses.