Determinant factors of city and provincial students academic performance the case of HCM city university of economics

Vietnamese franchisee and importance of studying on franchisee satisfaction Actually, after more than 15 years appearing in Vietnam, franchise is still a fresh concept with franchisors

UNIVERSITY OF ECONOMICS

HO CHI MINH CITY - VIETNAM

INSTITUTE OF SOCIAL STUDIES THE HAGUE - THE NETHERLANDS

FOR M.A IN DEVELOPMENT ECONOMICS

***********

DETERMINANTS OF FRANCHISEE SATISFACTION

~

IN BEVERAGE AND FOODSTUFF

IN HO CHI MINH CITY

BY CAOPHUONGLAN

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, OCTOBER 2007

ao GIAo ovc vA DA~r~o TRU<JNG fJH KINH TE TP.HCM

TJ:!!l VI~N

UNIVERSITY OF ECONOMICS

HO CHI MINH CITY - VIETNAM

INSTITUTE OF SOCIAL STUDIES THE HAGUE - THE NETHERLANDS

FOR M.A.IN DEVELOPMENT ECONOMICS

***********

DETERMINANTS OF FRANCHISEE SATISFACTION

IN BEVERAGE AND FOODSTUFF

IN HO CHI MINH CITY

THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF ARTS IN DEVELOPMENT ECONOMICS

BY

CAOPHUONGLAN

Supervisor: Dr NGUYEN NGOC HOA

HO CHI MINH CITY, October 2007

ACKNOWLEDGEMENTS

Few years ago, franchising is still a new and strange concept with many Vietnamese people in general and businessmen in particular although its significant and popular affects in many countries However, after WTO event, especially Trade Law 2005, franchising is known to be an effective and safe business for Vietnamese firms in order to face with fierce competition of international companies and corporations There are a lot

of meetings and conferences discussing about what franchising is and how to apply it into Vietnam In short time, Vietnam has been proven to be a good place with wonderful conditions for franchising development Some overseas famous brand names are initial successful in their penetrated strategy into Vietnamese market, such as KFC, Jolibee, Lotteria Besides that, franchising development in Vietnam is still remarked by several domestic firms, such as Trung Nguyen, Pho 24, Kinh Do, Foci However, there are few official studies about franchising in Vietnam until now It will have negative affects to its expansiOn

I, myself have been working in Trung Nguyen Coffee Company, the initial domestic franchisor in Vietnam Thus, I have conditions to know much about this kind of business

as well as difficulties of local franchisors have to deal with without much information, knowledge and experience That is the reason why I chose this topic to do the thesis I hope it may be useful for both Vietnamese and foreign franchisors have a practical understanding about what Vietnamese franchisees want and know how quality of their supported programs

I would like to give my respectfully thanks to my supervisor (Dr Nguyen Ngoc Hoa), my university (VNP Office, Dr Nguyen Trong Hoai, Ms Chi - Librarian), who guided and assisted me to complete the thesis successfully In addition, I have also received many kind supports and encourages from my family and friends So, I truly want to give many thanks to all of them

TABLE OF CONTAINS

Certification I

Acknowledgements 2

Tables of contains 3

List of tables 6

List of figures 7

Abbreviations 8

CHAPTER I: INTRODUCTION 9

1.1 Problem statements 9

1.1.1 1.1.2 1.1.3 1.1.4 Significant contribution of franchising to service industry and economic growth 9

Fierce competition after joining to WT0 9

Weaknesses of domestic franchisors 1 0 Vietnamese franchisees and importance of studying on franchisee satisfaction 11

1.2 Thesis objectives 12

1.3 Research questions 12

1.4 Research methodology 13

1.5 Thesis structure 13

CHAPTER II: LITERATURE REVIEW 15

2.1 Definitions 15

2.2 Theoretical framework 17

2.2.1 Theory of consumer behaviour 17

2.2.2 Channel relationship 19

2.2.3 Job satisfaction 21

2.2.4 Theory of franchising 22

2 2 4.1 Types of franchising 22

2.2.4.2 Rights and obligations of franchisors and franchisees 22

2 2.4 3 Advantages and disadvantages of buying a franchise 24

2.3 Empirical studies 25

2.3 1 Maximizing franchisee satisfaction in restaurant sector 25

2.3.2 Franchisee satisfaction report in 2007 27

3

2.3.3 A comparison of Finish & U.S franchisee satisfaction 27

2.3.4 An encouraging factors of entrepreneur in franchising: Malaysia experience 27

2.3.5 Measuring the franchisee relationship 28

2.4 Model of franchisee satisfaction 28

2.5 Hypothesis 29

CHAPTER III: AN OVERVIEW OF BEVERAGE AND FOODSTUFF INDUSTRY AND SOME FRANCHISE INFORMATION IN HO CHI MINH CITY 30

3.1 An overview of Vietnamese economy 30

3.1.1 Vietnamese economy in general 30

3.1.2 Retail sales for goods and services 30

3.2 An overview of the economy of HCMC ···~···31

3.2.1 An overview ofthe economy ofHCMC 31

3.2.2 Beverage and foodstuff industry in HCMC 32

3.3 General information of franchising in Vietnam 33

3.3.1 General franchise information 33

3.3.2 Legal aspects of franchising in V34ietnam 33

3.3 3 Vietnamese franchisors 34

CHAPTER IV: RESEARCH METHODOLOGY AND DATA PROCESSING RESULTS 37

4.1 Measurement 37

4.1.1 Overall satisfaction 37

4.1.2 Independent variables 37

4.1.3 Demo characteristics 3 8 4.2 Sample and data 39

4.2.1 Sampling 39

4.2.2 Data collection 40

4.2.3 Scope of data 40

4.3 Data processing results 41

4.3.1 Factor analysis 41

4.3.2 Model specification 43

4.3.3 Descriptive analysis 43

4.3.4 One way ANOVA 46

4.3.5 Regression 46

CHAPTER V: FINDINGS AND DISCUSSIONS 48

5.1 Adjustments of variables 48

5.2 Independent variables 48

5.3 Overall satisfaction 50

CHAPTER VI CONCLUSIONS AND POLICY IMPLICATIONS 51

6.1 Conclusions 51

6.2 Policy implications 52

6.2.1 Vietnamese franchisors 52

6.2.2 Vietnamese franchisees 53

6.2.3 Vietnamese govemment 54

6.3 Limitations and further development 55

Appendices 56

References 69

5

LIST OF TABLES

Table 1: Retails sales value of goods and services by economic activities 32

Table 4.2: Rotated component matrix 41

Table 4.3: Reliability test 42

Table 4.4: Descriptive statistics of franchisee satisfaction 44

Table 4.5: Descriptive statistics of willingness to purchase again offranchisees 45

Table 4.6: Descriptive statistics of independent variables 63

Table 4.6a: Descriptive statistics of SUGGESTION 63

Table 4.6b: Descriptive statistics of REASON 63

Table 4.6c: Descriptive statistics of QUANTITY 64

Table 4.6d: Descriptive statistics of OWNER 64

Table 4.6e: Descriptive statistics ofMAINJOB 64

Table 4.7a: AGE (One-way ANOVA) 65

Table 4.7b: SEX (One-way ANOVA) 65

Table 4.7c: EDUCATION (One-way ANOVA) 66

Table 4.7d: FOMER_JOB (One-way ANOVA) 66

Table 4.7e: EXP1 (One-way ANOVA) 67

Table 4.7f: EXP2 (One-way ANOVA) 68

Table4.7g: EXP3 (One-way ANOVA) 68

Table 4.8a: Model Summary 46

Table 4.8b: ANOV A 46

Table4.8c: Coefficients 47

LIST OF FIGURES

Figure 1: Supported theories of franchisee satisfaction 17

Figure 2: Consumer decision process 19

Figure 3: Morrison's model of franchisee job satisfaction 21

Figure 4: Empirical supported model of franchisee buying behaviour 26

Figure 5: A suggested model of franchisee satisfaction 29

Figure 6: GDP structure ofHCMC 2006 31

Figure 7: Structure of total retail sales and services in HCMC 32

Figure 8: Comparison of franchisee satisfaction ofTrung Nguyen and Pho 24 44

7

: Kentucky Fried Chicken :Vietnam News Agency : World Trade Organization : American Marketing Association : Analysis of Variance

:Pound : Investment & Trade Promotion Center of Ho Chi Minh City : Uniform Franchise Offering Circular

Vietnam which has 12 characteristics of "a marketing heaven" is considered to be a potential market of franchising (VietNamNet, 16th Dec, 2004) The Asian developing economy with a rapid economic growth about 7 to 8% per year is getting a significant contribution from this special business In the two years 1996 - 1998, its turnover increased from around $1.5 to $4 million USD (Vietnam Economy Times, 2006) Up to now, it is growing 18- 20% per year and forecasted to be 25- 30% in the next 3 years and to make a breakthrough in franchise development in Vietnam (Marketing Vietnam, 2007)

1.1.2 Fierce competition after joining to WTO

As franchising in Vietnam is a relatively new phenomenon (Dan Tri, 18th Dec, 2005), but that offers significant commercial opportunities for oversea firms In 2006, Vietnam joined to World Trade Organization and leads to "a transparent, open economy" (U.S Commercial Service, 2006) This even also paves a way for foreign investors widely

9

"jumping" into the extreme potential market with more than 80 million populations So, what kind of business will they choose to penetrate into Vietnamese market? Franchising

is their best choice, especially in retail sales In fact, before the WTO event, the foreign firms "kept their eyes" to Vietnam like one of their strategic objectives In early of2000s, many famous international brand names have already appeared in Vietnam such as: Swatch, Clinique, Baskin-Robbins, KFC, Texas Chicken, Jollibee (of the Philippines), and Lotteria (of Japan) Major international film companies have established extensive networks of photo labs in franchise-like agreements with Vietnamese entrepreneurs (U.S Commercial Service, 2006) Thus, Vietnamese firms will have to face a big hazard that

is "an invasion of invaders" - foreign franchisors If they can not "win", they will be controlled by foreign corporations, even lose their market to the oversea invaders (Dan Tri, 18th Dec, 2005)

Consequently, how will Vietnamese brand names have to "fight" to gain their market share? Franchising is the best way to increase the competitive ability of Vietnamese brand names, to advertise and to create their powerful internal force This will also gather their strength in order to face with the fierce competition after joining to WTO (Dan Tri,

18th Dec, 2005)

1.1.3 Weaknesses of domestic franchisors

According to Ms Vu Kim Hanh (Director of ITPC, Dan Tri, Dec 2005), "the risk of losing market share to foreign corporations is very high due to the weaknesses of Vietnamese firms" There are four conditions for success in franchising, including loyalty, market knowledgeable, management and financial ability (Ly Qui Trung, 2006) However, Vietnamese firms do not meet these conditions

In the first stage of development, franchising remarks the failures of some brand names, such as Pho 2000 and Bon Bread that caused from lacking of market knowledgeable or weak financial ability In addition, the famous Vietnamese franchisor like Trung Nguyen also said that they have to deal with many difficulties of lack of experience and knowledge in business development because they are the initial franchising firms in Vietnam (Nguyen Tran Quang, Former Marketing Director of Trung Nguyen Coffee)

Actually, franchising is "a fresh concept" of many Vietnamese firms In spite of successfully building their brand names, they almost wonder whether franchising is appropriated for their business expansions or worry about the franchising application will

be unsuccessful if they are not master of franchising skills (VnExpress, 15th Dec, 2005) Moreover, in earlier of development, franchising environment lacks of an effective of law for franchising In 1998, a degree (ND 45 CP) stipulated rules on technology transfer but not mention the franchise sector This affected not only to domestic firms but also to oversea ones Until 2005, an amended commercial law completed a legal and regulatory for this sector The new formulated laws and regulations may relax restrictions on franchising activities in Vietnam (U.S Commercial Services, 2006)

1.1.4 Vietnamese franchisee and importance of studying on franchisee satisfaction

Actually, after more than 15 years appearing in Vietnam, franchise is still a fresh concept with franchisors and franchisees It is a short time for Vietnamese franchisees to understand deeply about this complex business Therefore, they often make a franchise decision mainly basing on brand famousness of franchisors However, a famous brand is

an important but not determined factor of franchise success In one popular franchise full business format franchise, franchisors license four major products to franchisees, including: (1) System: strategy, model, operating process, management policy, operation handbook, training, opening advisory, marketing and advertising support; (2) production and business know-how; (3) brand identity; (4) Products and services (Marketing Vietnam, 2007) Most of Vietnamese franchisees are only interesting in use of franchisor's brand but not supported programs ignored by franchisor and easily sign a franchise contracts without clear understanding Thus, there have been several disputes during the franchise cooperation, mainly about brand copyright, business know-how and turnover Hence, this negatively affects to the success of franchisors For example, the franchisees would not follow the basic franchise standard leading to the quality decline of brand or not have incentive to renew the signed contract

-The "boom" development of franchising in Vietnam have not only affected to Vietnamese businessmen, especially franchisors but also changed awareness of majority

11

of Vietnamese franchisees After the WTO event and great successes of many overseas and domestic franchisors, Vietnamese businessmen, especially franchisees, recognize what real franchising is and this is a profitable business Therefore, they seem to be more open with these opportunities and willing to cooperate with potential franchisors to get safer business

After more than 15 years of development, there are few official studies about franchising until now This leads to negative affects to its expansions In particular, it is very important to know what franchisees think about their franchisors Moreover, studying their appreciations will partly declare quality of franchisors' supported programs Obviously, one satisfied franchisee is willing to extend franchise cooperation Contrarily, one unsatisfied one will not really want to renew the contract anymore

Thus, with an importance of studying on franchisee satisfaction and a purpose to measure the quality of franchising programs of local franchisors, I choose the topic -

"Determinant of franchisee satisfaction in beverage and foodstuff in Ho Chi Minh City", to do the thesis and hope to practically approach the reasonable responses of these above questions

1.2 Thesis Objectives

The thesis aims to identify the level of franchisee satisfaction which contributes to franchisee/ franchisor relationship Besides that, its specific objectives also focus on:

- To evaluate the factors mostly affecting to franchisee satisfaction;

- To measure level of franchise valuation about overall supported programs of their franchisor;

1.3 Research questions

With above objectives, the thesis investigates the following questions:

Main question: What are the factors affecting to franchisee satisfaction?

Sub-questions:

- What are the factors having the greatest influence on franchisee satisfaction?

- What is the level of franchisee satisfy about franchise opportunity and overall supported programs provided by franchisor

- What is the level of franchisee evaluation about the relationship with their franchisor?

- What is the level of franchisee consideration about their financial situation?

1.4 Research methodology

This thesis carries out a survey to interview specific franchisees who are the owners of franchising outlets in beverage and foodstuffs in Ho Chi Minh City, the most potential field for franchising development Exactly, it focused on franchisees of two Vietnamese typical franchisors: Trung Nguyen Coffee and Pho 24, the most famous domestic franchise brand names in Vietnam

Using SPSS software, the factor analysis and reliability test methods are applied way ANOV A and multi-regression model are used to test the hypothesis and assist to do the conclusion

One-1.5 Thesis Structure

The thesis includes 6 chapters, as the followings:

and methodology and thesis structure

objectives The theoretical framework will discuss some basic theories of supported for franchisee satisfaction includes consumer behaviour, channel relationship, job satisfaction and theory of franchising The next part lists some empirical studies related to the thesis topic The thesis model of franchisee satisfaction and hypothesis are suggested in final part

beverage and foodstuffs industry in Vietnam generally and Ho Chi Minh City

13

partially, especially supplies some main points m franchise policies of selected franchisors

( 4) Research methodology and data processing results The variables measurement, samples and data are mentioned in this chapter Data will be analyzed by applying econometric methods in the end of this chapter

will be discussed and given some main findings in chapter 5

conclusions and imply some recommendations about franchisee satisfaction issues

CHAPTER II: LITERATURE REVIEW

This chapter presents theoretical frameworks basing on some theories and researches of some economists The definitions of franchising and satisfaction are deeply mentioned in the initial part The next contents theories of famous economics related to the thesis topic The model of franchisee satisfaction is studied by analyzing three main theories: consumer behaviour, channel relationships and job satisfaction, basing on three different views of franchisee and franchisor relationship "A franchisee makes a long-term investment or purchase decision when they elect to begin a relationship with a franchisor" (Frank, Mika and Douglass, 2003) In this sense, the franchisee is a customer

of the franchisor and theory of consumer behaviour is applied However, the relationship between franchisee and franchisor is not just a sell-purchase relation, franchising is also considered to be "a type of business" (IFA Educational Foundation, 2004) or "strategic entrepreneurial alliance" relation (Dhawal Shah, 2007) Thus, theory of channel relationship should be used to clarify this special business cooperation From other point

of view, "the franchisor-franchisee relationship might be considered as an employee relationship" (Frank, Mika and Douglass, 2003), so theory of job satisfaction is added Moreover, as franchising is a complex business operation, it should be completed

employer-by the theory of franchising including types of franchising; rights and obligations of franchisee and franchisor as well as advantages and disadvantages of franchising

In the followings, empirical studies part lists some past researches or reports of some famous economists or magazine studying about franchisee satisfaction in several countries and industries From learning these researches and basing on basic theories, the model of franchisee satisfaction is designed and presented in part 4 The last contains hypothesis of the model

2.1 DEFINITIONS

Franchising:

''Franchising" can be defined as vanous definitions Brad Sugars (2006) considered franchising is authorization given to somebody to sell or distribute a company's goods or services in a particular area According to Dave Thomas and Michael Seid (2000),

15

franchising occurs when a businessman (franchisor) licenses a trademark (brand name) and its business format to an individual or a group (franchisee) who is committed with terms of contract (franchising agreement) and pays for franchisor fees, including initial and ongoing fee for using brand name and business format

According to IFA Educational Foundation (2004), the terms "franchising" and

"franchise" are often used interchangeably to mean a business, a type of business, or an industry The "franchise" is the agreement or license between two parties which gives a person or group of people (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor) The franchisee has the rights to market the product or service using the operating methods of the franchisor and the obligation to pay the franchisor certain fees and royalties in exchange for these rights The franchisor has the obligation to provide these rights and generally support the franchisee

In Vietnamese Trade Law 2006, franchising is a business way, in which franchisor grants franchisee the right to trade goods and services with below conditions: (1) stimulated by franchisor and associated with trademarks, brand names, technique know-how, slogan, logo, advertising of franchisor (2) The franchisor has the right to control and support

to the franchisee to carry out their business

Franchisor: A person or company who decides to expand the business by giving to

selected franchisees the right to do business under their trade or service marks in accordance with the franchise agreement (Franchise Training, 2007)

Franchisee: A person or company accepting the right, granted by the franchisor to retail

or provide services, using the franchisor's trade name or service marks, within the terms set in the franchise agreement (Franchise Training, 2007)

Franchise fees: Franchisees pay common fees for franchisors including franchise fee,

royalty fee, renewal fee or other fees

Brand names: According to the AMA (American Marketing Association), a brand is a

''name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those

of competition." In order to compare a brand with a product, Kevin Lane (2002) asserted

that "a brand is therefore a product, but one that adds other dimensions that differentiate

it in some way from other products designed to satisfy the same need"

Satisfaction: The contentment you feel when you have done some right; state of being

gratified; great satisfaction, act of fulfilling a desire or need or appetite" (Wordnet, 2005)

Consumer satisfaction: Consumer satisfaction results when perceptions of product

performance match expectations that are at, or above, the minimum desired performance level (Neal, Quester, Hawkins, 2004 )

Franchisee satisfaction: How well the daily experiences of franchise owners compare

with their expectations When expectations are met or exceeded, resulting satisfaction will be high When expectation fall short, satisfaction will follow (Eric Stities, 2006) 2.2 THEORETICAL FRAMEWORK:

According to the short description in an initial introduction of this chapter, three basic theories supported for the model of franchisee satisfaction are consumer behaviour, channel relationship and job satisfaction as well as general theory of franchising additionally These theories could be expressed by the below figure and thoroughly discussed in the following parts

Consumer behaviour

Channel relationship

Theory of franchising

Job satisfaction

Figure 1: Supported theories of franchisee satisfaction

(Developed by the author)

2.2.1 THEORY OF CONSUMER BEHAVIOR

The theory of consumer behavior explains how consumers expense their incomes to maximize the satisfaction that they can obtain by purchasing a particular combination of

17

BQ GI.AO Dl)C VA E>AO TAO • TRUONG DH KINH TE TP.HCM THUVIEN

("ttGs3 ·

goods and services According to Robert S Pindyck and Daniel L Rubinfeld (1992), consumer behavior is "the description of how consumers allocate incomes among different goods and services to maximize their well-being" and best understood in three distinct steps:

different commodities in market baskets or bundles which lies on indifferent curves

Meanwhile, when a consumer maximized satisfaction by consuming some of each of two goods, the marginal rate of substitution is equal to the ratio of the prices of the two goods

(3) Consumer choice proved that consumers choose to buy combinations of goods that

maximize their satisfaction These combinations will depend on the prices of various goods The maximizing market basket must satisfy two conditions: to be located on the budget line and to give the consumer the most preferred combination of goods and services

Also mentioning about consumer behaviour but with marketing view, the groups of authors (Pascale, Robyn, E Jerome, William; 2001) listed some main influences The economic influences are firstly presented by assuming "consumers are rational economic people who know the facts and compare choices logically in terms of cost and value in order to obtain the greatest satisfaction from the time and money they spend" However, buyer behaviour is believed not to be as simple as suggested by this model of the rational economic person "A product that one person perceives as representing good value and is eager to buy may be of no interest to someone else" Therefore, economists should concern about demographic influences including some information of buyer behaviour such as population, income, literacy and segmentation This can help the economists predict or forecast basic trends in consumer spending patterns However, it is not enough

to understand about consumer behaviour Some variables should be studied; they are psychological influences, social and cultural influences and situation influences The psychological influences include motivation, perception, learning, attitudes and lifestyle

The consumer decision process is divided into 5 steps by Neal, Quester, Hawkins (2004) presented by Figure 2 as bellow:

Situation

Figure 2: Consumer decision process

(Source: Neal, Quester, Hawkins, 2004)

Firstly, the consumers begin their decision process by recognizing the problem (the items that they want to purchase) Then, information is undertaken to isolate an effective solution of the problem In the third step, they will evaluate the gathered information to determine and compare the relevant and feasible alternatives At the end of this step, the decision can be made After that, the actual purchase of products of services will be carried out in the next step - store choice and purchase Post-purchase process is in the last step which expresses the consumer post purchase behaviour: use, evaluation, disposal and repurchase Consumer satisfaction is influenced by product performance, the purchasing process and consumer expectations

2.2.2 CHANNEL RELATIONSHIP:

Although price, support, and services are on the top of customers' priority lists, many resellers say maintaining a strong customer relationship is key (Jerry Rosa, 2006) So, franchisee satisfaction can be understood by studying theories of channel relationships and channel satisfaction

In order to learn about channel relationships, it should be understand about logistics definition According to Novak, Rinehart and Wells (1992), logistics involves the

19

creation of time, place, quantity, form and possession utilities within and among firms and individuals through strategic management, infrastructure management and resource management with the goal of creating products/services that satisfy the customer through the attainment of value From this definition, channel relationships can be determined as the series of exchanges (both discrete and relational) between organizations and individuals through which the strategic logistics goals of satisfying the customers' time, place, quantity, form, and possession utilities are achieved ( John T Mentzer, 1993) Customer satisfaction tends to be the overriding mission of coordinated and successful channels and customer monitoring can determine aspects of channel delivery system that are important to the satisfaction of each customer and designing channel relationships and delivery systems (John T Menzter, 1993)

Examinations of channel member satisfaction usually focus on the satisfaction of the downstream channel member (Frank, Mika, Douglas, 2003) Channel member satisfaction is defined as a channel member's appraisal of all outcomes of its working relationship with another firm, including economic as well as social outcomes (lnge, Jan, 2000) Channel member's activities may produce economic satisfaction with its counterpart, while undermining the counterpart's social satisfaction, or vice versa (Inge, Jan, 2000) This means that economic and social aspects of the channel relationships are the two dimensions of satisfaction

According to Geyskens, Steenkamp and Kumar (1999), "an economically satisfied channel member considers the relationship to be a success with respect to goal attainment" It is satisfied with the general effectiveness and productivity of the relationship with its partner, as well as resulting financial outcomes" Therefore, economic satisfaction is suggested to relate with satisfaction of products, financial considerations, profits, new product opportunities and growth potential (Frank, Mika, Douglas, 2003) Social satisfaction is determined as a channel member's evaluation of the psychological aspects of its relation, in that interactions with the exchange partner are fulfilling, gratifying and facile (Inge, Jan, 2000) So, it is suggested to include social interaction and cooperation, franchise administration, service support, policies and reward system (Frank, Mika, Douglas, 2003)

2.2.3 JOB SATISFACTION

The franchisee-franchisor relationship can be considered as an employee-employer relationship so that job satisfaction theory is applied to studies about this relation Job satisfaction is typically defined as "a pleasurable or positive emotional state resulting from the appraisal of one's job or job experiences" (Locke, 1976)

From studying about many researches of satisfied and unsatisfied franchisees characteristics, Morrision K.A developed a model of franchisee job satisfaction including six personality dimensions and three job characteristic factors This model is illustrated in Figure 3 as below

Personality Factors

r -,

Extraversion Agreeableness Conscientiousness Emotional Stability Openness to Experience

Figure 3: Morrison's Model of Franchisee Job Satisfaction

Source: Morison K.A (1996)

Five of six personality factors of franchisee job satisfaction are used basing on the Five" model of Barrick and Mount (1993); Costa and McCrae (1992), including Extraversion (the degree to which an individual is gregarious, sociable and assertive), Agreeableness (the degree, to which an individual is cooperative, warm, agreeable and trusting), Conscientiousness (the degree, to which an individual is hard working, organized, dependable and preserving), Emotional Stability (the extent to which an individual is anxious, depressed and insecure) and Openness to Experience (the degree, to wliiClr an individual is creative, intellectual, curious and artistically sensitive) The sixth factor is Subjective Well-Being which leads individuals to evaluate their lives in positive

"Big-21

terms also commonly referred to as life satisfaction, depends on the standards the individual uses to define what constitutes the good life (Morrison, 1996)

The Morrison's model of franchisee job satisfaction also consists of three job characteristic factors They are: (1) Perceived fairness of franchisor restrictions (namely, restrictions on supplier sources and methods of operation, termination/renewal terms and interpretation of franchise agreement; (2) met expectations regarding franchisor support (namely, promotion and advertising, training, technical and day-to-day support and work hours expected); and (3)met expectations regarding operational characteristics (namely, income, territory protection, royalties/advertising fees and ability to use initiative)

2.2.4 THEORY OF FRANCHISING:

2.2.4.1 Types of franchising

According to Dave Thomas and Michael Seid (2000), there are two major types of franchising:

allows the franchisee to use their brand, logo and sell products produced by franchisor but not supply

prescribes for the franchisee a complete plan, or format, for managing and operating the establishment The plan provides step by step procedures for major aspects of the business and anticipating most management problems, provides a complete matrix for management decisions confronted by the franchisees (Dave Thomas and Michael Seid, 2000)

The second type - business format franchising is considered to be a typical format of franchising and would be chosen to study for the thesis

2.2.4.2 Rights and obligations of franchisors and franchisees

Studying about franchisee satisfaction is also learning about the relationship between franchisor and franchisee which is fully expressed in a franchise agreement In common, a-franchise.contractoften contains the obligations and responsibilities of both partners Thus, during the time of contract, they have to execute following all terms in the signed contract As mentioned in the definition part above, the rights and obligations of both

franchisee and franchisor are briefly determined However, in order to have further understanding about this, the role of franchisor and franchisor could be classified as below

Franchisor's role:

(1) Provide clear, positive leadership: In franchising good leadership has five components, including vision and goals; competence; integrity; consistency; enthusiasm (2) Help franchisees achieve their financial and personal goals: The franchise system, marketing programs and field support must be guarantee from franchisors that they can add value to the franchisees business Moreover, franchisees also want their franchisors

to accept their ideas to the franchise system

(3) Protecting the strategic position of the brand: The franchisor must clearly define what the brand stands for and also know who the target market is and ensure that the positioning and promotion of the brand is in a way that fits the expectations and needs of the target market (Kurt, 2004) The franchise brand needs constant monitoring and care Franchisees also have three different roles:

(1) Running a profitable business

(2) Growing a base of happy customers: The franchisees have responsibility keep customers happy and satisfied in order not to return and recommend the business to others

(3) Supporting the franchisor's brand values: The brand value is very important with franchise business Almost marketing programs of franchisor are increasing the value of their brand Thus, franchisee must have a promise for instance relate to quality and service If not, the brand will be undermined

For more details, obligations of franchisee and franchisor could be arranged as the followings:

and fires;

23

Recommendations, possible caps;

May offer bulk purchasing programs;

Lists approved suppliers;

List quality requirements;

Requires supplies from franchisor;

Design national program;

Requires or suggests local amounts;

Changed only by approval;

Decides actual prices;

Complies with program;

Pay into advertising fund;

Gets franchisor approval;

Quality control Set standards;

inspects;

trains franchisees; Trains employees, carries

out systems;

(Source: !FA Educational Foundation, 2004)

2.2.4.3 Advantages and disadvantages of buying a franchise:

Franchising would be an advantageous relation of both franchisee and franchisor if it is executed well In order to get success in franchising, the buyer has to answer all questions before make a decision In facts, there are some franchisee failed, but they could avoid the failure if they study about advantages and disadvantages of franchise (Dave Thomas and Michael Seid, 2000)

Here are some main advantages of buying a franchise:

(1) Name recognition: A franchise agreement provides instant name recognition for the franchisee's business (Enotes, 2007)

(2) Safety A franchisee would be able to tap into a wealth of knowledge and experience

to help him or her to overcome any challenges that he or she is going to be confronted with a long way So the level of risk will be significant reduced (Bradley J.Sugars, 2006) (3) Operations: Franchisee is provided with "a wide range of help in thee areas of administration and general operations" by their franchisor, including "proven products, production systems, inventory systems, financial and accounting systems; and human resources systems" It is very necessary to franchisees who don't have to be a specialist in the business field More precisely, before the opening, franchisees are supported about training, design, location selection, marketing and advertising After the opening, the franchisor continuously assists franchisee, especially in re-training, marketing and advertising (Ly Qui Trung, 2006)

(4) Buying power: The franchisees also get benefit from the system's bulk buying power So, they won't need as much working capital Moreover, the cost to do promotional and advertising campaigns for their shops would be also lower

( 5) Finance: Banks have long recognized the advantages of franchise companies and have tailored financial packages for franchisees that are far more attractive than those commonly available to other business owner (Bradley J Sugars, 2006)

( 6) The final advantage is registered trademark More exactly, the franchisees get benefit associated with the franchisor's patens, trademarks, copyrights, trade secrets and their on going research and development campaign

The franchisees also have to consider about disadvantages of buying a franchise, as below:

( 1) Cost: The franchisees, in fact, have to pay franchisee fees such as initial fees; or ongoing fees; or advertising fees; or cost of insurance, initial inventory purchases In some cases these fees can be quite expensive (Ly Qui Trung, 2006)

(2) Limited control: Most franchisees will be operating under a set of rigid controls or operating requirements that form part of the Franchise Agreement In other word, these controls may restrict franchisee ability to exercise their own business judgment (Federal Trade Commission, 2007)

2.3 Empirical studies:

There are a lot of research studies about franchisee satisfaction in some countries such as United States, Finland, Australia or Malaysia The empirical studies will summary these researches to find out some major satisfaction factors as well as model of franchisee satisfaction for the thesis

2.3.1 Maximizing franchisee satisfaction in the restaurant sector (Nerilee Hing, Journal of Consumer Marketing, 1999)

Basing on the model of consumer buying behaviour, this paper aims to clarify the characteristics of both franchisors and franchisees The survey process carried with 9 franchisors and 127 franchisees in restaurant and hotel sectors in Australia

25

A list of variables is used to measure the franchisee characteristics, including demographic (Age, Level of Education, Entrepreneurial Personality Traits, Pre-purchase Experience, Consultation and Initial Capital Borrowed), post-purchase intentions and 17 variables ofpost-purchase satisfaction, as below:

Amount of work involved;

Ease of obtaining finance;

Selling prices impose;

Fees/royalty paid;

Cost of supplies from franchisor or prescribed suppliers;

Independence to manage the business;

Level of profitability;

Conflict resolution Protection of system's reputation;

Long-term business security; Frequency of

communication;

Access to franchisee advisory council;

The author used CSS statistic Software and post-tests of the scale to test the model As the result, an empirically supported model of franchisee buying behaviour is determined, like in Figure 4 as the followings:

Post-purchase outcomes Evaluation of costs and benefits Satisfaction due to

positive or zero disconfirrnation

Positive intentions

Would recommend to others

Would purchase again

Dissatisfaction due to negative disconfirmation

Provision of 18 types

of disclosure documentation

7 types of franchisee assessment methods

support services

12 6

Duration of franchise company

· industry experience

Duration of franchise company franchising experience

Number of pilot outlets operated

Figure 4: Empirical supported model of franchisee buying behaviour

Source: Nerilee Hing, 1999

Moreover, the author also suggested a strategy for franchisor to maximizing the satisfaction of their franchisees and provided prognostic and diagnostic frameworks to

assist both franchisor and franchisees in their selection of a suitable, business partner and

in specifying appropriate remedial action in marginal franchised outlets

2.3.2 Franchisee satisfaction report (Franchise Business Review, 2007)

This report represents the most comprehensive study of franchisee satisfaction, surveying thousands of franchisees across North America To measure satisfaction, the report uses

40 questions pertaining to training & support, system communication, franchisor/franchisee relations, financial opportunity, market demographics, business lifestyle and overall satisfaction with the franchise business

This report is very useful to design a questionnaire structure for the thesis However, the report couldn't measure the significant affect of franchisee characteristics to their satisfaction by just using statistical method to express the results

2.3.3 A comparison of Finnish and United States franchisee satisfaction (Frank, Mika and Douglas, 2003)

Using a multi-dimensional model and theories of channel relationships and job satisfaction, the research investigates differences between franchisee satisfaction in the two countries Finland and United States The sample size is 27 U.S franchisees and 45 Finnish franchisees, collected by using a postal survey in Quick Service Restaurant (Hamburger) The research uses eight factors to measure franchisee satisfaction, such as: Relationship, Financial, Training, Support Services, Fees, Brand Image, Entrepreneur Control and Franchising Contract As the results, the research find out franchisee in the two countries did differ on their satisfaction with the Financial, Entrepreneur Control, Communication and Franchise contract dimensions Their regression model is able to explain almost 90% of the variation of general franchisee satisfaction with seven of eight dimensions (except Communication)

2.3.4 An encouraging factors of entrepreneur in franchising: A Malaysia Experience (Abu, Mohd, Rozita and Norhaminah, 2003)

This paper attempts ·to investigate the success factors towards incorporating franchising and problems of failure that entrepreneurs seriously faced by directly interview 25

27

franchisees in the City of Johor Bahru in Malaysia, covering various ranges of sectors from food, cleaning services, photo shops, product, retail, pharmacy and education As result, the paper suggests the success factors: Full Support & Training, Continuous Communication, Excellent Franchise Image and failure factors: Mismanagement and Lack ofExperience

2.3.5 Measuring the franchise relationship (Greg Nathan, 2006)

By recognizing the importance of understanding of franchisee satisfaction, the author's paper was published on Franchising Word Magazine to advise how to measure franchise relationship and suggest what franchisees want from their franchisor To the author, franchisees often care about how to reduce their operating costs and enhancing productivity Many franchisors are often very effective in providing initial training; franchisees expect to receive more ongoing training Moreover, advertising and a strong brand are also important factors to franchisees Franchisees additionally feel happy with good customer services programs of their franchisor In certainly, financial picture also a great care of common franchisees, because "a profitable franchisee is no doubt more likely to be a happier franchisee"

2.4 Model of franchisee satisfaction:

From learning theories supporting to franchisee satisfaction as well as studying some empirical studies of some economists, the optimal model can be suggested as below:

Where as:

SATISFY: the rate of overall franchisee satisfaction

SUPPORT: the rate of quality of initial and ongoing training and supports as well as promotional programs of franchisor

RELATION: the rate of franchisee and franchisor relationships

FINANCE: the rate of franchisee about financial opportunity comparmg with their expectation

BRAND: the rate of franchisee about brand image of franchisor

FEES: the rate of fairness of total fees franchisees paid

CONTROL: the rate of franchisee satisfaction about the limited control by franchisor

2.4 Hypothesis:

Hl: There is a positive relation between SUPPORT and SATISFY

H2: There is a positive relation between RELATION and SATISFY

H3: There is a positive relation between FINANCE and SATISFY

H4: There is a positive relation between BRAND and SATISFY

H5: There is a positive relation between FEE and SATISFY

H6: There is a positive relation between CONTROL and SATISFY

In summary, after a detailed analysis and a deep screening, there are SIX selected independent variables of the model of franchisee satisfaction They are: SUPPORT, RELATION, FINANCE, BRAND, FEE and CONTROL Besides that, the franchisee satisfaction could be partly affected by demographic variables From studied results of consumer theories and franchising theories, the thesis focuses on 7 main demographic factors which may have largest influences on franchisee satisfaction

This figure below is a brief illustration of variables affecting to franchisee satisfaction

Figure 5: A suggested model of franchisee satisfaction

(Developed by the author)

6 Field experience

7 Franchise expenence

CHAPTER III:

AN OVERVIEW OF BEVERAGE AND FOODSTUFF INDUSTRY AND SOME FRANCHISE INFORMATION IN HO CHI MINH CITY

3.1 AN OVERVIEW OF VIETNAMESE ECONOMY

3.1.1 Vietnam economy in general

VietNam is in a South East Asia- a fast developed economy area After Doi Moi 1991, especially after US- VietNam trade agreement in 2000 and a join to WTO in 2007, its economy gains a lot of advantages to develop GDP increases 8.1% in 2006, in which agricultural sector is 3.4%, industry is 10.37% and service sector is 8.29% (Vietnam GSO, 2006) The economic structure tends to transfer from agricultural sector to industry and service Percentage of industry and construction sector increases from 40.9% in 2005

to 41.52% in 2006 Meanwhile, service sector also rises from 38.01% to 38.08% while agriculture declines from 21.02% to 20.40% (GSO- Vietnam, 2007)

3.1.2 Retail sales for goods and services

Total retail sales for goods and services gets 580,700 billion VND in 2006 increases 20.9% (real prices) comparing with 2005 and over 13% (if not including prices) The relative high growth proved the rise of purchase power and resident consumption The increase is difference by ownership such as state (8.2%), collective 25%, foreign investment sector 21.5% By economic activity, trade increases 31.6%, hotel and restaurant 22.3%, service 31.6% and tourism 30.5% Retail sales and social services in the first 5 months of 2007 raises 22.6% compared with the same period last year (GSO-Vietnam)

Price index of December 2006 increases 0.5% comparing with November and 6.6% comparing with December 2005 and attains inflation target of National Assembly In December, almost prices of goods and services also increases compared with the same period last year in which price of foods and beverage and its services rises 7.9% This is a determined factor affecting to puts price index up Remain goods raises from 3.5% to

6.5% Average price in 2006 also increase 7.5 compared with 2005, but lower than the last two years (8.3% in 2003 and 7.7% in 2004)

3.2 AN OVERVIEW OF THE ECONOMY OF HO CHI MINH CITY

3.2.1 Overview of the economy of Ho Chi Minh City

•Industry

• Construction oTrade

o Hotel&restaurant

mJ Finance

• Transport, postal, services

o Agriculture mJothers

Figure 6: GDP structure of Ho Chi Minh City, 2006

Source: ITPC, 2007

In 2006, an economy of the City still remains a high growth Its GDP rises to 12.2% beyond given expectation This is a sixth continuous increase of the City (200 1: 9 5%; 2002: 10.2%; 2003:11.4%; 2004:11.7%; 2005: 12.2% and 2006: 12.2%) in which services has a biggest contribution and the next is industry and agriculture sector This proves an effect of the structure transfer programs of the government Its economy is gradually developing toward the structure services - industry - agriculture The services sector more and more plays an important role, expressed by augmented tend and highest growth in comparison with the remaining (in 2004, it contributes 5.83% of the economy; in 2005: 6.17% and in 2006: 6.76% Although having high growth- 13.7%, a scale of the services, especially in high-class or high value-added services is still smaller than its potential

Total retail sales and services turnover is 131,902 billion VND, increasing by 22.5% (the same period is 21.1 %) Among that, both trade and tourism rise over 20%, especially the trade sector take more than 80% of total retail sales Without pricing factor, the total retail sales and services turnover increase 14.1% (the same period is 11.3%)

31

In comparison with other cities and provinces, Ho Chi Minh City has a biggest number of total retail sales and services in Vietnam In 2005, its turnover of this field is 110,463 billion VND, higher than Hanoi's (over 90 thousand billion VND)

Table 1: Retail sales value of goods and services by economic activity

Source: PSO in Ho Chi Minh City

The level of total retail sales and services increases from 71,721 billion VND in 2000 to 110,463 billion VND in 2005 Trade raises 51.26%, compared with 2000 In spite of decline in 2003, tourism has a high growth with 54% The highest growth is service with 110% while the hotel and restaurant is lowest, 46.57%

• Trade llil Hotel and restaurant

t:J Tourism

• Services

Figure 7: Structure of total retail sales and service in HCMC

Source: PSO in Ho Chi Minh City

Figure 7 shows that the trade sector has a biggest share with 8% in turnover of total retail sales and services in Ho Chi Minh City in 2005 The second is Hotel and Restaurant with 10.74% The next is services with 7.5% The tourism sector takes a smallest one with 1.52% in its turnover

3.2.2 Beverage and foodstuffs in Ho Chi Minh City

According to Statistic Office of Ho Chi Minh City, beverage and foodstuffs contributes 36,200 billion VND for total value of production industry in 2003 With 23.4% in industrial structure and 65% value of export volume, it is rated to be the highest industry

in production value and budget contribution of the City The industry has more than five thousand establishments, in which private enterprises have a most numerous number with more than four thousand ones However, most of these enterprises have small scales while state-own companies with big scales such as Vinamilk, Beer and Vegetable Oil contribute larger production value for domestic as well as overseas market

Currently, Ho Chi Minh City is a huge market for beverage and foodstuffs The 6-7 million people City has rapid population increase from 2-2.5% per year However, the people in Ho Chi Minh City tends to use more and more processed beverage and foods and decrease in using fresh material to cook daily According to Ministry of Finance, the demand for processed food in restaurant or industrial processing of Ho Chi Minh People makes 30-35% total monthly food consumed; and 50% of expenses is for eat and drink However, local beverage and foodstuffs industry has not met this demand In recent years, many international fast-food corporations such as McDonalds, Jolibee and KFC have promptly penetrated into this potential market In this sense, the local enterprises have to face with a big challenge to compete with many huge overseas competitors

3.3 GENERAL INFORMATION OF FRANCHISING IN VIETNAM

3.3.1 General franchise information:

In the two years 1996 - 1998, franchising turnover increases from around $1.5 to $4 million USD Up to 2007, it is growing 18-20% per year and forecasted to be 25-30% increase in the next 3 years and promise to make a breakthrough in franchise development in Vietnam

According to Vietnamnet (15th Dec, 2005), there are over 70 franchising systems in 2004

in Vietnam In which there are 3 domestic and 6 foreign franchisors in Vietnam The domestic franchisors include Trung Nguyen, Pho 24 and Kinh Do The foreign are KFC, Jollibee, Quality, Pizza Hut, Lotteria Until this year, arrange of new franchisors join to franchising system with domestic brand names such as FOCI, Hoa Noodle, XQ Silk, Fresh-Sugar Cane Juice and overseas such as Gloria Jean's, Pizza Hut, Starbuck, Subway, Han's Bakery are going to set their business in Vietnam

33

3.3.2 Legal aspect of franchising in Vietnam:

Vietnam Intellectual Property Office stated that there are 530 brands were successful in franchising in recent years and 811 brands would be franchise in 2005 This number will

be increase more with about 21,000 brands in process of registered requirement

However, Vietnam presently still lacks a specific law governing franchise sector In 1998 Ministry of Science and Technology issued the ND 45 CP decree, including rules on technology transfer, which did not explicitly address the franchise sector, but had the impact of limiting the development of franchisee At the end of 2005, a mended new commercial law supplied a new rule for franchise services, which includes franchising definitions; rights and obligations of franchisee and franchisor Although that, it is said that Vietnam government should impose a private law of franchising and complete regulations of intellectual property If companies wants to develop business by franchising, they to conform all complicated procedures including license, distribution, banking capital registration while all they need is guaranty their intellectual property right and security of absolute secrets (ThoiBao Viet, 28th Jun, 2007) Besides that, domestic and overseas franchisors have to face with difficulties of property regulations of the government preventing from their international expansions (ThoiBao Viet, 28th Jun, 2007)

Moreover, some specialists forecasted that "although the high growth rate of franchise business, there are many overseas big companies and corporations will ''jump" into Vietnamese market causing a fierce compete with domestic firms (VnExpress, 2005) The forecasted field to be mostly applied this business is processed beverage and foodstuffs business, which has high demand; large potentiality and low competition in Vietnam

3.3.3 Vietnamese franchisors

Ho Chi Minh City with a huge number of population and advantage strategic position has become a perfect environment for economic development, especially in franchising From earlier of 90s decade, the initial Vietnamese franchise outlets were established in the City Until now, the City attracts most of domestic and overseas franchisors to invest

and to set up their initial franchise outlets Currently, there are many Vietnamese franchisors locating in Ho Chi Minh City such as Trung Nguyen, Pho 24, Kinh Do, Foci, Sugar Cane Juice The followings·present some information about franchise policies of two major Vietnamese franchisors, which are main studied objectives of the thesis

(1) Trung Nguyen Coffee:

Trung Nguyen was established in 1996 in Dak Lak Province as a coffee producer After 2 years of success, the company developed their business to Ho Chi Minh City and opened

an initial coffee outlet in this city Then it promptly became a first Vietnamese successful franchisor with a lot of coffee outlets under Trung Nguyen brand name appearing in a whole of Vietnam Until now, it has about 500 outlets in Vietnam and 13 outlets in overseas, in which there are 83 outlets in Ho Chi Minh City

Here are some main points ofTrung Nguyen franchising policy to their franchisees:

Term of contract 3-5 years

Initial Fee 50 million VND/3-5 year

Ongoing Fee 0%

Renewal fee 50 million VND/3-5 year

Initial Support Accessories, signboard, coffee

Initial Training Products, employees, outlet design

Ongoing support & training Accessories, price of coffee

Source: Trung Nguyen Coffee Company

(2) Pho 24:

Pho 24 is a noodle restaurant chain that belongs to Nam An Group, an established corporation specializing in Vietnamese food In June 2003, it opened the first outlet at District 1, HCMC Until now, it has successfully franchised 35 outlets in the city and become a famous brand as well as a leading specialist in franchising in Vietnam

Here are some main points ofPho 24's policy for their franchisees:

Term of contract 5 years

Initial Fee 7000-8000 USD/5 year

35