Thesis Sumary: Factors influencing Franchisee’s intention to remain in the franchise system in Ho Chi Minh City

Research purposes: Explore the effect of new factors consisting of Franchise Law Enforcement, Individual Characteristics, and Quality of Relationship between Franchisor and Franchisee on Franchisee’s intention to maintain participation in franchise system by modifying the inherited scales from previous studies.

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TRAN THI TRANG

FACTORS INFLUENCING FRANCHISEE’S INTENTION TO

MAINTAIN PARTICIPATION IN THE FRANCHISE SYSTEM IN HO CHI MINH

The Thesis was completed in: University of Economics HCMC

The thesis will be protected in front of the Council at:

At ……… h ……… Date ……… Month ……… Year The thesis can be found at:

A Key research papers relate to the thesis

1 Tran Thi Trang, 2016 Factors Influencing Franchisee’s Intention to Maintain Participation in the Franchise System: Case in Viet Nam Journal of Science and Technology No 8(105), page 108-112

2 Tran Thi Trang, 2016 The effect of commitment and franchising law enforcement on franchisee's intentions to remain in the franchise system Proceedings of the 5th International conference on emerging challenges: partnership enhancement ISBN: 978-604-93-8961-0, page 111-116

3 Vo Thanh Thu & Tran Thi Trang, 2015 Influence of Quality Relationship and Big Five Factors to Decision of Intention to Maintain Participation in the Franchise System Journal of Economics Development No.10, P.92-110

B Other research papers relate to the thesis

4 Tran Thi Trang, 2015 The State Management to Franchise Activities and Recommendations Review of Finance No 611, page 20-22

5 Vo Thanh Thu, Tran Thi Trang & etc., 2015 Franchising in Ho Chi Minh city - Problems and Solutions to promote development Research project (Department of Science and Technology Ho Chi Minh City)

6 Nguyen Dong Phong, Vo Thanh Thu & Tran Thi Trang, 2015 Franchise Business Guide UEH Publising House

7 Tran Thi Trang and Vo Thanh Thu, 2015 Franchising – Problems and recommendation Proceedings of the 5th International conference on emerging challenges: Managing to Success ISBN: 978-604-938-723-4, page 473-480

8 Tran Thi Trang, 2014 Service quality in convenience franchising stores Proceedings of the 5th International conference on Green Technology and Sustainable Development ISBN: 978-604-732817-8, page 650-654

CHAPTER 1: INTRODUCTION 1.1 Theoretical background

There have existed numerous scholarly studies on the maintenance and development of franchising but most authors argue that profitability and business performance are common goals and interests which both franchisors and franchisees concern about These are also the most important factors to maintain a relationship since the loss of one party will negatively affect the other and vice versa Other scientists claim that the quality of franchise maintenance and development depends on the quality of the relationship between Franchisee - Franchisor (Rubin, 1978; Shane, 1996) This relationship is characterized by the following three elements: (1) The quality of the franchise contract that stipulates the responsibilities, the right to decide and the sharing of resources between the franchisor and franchisee (Rubin, 1978; Pizanti et al., 2003), (2) The development of relationship between Franchisee - Franchisee and (3) The relationship quality in franchise operations depends highly on Franchisee (Kaufmann et al., 1995, Nathan, 2004)

Despite different opinions about franchise, the scientists all agree some common characteristics: Franchise business model helps quickly expand business scale and develop brand through Franchisees’ investment in the system and thus a franchise system needs to be stable and grow in terms of the number of Franchisees Choosing Franchisees with sufficient financial capacity, management capacity to participate in a franchise system is very essential Theorists in franchising are also interested in exploring how these Franchisees continue to maintain a symbiotic relationship and the cooperation - building - development of franchise system This is an

important issue, vital for the development of a franchise system There are many studies on maintaining the cooperation in business in general and maintaining participation in the franchise system in particular such as Adeiza et al (2017), Erlinda et al (2016), Jena et

al (2011), Hanafiah (2009) , Lee et al (2008), Venetis et al (2004), Ulaga et al (2006), Chiou et al (2004), Morrison (1997),

In franchise operations, for Franchisor, Franchisee is both a customer and a member of franchise system Therefore, unlike normal business activities, the customers (the franchisees) need to be carefully selected so that they can participate in the long-term development of the franchise system Factors influencing Franchisee's intention to maintain participation in the franchise system in the above mentioned studies are primarily associated with the relationship between Franchisor - Franchisee (trust, satisfaction, commitment), and intention to maintain participation in the franchise system of the Franchisee is indeed the result of this relationship In addition, there are other factors that affect the intention to maintain the Franchisee's participation in the franchise system such as Communication, Service Support of Franchisor, Competitive Advantage of Franchisor, Commitment of franchise system, Relationship between Franchisor and Franchisee, Satisfaction, Individual Characteristics of Franchisee, However, the above authors failed to mention legal factors of franchising as well as how Franchisee’s legal implementation affects the Franchisee' intention to maintain participation in the franchise system Besides that, the individual characteristics of Franchisee and quality of relationship between Franchisor and Franchisee are mentioned separately to study influences on the intention to maintain participation in the franchise

system Individual characteristics of Franchisee are related to the selection of Franchisee of Franchisor for the franchise system Simultaneously, in a franchise system, there is not only the Franchisor-Franchise relationship but also the relationships between franchisees Hence, correlation between individual characteristics, quality of relationship between Franchisor and Franchisee and intention to maintain participation in franchise system are issues that need be studied more clearly Moreover, in developing countries like Vietnam, culture, language, law, people, income, living standards, are different from developed countries Therefore, in franchise operations, intentions to maintain Franchisee’s participation in franchise system will have common features but there may exist particular factors, which also need to be further explored through the scholarly studies and tested through empirical studies

Franchising is a business model that plays an important role in creating jobs and contributes to economic development (Shane et al., 2006) The franchise business model is applied in various business fields such as restaurants, hotel services, retails, personal services, automobiles, real estates, commercial services, In Vietnam, namely

in Ho Chi Minh City, franchise business is in the early stage of development Nonetheless, franchise operations in Vietnam are still spontaneous, not professional, and lack of sustainability One of the main causes of this failure is that Franchisor fails to build a good relationship with Franchisee and also fulfill necessary commitments

in franchise business, leading to avoidance to maintain Franchisee’s

long-term participation As a result, the thesis “Factors influencing Franchisee’s intention to remain in the franchise system in Ho Chi Minh City” was studied to explore and test key factors

contributing to Franchisee’s intention to maintain long-term participation in franchise system considered as the vital condition of

a franchise system

1.2 Research purposes

- Explore the effect of new factors consisting of Franchise Law Enforcement, Individual Characteristics, and Quality of Relationship between Franchisor and Franchisee on Franchisee’s intention to maintain participation in franchise system by modifying the inherited scales from previous studies

- Two factors including Quality of Relationship between Franchisor and Franchisee and Franchisee's individual characteristics influencing Franchisee’s intention to maintain participation in franchise system are considered to be two multidirectional concepts

1.3 Research objectives

- Design a theoretical framework of factors influencing the franchisee's intention to maintain participation in the franchise system

- Determine the significance of the influences of the factors on the franchisee's intention to participation in the franchise system

- Propose managerial implications to improve the intention to maintain participation in the franchise system and policy implications of franchise operations for the government

1.4 Research object and scope

1.4.1 Research object

Factors influencing Franchisee’s intention to maintain participation in the franchise system

1.4.2 Research scope

- Research problem: Factors affecting the intention to maintain Franchisee’s intention to maintain participation in the franchise system

- Time dimension: Actual practice of franchising from 2007 up to now

- Space dimension:

+ Overview of the current status of franchise operations in Vietnam in general and HCMC in particular

+ Survey and test the framework of factors affecting the intention

to maintain participation in the franchise system in HCMC

- Research sample: Franchisee – management team or manager of the franchise store who manages and proposes decisions for franchise business operations of the organization

1.5 Research methodology

The thesis employed both research methods: qualitative research with individual in-depth interview technique in the qualitative research phase and quantitative research was then conducted within two phases: preliminary qualitative research with 95 franchisees in

Ho Chi Minh City and subsequentlyy formal quantitative research with survey techniques with 187 enterprises and franchisees, selected

by snowball sampling method and simple random method

CHAPTER 2: LITERATURE REVIEW – THEORETICAL

2.1 Factors influencing Franchisee’s intention to maintain participation in the franchise system

Table 2.4: Factors influencing Franchisee’s intention to maintain participation in the franchise system

Source: synthetized by the author

2.2 Theoretical framework development

environment Huang et al., (2009)

10 Long-term direction Ono et al., (2009)

11 Opportunism Ono et al., (2009)

12 Perceptual

independence Hanafiah et al., (2009)

13 Family care Hanafiah et al., (2009)

2.2.1.1 Motivation theory

Intention to perform a behavior is a major factor of future behavior (Ajzen et al., 2005) and it contains three stages: (i) Formation of the motor; (ii) act to select or make decisions; (iii) Implementation of intentions (Thomas Waweru Gakobo et al., 2016) Thus, forming the motivation is the first step in shaping intentions or planning or making a decision to take an action

Motivation is a theoretical concept used to explain why people conduct specific actions at a particular time (Beck, 2004) According

to Petri et al (2004), motivation is considered as a concept that describes the direct impacts of external and internal environments of

an organization on behavior so as to explain the difference in the level of behavior and indicate its existence

Motivation theories based on need satisfaction: motivation encourages people to act out of desire for need satisfaction Process

of need execution, which is complex, is defined as a process in which

an individual has a need for something and find a way to satisfy it In business, motivation is proven to have a strong impact on behavior (Herron et al., 1993; Renko et al., 2011) Bird (1998) argues that the intention of the founder is to determine the form and direction of an organization In franchising, two theories of motivation which can be used to understand the motivation of Franchisee’s participation in the franchise system encompass content theory and process theory of motivation In particular, motivation theories play an crucial role since they help to understand influences on the formation process of Franchisee’s intention

2.2.1.2 Theory of planned behavior

Theory of planned behavior is the theory of the relationship between attitudes and behaviors, behavioral control behavior, and subjective factors influencing individual’s planned behavior (Ajzen, 1991) Researchers in various fields such as social psychology (Ajzen, 2002), tourism (Hsu, 2012), festivals and events (Horng et al., 2013; Shen, 2014), have successfully applied theory of planned behavior to clarify the impact of motivation on planned behavior and behavior Theory of planned behavior is an extension of the theory of reasoned action (TRA) when adding perceived behavior control (Ajzen, 2002) In addition, this theory also examines the relationship between trust and ownership of the necessary resources as well as the opportunity to perform a particular behavior A number of previous studies have demonstrated the impact of behavioral control factors on individual’s planned behavior It means that planned behavior is expected to be higher when an individual holds control of a particular behavior (Buttle et al., 1996; Horng et al., 2013; Shen, 2014) According to Ajzen (1991), theory of planned behavior recognizes three key components that formulate the notion of intention related to attitudes toward behavior, subjective factors and behavioral control

In franchising, theory of planned behavior contributes to predict the attitudes and behaviors of franchisees in the intention to maintain participation in the franchise system

2.2.1.3 Agency theory

Agency theory was introduced by Jensen and Meckling in 1976 This theory refers to an agreement between a principal to another agent on behalf of them to implement some services and also empower agents some authority and self-determination within the agreed scope Agency theory indicates that the purpose of contracts

with an agent is to allow transactions to be completed in an integrated manner

In the franchise operation, the nature of agency relationships is undoubtedly clear: Franchisors rely on Franchisees to represent them

in order to perform certain services on their behalf, and simultaneously give franchisees certain rights and make their own decisions in the agreed scope Agency theory also assumes that the problems arising in relationship between Franchisee - Franchisee is considered from the difference in purpose, information and risks of the parties (Bergen et al., 1992) Utilizing agency theory is seen as a tool to help franchisers to control the operations of the franchisee

2.2.1.4 Relationship quality

Dwyer et al (1987) conducted the first study on relationship quality By 1990, Crosby and Epsom had developed a system of the relationship quality theory According to them, relationship quality is defined as the assessment of relationship strength and the expansion

of relationships to meet the expectations and needs of the stakeholders Quality of relationship between customers and companies is a measure of whether or not customers want to maintain a relationship with the service provider (Roberts et al., 2003) Relationship quality is considered in three main aspects: satisfaction, trust, and commitment (Hennig et al., 1997; Smith, 1998; Liang et al., 2005)

In many industries today, relationship quality is a tool to maintain long-term relationships between sellers and buyers (Dwyer

et al., 1987) This is similar to quality of relationship between Franchisor - Franchisee in the franchise business Franchisee is the customer and the franchise contractor with Franchisor Franchise

relationship is the type of long-term cooperation relationship The timing of the relationship between the two parties reflects the quality

of relationship between them (Ernández Monroy et al 2005)

2.2.1.5 Big Five personality traits

This theory refers to the fundamental differences of the individual through five characteristics: extraversion, consensus, conscientiousness, emotional stability, and imagination (Costa et al., 1992) In franchising, Peterson et al (1990) state that Franchisee’s personality is one of the relationships that affect their perception of franchising Studying the individual characteristics of Franchisees helps to understand the motivation for joining the franchise system (Lee, 1999)

Previous research has shown that based on individual characteristics, it is possible to predict interoperability (Morrison, 1997), the Franchisee’s desire to maintain and develop the franchise system (Weaven et al., 2009) Additionally, according to Nguyen Dong Phong et al (2009), franchising is a method of business that is legally symbiotic and different Therefore, using this theory helps the franchisor to predict and decide which franchisees can join cooperation in building and developing the franchise system

2.2.2 Hypothesis development

Based on the literature review and research related to the intention to maintain participation in the franchise system, the author advocates the previous views and results of research conducted by Chen (2011) and Morrison (1997) Once franchisees have individual characteristics that are consistent with the franchisor's business practices and personal characteristics, both parties will create a good