Enhancing SMEs competitive advantage by franchising

Abstract: Although there is a large body of literature on franchising systems that are mainly produced from the franchisor's perspective, looking at franchising from the franchisee's point of view has remained largely uninvestigated. Creating and sustaining competitive advantage is the prerequisite for the franchisee's (as an SME) survival in today's competitive environment. This research's comprehensive literature review shows three major groups of factors influencing the franchisee’s competitive advantage, including the franchisor-related factors, the franchisee-related factors, and factors associated with the franchisor-franchisee relationship. Since the franchisor has a dominant role in the business, it can influence the franchisee in many ways. Therefore, it is crucial to put special emphasis on how the franchisor-related factors may influence the franchisee business success.In light of the discussion above, this study was carried out to understand how franchisor-related factors, through enhancing/creating competitive advantage, might influence the franchisee’s business success. According to the literature on competitive advantage, three clusters of literature as three perspectives were reviewed and discussed. These include the resource-based view, the industry structure view, and the relational view. In the resource-based view, the firm's resources are considered as a source of competitive advantage, but in the relational view, not only the firm's internal resources, but also the interfirm resources are the source of competitive advantage. Therefore, this perspective has a significant contribution to this study. In addition to services provided services by the franchisor, as the resources, franchisor organizational factors specifically entrepreneurial orientation, and absorptive capacity were found relevant in the franchisee's competitive advantage. Accordingly, an integrative theoretical/analytical framework was built and used throughout the study.Because of exploratory nature of the study, the qualitative method was chosen and applied. Along with the purpose of the study, a multiple-case study research strategy consisting of seven cases, in two franchising systems, was performed. The results of the analysis confirm that services provided by the franchisor, the franchisors’ entrepreneurial orientation, and the franchisees’ absorptive capacity have a significant role in enhancement of the franchisees’ competitive advantage. Other significant results of the franchisor-related factors enhancing competitive advantage were found to be: the speed of raw material supply, keeping consistency in quality, economy of scale and keeping prices competitive. Furthermore, the franchisor enhances the franchisee's competitive advantage by transferring business know-how and creating collective tacit knowledge, and as well improvement in the franchisee-specific human capital. Intellectual property in a franchise system through transferring the first mover advantage to the franchisee and creating the differentiated position affect the franchisee's competitive advantage. The franchisor’s entrepreneurial orientation creates the first-mover advantage for the franchisee. Similarly, the franchisor's absorptive capacity, through creating the first-mover advantage and improving the franchisee's social capital, enhances the franchisee's competitive advantage.