International Marketing Review
DETERMINANTS OF THE GOVERNANCE STRUCTURE OF THE
INTERNATIONAL FRANCHISE FIRM A Case Study Analysis in
the Automotive Rental Industry
Journal: International Marketing Review
Manuscript ID IMR-10-2015-0208.R3
Manuscript Type: Original Article
Keywords: International franchising, Governance modes, Integrative model, Theory-testing case study, Automotive rental industry
International Marketing Review
Accepted for publication!
Maria Jell-Ojobor, Josef WindspergerUniversity of Vienna, Department of Management
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DETERMINANTS OF THE GOVERNANCE STRUCTURE OF THE
INTERNATIONAL FRANCHISE FIRM
A Case Study Analysis in the Automotive Rental Industry
ABSTRACT
Purpose. The governance structure of international franchise firms varies from higher control modes, such as wholly-owned subsidiaries and joint venture franchising, to lower control modes, such as area develop-ment and master franchising. Based on organizational economics, strategic management and international business perspectives, this research uses the case study analysis to empirically evaluate an integrative mod-el on the franchisor’s choice of international governance modes.
Methodology. The study applies qualitative methods, such as in-depth case analysis, to investigate a large set of variables that influence the governance structure decision of the international franchise firm. Specifi-cally, it applies a theory-testing case study with two major competitors in the European automotive rental industry, i.e. Europcar and Sixt. Theory-testing case research is justified by the lack of explanatory re-search due to the complexity of the franchisor-franchisee relationship phenomena, such as the factors that influence the franchisor’s choice of international governance modes. The investigation of the complex governance structure phenomenon requires a holistic analysis.
Findings. The case study shows that environmental, behavioral, transaction-specific, resource-based (sys-tem-specific, market-specific, financial resources) and international strategy considerations are important determinants of the governance mode decision of the international franchise firm.
Research implications. The study responds to the recent call in organizational economics, marketing, strategic management and international business literature to develop and test a multi-theoretical frame-work to explain the governance structure of inter-organizational networks, such as franchise networks.
Originality/value. Few previous studies in international franchising have used more than one theoretical perspective to explain the governance structure of the international franchise firm. This study contributes to the theory-testing case study literature by applying a rigorous method of conducting case research. This includes developing a theoretical framework and a systematic research design. A systematic research de-sign requires a holistic analysis by investigating the international franchise governance modes from a va-riety of theoretical perspectives which are the organizational economics, strategic management and the strategy-structure perspective.
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INTRODUCTION
The international expansion of franchise firms is a dynamic process that is subject to constantly changing
environment conditions. By responding to the specific requirements of host markets the franchisor can
choose between a variety of governance modes to operate the franchise network abroad. The major gov-
ernance modes of international franchise firms are wholly-owned subsidiaries, joint venture franchising,
area development franchising and master franchising (Konigsberg, 2008). These governance modes are
characterized by a certain level of control, referring to ownership, decision and residual income rights the
franchisor allocates between the headquarters and the foreign operations (Jell-Ojobor and Windsperger,
2014). For instance, in joint venture franchising the franchisor and the foreign joint venture partners share
asset ownership, decision rights and residual income rights, while in case of master franchising the master
franchisors have only decision and residual income rights (Mumdziev, 2011). While the franchise govern-
ance structure analysis attracts growing research attention, little is known about the decision-making con-
text of franchisors to choose one governance mode over the other (e.g. Walker and Etzel, 1973; Hackett,
1976; Chan and Justis, 1990, 1992; Zietlow, 1995; Ryans et al., 1999; Burton et al., 2000; Baena, 2013).
Moreover, existent studies hardly apply multi-theoretical perspectives, based on transaction cost and agen-
cy-based perspectives (Fladmoe-Lindquist and Jacque, 1995; Contractor and Kundu, 1998a,b; Burton et
al., 2000; Sashi and Karuppur, 2002; Castrogiovanni et al., 2006; Garg and Rasheed, 2006; Chen, 2010;
Baena, 2013) and on resource- and organizational capabilities-based concepts (Contractor and Kundu,
1998a,b; Erramilli et al., 2002). Therefore, the research deficit in the franchise and market entry literature
relates to the scarcity of theoretical and empirical studies that integrate different theoretical views to ex-
plain the governance modes of the international franchise firm. In response to this deficit, this paper tests
an integrative model based on organizational economics (i.e. agency theory, transaction cost theory and
property rights theory) and strategic management perspectives (i.e. resource-based and organizational ca-
pability theory) by conducting a case study analysis.
We use a confirmatory research method by applying a rigorous method of conducting case research that
includes developing a theoretical framework and a systematic research design (Barratt et al., 2011).
“Through the development of more rigorous methods of conducting case research, the case study…can be
effectively used to test theory in complex environments” (Johnston et al., 2011: 211). Why do we choose
theory-testing case research? Theory-testing case research is mainly justified by the lack of explanatory
research due to the complexity of the business-to-business relationship phenomena in franchising (Bono-
ma, 1985), particularly the influencing factors on the franchisor’s choice of international governance
modes. A systematic research design requires a holistic analysis of the complex phenomenon (i.e. the in-
ternational franchise governance structure) from a variety of theoretical viewpoints (Ghauri, 2004; Ghauri
et al., 2009).
What is the contribution of this study? First, since few previous studies in international franchising have
applied more than one theoretical perspective to explain the international franchise governance modes, this
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study is a first step to close the empirical gap by applying Jell-Ojobor and Windsperger’s (2014) integra-
tive framework to the automotive rental industry. We conduct an in-depth, theory-testing case study analy-
sis by collecting data from two leading international car rental systems, i.e. Sixt and Europcar. In our case
study analysis, we extend this governance model by including the international strategy variable (i.e.
standardization and adaptation strategy) as antecedent of the international governance mode choice. Based
on the strategy-structure view of Chandler (1962), we argue that the franchisor’s strategy influences his
choice of the international governance modes. Second, the results of this study also contribute to the recent
literature on foreign operations as mode combinations and modifications (Petersen and Welch, 2002; Beni-
to et al., 2009, 2011). The findings indicate that franchisors combine franchise modes according to the
desired level of control over foreign operations as ‘mode packages’ (Benito et al., 2012). Third, we re-
spond to the recent calls for the use of more qualitative methods when explaining complex governance
structures in international business (e.g. Hurmerinta-Peltomäki and Nummela, 2006; Sinkovics and Ghauri,
2008; Welch et al., 2011; Benito et al., 2012). Although several case studies have been conducted in inter-
national franchising (e.g. Preble et al., 2000; Petersen and Welch, 2000; Jones, 2003; Frazer, 2003; Pizanti
and Lerner, 2003; Doherty and Alexander, 2004; Choo, 2005; Szulanski and Jensen, 2006; Picot-Coupey,
2006; Altinay and Miles, 2006; Doherty, 2007, 2009; Paik and Choi, 2007; Choo et al., 2007; Chen, 2010;
Brookes and Roper, 2011; Forte and Carvalho, 2013), none of those applied a theory-testing case approach
(Tsang, 2013). As Tsang (2013) and others (Bitektine, 2008; Doz, 2011; Birkinshaw et al., 2011) point out,
particularly the case study methodology has a great potential to test theory-based frameworks on govern-
ance structures that result in a large set of complex, interconnected variables. Hence, our study adds to the
theory-testing case study literature by applying a rigorous method of conducting case research (Bitektine,
2008; Gerring, 2017). In contrast to many qualitative case studies that miss sufficient details in research
design, data collection, and data analysis (Barratt et al. 2011), we address this deficit in our theory-testing
case study.
The paper proceeds as follows: In section two, we present the research model and the hypotheses on the
governance structure of international franchise firms. In section three, we give an overview of the method-
ology used and a description of the sample cases. In section four, we discuss the case study findings. Final-
ly, we conclude with discussion and implications.
OVERVIEW OF THE RESEARCH MODEL AND HYPOTHESES
Based on Jell-Ojobor and Windsperger (2014), this model distinguishes the following governance modes
of international franchise firms: Wholly-owned subsidiary (WOS), joint venture franchising (JVF), area
development franchising (ADF) and master franchising (MF). The franchisor’s level of control increases
from master franchising, area development franchising, joint venture franchising to the wholly-owned sub-
sidiary because more ownership and decision rights are allocated to the franchisor. Compared to WOS,
JVF and ADF, MF agreements do not assign ownership rights but only decision and residual income rights
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between the franchisor and the master franchisor (Mumdžiev, 2011).
The model derives several hypotheses from transaction cost theory (TCT), agency theory (AT), resource-
based theory (RBT) and organizational capabilities theory (OCT). The following factors influence the gov-
ernance structure of the international franchise firm: System-specific assets, local market assets, financial
assets, environmental and behavioral uncertainty, and transaction-specific investments. In addition, we
respond to Jell-Ojobor and Windsperger’s recommendations also to include the international strategy theo-
ry perspective into the analysis. Therefore, we complement Jell-Ojobor and Windsperger’s (2014) pro-
posed set of hypotheses by the international strategy hypothesis. Furthermore, we fine-tune the traditional
transaction cost predictions by distinguishing environmental uncertainty according to three dimensions:
cultural, economic and institutional uncertainty. Figure 1 illustrates the research model which will be ex-
plained in the following.
--- INSERT FIGURE 1 HERE ---
International Strategy
Based on the structure-follows-strategy view of Chandler (e.g. Chandler, 1962; Leitmannslehner and
Windsperger, 2012), the international strategy theory (e.g. Bartlett and Ghoshal, 1989) argues that a firm’s
foreign operation mode must be aligned with its international strategy (Grøgaard, 2012). The international
strategy theory distinguishes between two major strategies: global and multi-domestic (multinational)
strategy (e.g. Harzing, 2002; Brouthers and Hennart, 2007; Cui and Jiang, 2008; Pehrsson, 2008; Grøgaard,
2012). A global strategy is chosen in highly competitive industries with interconnected product markets,
which enables the exploitation of scale and scope advantages and the diffusion of standardized products.
For instance, Huszagh et al. (1992) showed that globalization and technology advancements lead to a con-
vergence of consumer tastes, therefore diminishing product differentiation barriers for international fran-
chisors. In comparison, multi-domestic strategies are applied in less competitive industries with
predominately domestic competition, whereby the focus lies on product adaptation to local peculiarities
and requirements (Harzing, 2000).
If we apply this reasoning to international franchising, it can be argued that firms that face global pressure
will pursue a standardization strategy in markets that demand interconnected products (Harzing, 2002) of a
homogenized, high-quality standard. By contrast, firms that face pressure for local responsiveness, where
the focus is on gaining competitive advantage through first mover advantages as opposed to cost savings
through standardization (Kaufmann and Eroglu, 1999), will pursue an adaptation strategy. These strategies
have to be aligned with the governance structures (Grøgaard, 2012). Respectively, Pak (2002) and Dunning
et al. (2007) confirmed that UK and US international franchisors applied equity modes of entry to gain
global competitiveness with the accumulation of new knowledge and organizational competences in com-
petitive foreign markets. Similarly, they showed that US and UK international franchisors recognized the
significant role of foreign franchisees in the efficient and quick penetration of host markets. Consequently,
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if the international franchise firms pursue a standardization strategy, they are more likely to use higher
control modes, and if they pursue an adaptation strategy they are more likely to use lower control modes.
H1a: Standardization strategy is positively related to the franchisor’s tendency to use of higher
control modes.
H1b: Adaptation strategy is positively related to the franchisor’s tendency to use of lower control
modes.
System-specific Assets
The franchisor’s system-specific assets refer to knowhow and capabilities, such as brand management, site
location, store layout, product development and procurement management. System-specific assets are con-
verted into final products and services, which comprise all features of the franchise business format, such
as technological or proprietary knowhow, communication systems, accounting systems, software, store
layout, customer competence, sales and marketing strategies, R&D, advertising and promotion and moni-
toring techniques. The franchise system-specific assets have a high rent-yielding potential for the franchise
firm, because they are difficult to transfer across firm boundaries and thus cannot be easily imitated (Sarkar
and Cavusgil, 1996; Luo, 2000). Accordingly, based on the resource-based and organizational capabilities
theory, the franchisors will choose higher control modes (such as joint venture or wholly-owned subsidi-
ary) as international governance form when high monitoring and knowledge transfer capabilities are re-
quired to ensure efficient implementation and deployment of the system-specific assets in the host
countries:
H2: The more important the franchisor’s system-specific assets for value creation, the higher the
franchisor’s tendency to use higher control modes.
Local Market Assets
In cross-border franchising, a franchise package may only be successfully implemented if it is adapted to
the requirements of the foreign market. Due to the firm specificity (i.e. heterogeneity and non-
transferability) of local partners’ market assets, they are difficult to acquire by the franchisor. According to
the resource-based and organizational capabilities theory, the greater the rent-yielding potential of the local
market assets of the foreign partners, the higher the franchisor’s propensity to use lower control modes,
such as area development and master franchising (Chan and Justis, 1990; Preble et al., 2000; Pak, 2002;
Jones, 2003; Dunning et al., 2007; Choo et al., 2007):
H3: The more important the franchise partners’ local market assets for the value creation of the
network, the higher the franchisor’s tendency to use lower control modes.
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Financial Assets
International franchise firms can finance system growth more easily and less costly when they have access
to the local partners’ financial resources (e.g. Oxenfeldt and Thompson, 1969; Caves and Murphy, 1976;
Gonzalez Diaz and Solis-Rodriguez, 2012). In this situation, the foreign partners’ financial assets support
the internationalization and successful implementation of the franchise business format in the host country.
Therefore, from a resource-based perspective, franchisors constrained in expanding their businesses in the
foreign market by limited financial resources will favor lower control modes, such as joint venture fran-
chising, area development and master franchising:
H4: The higher the financial resources required for implementation of the franchise concept in the
foreign market, the higher the franchisor’s tendency to use lower control modes.
Environmental Uncertainty
According to the transaction cost theory, higher environmental uncertainty, due to the franchisor’s inability
to evaluate the cultural, economic and institutional peculiarities of host countries accurately, results in high
transaction costs. Depending on the specific dimensions of environmental uncertainty, i.e. cultural, eco-
nomic and institutional dimension, franchisors choose different governance modes to effectively reduce the
challenges of environmental uncertainty in host countries.
Cultural uncertainty results from a lack of knowledge of the local customs and culture (Miller, 1992,
1993). It reflects differences in language, business practices, social structure such as income, education and
gender role, ideology, religion, work ethic and consumer preferences (Hennart et al., 1998). It affects man-
agerial and operational business practices, communication and performance evaluation, as well as the pro-
vision of attractive products and services to local customers (e.g. Eroglu, 1992). Franchise partners who are
located geographically close to customers and are familiar with the local culture will be better able to mod-
ify products, services, and promotional strategies to suit the local expectations and requirements (Sashi and
Karuppur, 2002) as well as adapt administrative procedures, such as management techniques and monitor-
ing, in order to function in the foreign business environment. For instance, Chan and Justis (1990, 1992)
observed that due to the unfamiliarity with the local market and the need for business format adaptation to
culturally sensitive local demands, US franchisors chose master franchising as an entry strategy into the
markets of East Asia and the European Community.
H5a: The higher the transaction costs due to cultural uncertainty, the higher the franchisor’s ten-
dency to use lower control modes.
Economic uncertainty refers to the volatility of the economy and comprises the instability of the demand
and competition in host countries. In situations of competitive uncertainty, the franchisor is unable to pre-
dict the number of new competitors that will be entering the host market and to reply with competitive
action-taking in due time, such as aggressive pricing, advertising and distribution strategies. Demand fluc-
tuations, resulting from frequent technological and/or economic changes, involve instability in the overall
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industry and make the forecast of future sales difficult. An uncertain, changing demand and/or competitive
situation create the need for strategic change, technological innovation and product adaptation (Sanchez-
Peinado and Pla-Barber, 2006; Kor et al., 2008). This requires more local information processing capacity
by delegating coordination tasks to local partners (Williamson, 1975; Gulati et al. 2005). Hence franchisors
can effectively reduce the challenges of environmental uncertainty in host countries by making use of the
partners’ higher local information processing capacity for dealing with human capital, suppliers, customers
and competitors (e.g. Fladmoe-Lindquist, 1995; Contractor and Kundu, 1998a, 1998b; Burton et al., 2000;
Sashi and Karuppur, 2002; Grewal et al., 2011). In order to cope with these unforeseen contingencies in the
host market, franchisors will adopt lower levels of control, which allow them to flexibly adapt to the
changing environment by avoiding high switching and adaptation costs.
H5b: The higher the transaction costs due to economic uncertainty, the higher the franchisor’s ten-
dency to use lower control modes.
Institutional uncertainty refers to differences and changes in the legal, regulatory and political environ-
ment. In international franchising, institutional uncertainty is frequently associated with a high degree of
government interference, high corruption and weak legal protection. High regulatory risk due to missing
legal enforcement and protection mechanisms in case of disputes and copyright violation can result in high
litigation costs and have a severely negative impact on a firm’s brand name and reputation. Especially in
international service franchising, the core elements of the standardized business format, such as advertis-
ing, marketing and sales techniques, are well-documented in the franchise manual, and are therefore easily
imitable. Since franchising requires trust (Dant and Nasr, 1998; Doherty and Alexander, 2004), honesty
and respect for the law (Alon, 2006), international franchisors will choose higher levels of control, such as
wholly-owned subsidiary and joint venture franchising, when institutional uncertainty is high in host coun-
tries.
H5c: The higher the transaction costs due to institutional uncertainty, the higher the franchisor’s
tendency to use higher control modes.
Transaction-specific Investments
Based on transaction cost theory, the partnership between the franchisor and franchisees requires bilateral
investments in transaction-specific assets to realize the rent-yielding potential of firm-specific assets
(Madhok and Tallman, 1998; Ghosh and John, 1999). These bilateral transaction-specific investments lock
the local franchise partners into a relationship with the franchisor in the host market (Anderson and Gat-
ignon, 1986), thereby creating mutual dependency that results in more cooperative behavior to realize the
relationship-specific rents (e.g. Brown et al., 2000; Rokkan et al., 2003). Depending on the symmetry or
asymmetry of transaction-specific investments between the franchisor and her/his local partners, the fran-
chisor will choose either lower or higher control modes (see Figure 1):
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H6a: The higher the franchisor’s transaction-specific investments relative to the franchise partners,
the higher the franchisor’s tendency to use higher control modes.
H6b: The higher the franchise partners’ transaction-specific investments relative to the franchisor,
the higher the franchisor’s tendency to use lower control modes.
Behavioral Uncertainty
According to the agency theory, agency problems arise from behavioral uncertainty, especially when mar-
ket conditions are not easily predictable and information asymmetry and/or geographic distance are high
(e.g. Rubin, 1978; Brickley et al., 1991; Lafontaine, 1992; Alon and McKee, 1999; Fladmoe-Lindquist and
Jacque, 1995; Castrogiovanni et al., 2006). With franchise contracts, the local partners are residual claim-
ants and face high-powered incentives to maximize effort in maintaining high service and product quality
thereby reducing agency costs (e.g. Rubin, 1978; Eisenhardt, 1988, 1989; Minkler, 1990; Fladmoe-
Lindquist, 1991). Particularly, lower control modes, such as international multi-unit (area development)
franchising and master franchising, may mitigate agency problems, e.g. adverse selection, free-riding or
inefficient information sharing, through long-term goal alignment between the franchisor and local partners
(e.g. Shane, 1996; Garg and Rasheed, 2006; Chen, 2010; Gillis and Castrogiovanni, 2012). Consequently,
the monitoring cost-increasing effect of behavioral uncertainty increases the franchisor’s propensity to
choose lower control modes, such as area development and master franchising:
H7: The higher the monitoring costs due to behavioral uncertainty, the higher the franchisor’s ten-
dency to use lower control modes.
Table 1 summarizes the hypotheses.
--- INSERT TABLE 1 HERE ---
RESEARCH METHODOLOGY
Our case study analysis applies an explanatory, theory-testing and theory-refining research design (Yin,
2008; Dul and Hak, 2008) to examine whether the theoretical patterns, derived from the integrative fran-
chise governance model (see figure 1 and table 1), are compatible with the empirical patterns. The theory-
testing case study can provide insight into the yet little-understood causal relations of strategic, environ-
mental, behavioral and asset-specific factors influencing the governance structure of the international fran-
chise firm.
Operationalization of the Theoretical Constructs
Based on the integrative framework, we operationalize the determinants of the governance mode choice
which guides our data collection and analysis by using the pattern matching approach. In order to move
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from the theoretical concept to a systematized concept for scoring and classifying cases, measures are de-
veloped which capture the meaning of the theoretical constructs. Indicators represent systematic scoring
procedures which can range from simple measures to complex aggregated index (Adcock and Collier,
2001:530). The operationalization task is crucial to preserve a chain of evidence when the investigator
“shifts from data collection to within-case analysis, to cross-case analysis and to overall findings and con-
clusions” (Yin, 1981: p.63). Maintaining a chain of evidence enlightens the conclusion-finding process. It
contributes to the construct validity of the case study.
This case study’s chain of evidence started with the definition of research questions and the adoption of
Jell-Ojobor and Windsperger’s (2014) research model and hypotheses (see figure 1 and table 1). Now we
proceed with the operationalization of indicators by taking into consideration research results of previous
works in international franchising. The developed indicators refer to the dependent and independent varia-
bles of the international franchisor’s governance structure model which are the franchisor’s level of con-
trol under the various governance modes (as dependent variable) as well as the international strategy,
system-specific assets, local market assets, financial assets, environmental uncertainty, transaction-specific
investments and behavioral uncertainty (as independent variables). Table 2 (columns four and five) sum-
marizes the indicators for the dependent and independent variables.
--- INSERT TABLE 2 HERE ---
Data Collection and Analysis
The operationalization of the theoretical concept is an important task for ensuring data collection, coding
and analysis. Based on the operationalized indicators of the theoretical concept (theoretical patterns) inter-
view questions were developed for data collection. The collected data was coded on the basis of operation-
alized indicators (empirical patterns) and then compared with the theoretical patterns in the process of
hypotheses-testing (pattern matching). In the following, we describe the processes of data collection and
analysis.
Our research design is built on Yin’s (2008) recommendations and chooses the international franchise firm
as the unit of analysis. In this context, cases are selected on basis of providing sufficient evidence to sup-
port the integrative framework (Johnston et al., 1999). The domain of this case study is applied to the au-
tomotive rental industry. This industry is represented by well-established international franchise systems
applying different franchise modes for organizing foreign franchise operations. Competition in the capital-
intensive automotive rental industry is fierce, restricting the market to a few dominant global players that
sustain their market leader position through consolidation with rival companies (Jacobsen, 2004) and ag-
gressive diffusion of the franchise network. Table 3 provides descriptive information on the candidate
firms of the case study sample domain.
--- INSERT TABLE 3 HERE ---
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Our case study design follows theoretical sampling and hence literal replication logic where cases are pur-
posely selected to provide compelling support for the hypotheses developed from the prior research
framework (Miles and Huberman, 1994; Perry, 1998; Johnston et al., 1999; Voss et al., 2002; Altinay and
Wang, 2006). The goal is to replicate and extend the emergent theory (Eisenhardt, 1989; Parkhe, 1993;
Johnston et al., 1999; Yin, 2008) and hence strengthen the external validity and generalizability of the re-
sults (Yin, 2008). Therefore, in order to avoid cultural distortion of results, we limit case selection to one
geographic domain (Dul and Hak, 2008) and only include European-rooted franchise systems in the final
sample. Consequently, Avis Europe, due to their strong ties with American cooperation partner Avis US,1
American Hertz and Enterprise do not qualify as candidate cases. German-headquartered Sixt who are
holding over 70% of the European automotive rental market share, together with Europcar, the global lead-
er that were acquired from German Volkswagen AG by the French investment company Eurazeo in 20062,
comprise the final ‘information rich’ (Patton, 1990) sample cases.
Data was collected between April 2009 and January 2010, primarily through a series of focused, open-
ended, face-to-face interviews with the international franchise expansion directors at Sixt and Europcar
headquarters in Germany and France, following a semi-structured interview guide which is included in
appendix 1. Recording the interviews with a tape recorder provides an accurate rendition of the infor-
mation. This and the interview guide as part of the research protocol contribute to the reduction of observer
bias and greater reliability of results (Voss et al., 2002; Yin, 2008). Based on Brislin’s (1970) recommen-
dations, translation from German and French into English and back-translation to exclude eventual transla-
tion errors is conducted by native speakers with scientific expertise in organization management.
The collected data is transcribed and reviewed to identify gaps and areas requiring further clarification.
Specific information received by one case raises the need to observe those areas also in the other case.
Subsequently, the investigator arranged for follow-up telephone interviews with the franchise directors to
clarify information gaps and discrepancies. Overall, the interview lengths were between 45 minutes to two
hours and accumulated in seven hours and 40 minutes of interview data. In addition, following the process
of data triangulation (Eisenhardt, 1989; Johnston et al., 1999; Yin, 2008), the data is corroborated with
secondary sources of evidence such as firm-internal documents, annual audit reports, scientific papers,
newspaper articles and web-based information.
We apply the pattern matching logic to examine whether the findings of the case study (empirical patterns)
are consistent with the hypotheses of the research model in table 1 (theoretical patterns). The advantage of
pattern matching lies in its potential to use complex hypotheses and concepts and to analyze data from a
multivariate perspective (Trochim, 1989). This supports the internal validity of the case study (e.g. Gibbert
et al., 2008; Dul and Hak, 2008), which is relevant during the process of data analysis and refers to the
causal relationships between variables and results.
1 http://www.avis-europe.com/our-company/avis-europe-at-a-glance.aspx 15.03.2011. 2 http://www.europcar.com/EBE/module/render/Our-history 15.03.2011.
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Supported by the application of Atlas.ti software, data analysis starts with an in-depth, within-case analysis
“to become intimately familiar with each franchise system as a stand-alone entity” (Eisenhardt, 1989,
p.540). Following Miles and Huberman’s (1984, 1994) recommendations on case study data analysis, in-
terim data reduction is obtained by relating the corroborated data to the beforehand operationalized indica-
tors, thus generating (empirical) explanatory pattern codes. This is followed by analytical data
fragmentation with the open coding technique. Thereby, events, ideas, observations and sentences were
extracted from the multiple data sources and given conceptual (codes) and similar labels, which were
grouped together to form categories and sub-categories. Categorizing the transcribed data eventually re-
sulted in new or different concepts, thus leading to a constant refinement of the initial explanatory pattern
codes. The constant questioning and comparisons while reducing the data with open coding technique de-
crease the investigator’s risk of subjectivity and research bias. This first level analysis resulted in 40 codes
and 120 sub-codes within Atlas.ti software. By applying axial coding, data is organized by relating catego-
ries to sub-categories in a rational manner. During the coding process, several initial categories were elimi-
nated from the coding scheme, while some concepts turned out to fit better with other categories (Strauss
and Corbin, 1990). In this second level of analytical coding, codes and sub-codes were categorized into 19
code families within Atlas.ti to represent their combined relevance in explaining respective dependent and
independent concepts.
In a second step, with cross-case analysis, those factors are identified that influenced the international fran-
chise systems’ applied governance structures with the goal “to assemble the theory-supporting evidence
from each case” (Johnston et al., 1999, p.209). The individual cases are analyzed to search for within-
group similarities and/or differences (patterns) (Eisenhardt, 1989; Voss et al., 2002) and data are used in an
aggregated cross-case analysis (Yin, 1981, p.64; Yin, 1994, p.135) by being organized around the research
questions and hypotheses. If individual cases reveal contrasting ‘stand-alone’ results, appropriate examples
are provided separately. However, no attempt is made to present the single franchise systems as individual
case studies (Yin, 1994, p.137).
The final coding scheme is summarized in Table 2. The first five columns refer to the predicted patterns
including the hypotheses, theories, theoretical constructs, operationalized indicators and evidence from the
literature. Columns six, seven and eight capture the observations of the empirical analysis as empirical
patterns, summarized in code families, main codes and sub-codes. In case the empirical patterns match
with the theoretical ones, we may assume that the theory-based hypotheses are supported by the empirical
data.
CASE STUDY FINDINGS
In the following, first we discuss the major international franchise modes that we observed in the automo-
tive rental industry, and thereafter, we analyze the determinants of the governance modes of Sixt and Eu-
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ropcar. Appendix 2 includes selected quotations (empirical patterns) that specify the specific franchise
modes as well as the determinants influencing Sixt and Europcar’s international governance mode choice.
Major International Franchise Modes
The case study analysis of Sixt and Europcar’s franchise internationalization strategies focuses on three
foreign governance modes which can be differentiated according to the franchisors’ degree of control (see
figure 2). Both franchise systems started international expansion via the establishment of wholly-owned
subsidiaries (WOS) through organic growth or takeovers in the ‘big’ European markets where franchisors
contribute all necessary financial and human resources and bear full financial risk over the foreign fran-
chise operations. WOS organize local franchise network expansion through company-owned and fran-
chised outlets (plural form). In France, for example, Sixt own stations located in heavy traffic areas and, in
addition, grant licenses to more than 30 franchisees, some of them own even more than one station (domes-
tic multi-unit franchising). Europcar use the plural form in France whereas in UK and Spain they applied a
buy-back strategy to convert franchise stations into company-owned ones. Apart from their system head-
quarters in Germany, Sixt established WOS in France, UK, Spain, Austria, Switzerland, the Netherlands,
Belgium and Luxembourg, thereby possessing over 1.000 corporate stations. Europcar with their corporate
headquarters in France own WOS in UK, Spain, Italy, Portugal, Germany and Belgium with roughly 1.800
corporate stations. Furthermore, in 2008, they took over their Australian master developer to establish di-
rect presence outside of Europe in the Asia Pacific region.3
--- INSERT FIGURE 2 HERE ---
In the remaining countries of Europe, Africa, Middle East, Asia-Pacific and South and Central America,
Sixt and Europcar expand their franchise networks via master development franchise agreements (MDF).
Consistent with Konigsberg’s definition (2008: p.127ff), MDF is a special form of multi-unit franchising4,
such as area development franchising, established directly between the franchisor and the local partners,
i.e. master developers. Under area development franchising, the area developer is granted the right to es-
tablish and operate a certain number of outlets within a particular territory, but is not allowed to sub-
franchise. The scope and responsibilities of MDF go beyond those of area development franchising, as
MDF covers a much greater geographic region, usually the entire country. MDF is therefore used in the
same circumstances as master franchising, with the exception that the master developer’s right (under
MDF) to sub-franchise is restricted to specific conditions. The empirical evidence of MDF confirms the
recent trend toward higher control, which, under master franchising, is indirect and divided between fran-
chisor and master franchisee on the one hand, and master franchisee and sub-franchisees on the other hand
(Konigsberg, 2008: p.131). Consequently, relating to the recent literature on ‘mode combinations’ (Pe-
3 Europcar Activity Report 2009: p.28.
4 Multi-unit franchising is analyzed, for example, in Kaufmann and Dant (1996), Grünhagen and Mittelstaedt (2002, 2005), Garg and Rasheed (2006), and Grewal et al. (2011).
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tersen and Welch 2002; Benito et al. 2009, 2011), our findings modify Jell-Ojobor and Windsperger’s
(2014) original governance structure model by adding MDF, which combines features of both area devel-
opment franchising and master franchising agreements, i.e. the need to own and operate franchise car rental
stations by the master developer (area development franchising-feature) in the entire country without any
presence and significant intervention of the franchisor, coupled with the right to adapt the franchise system
to the local institutional, economic and cultural environment (master franchising feature). In total, Sixt’s
master developers own and operate around 1.000 franchise outlets while Europcar’s master developers
possess around 3.500 franchise outlets around the world.
Finally, both franchise systems apply full or shared control modes in the Asia Pacific region where Europ-
car strategically bought back the Australian master developer to establish direct presence in 20085, fol-
lowed by the allocation of expatriate personnel in Bangkok, and Sixt entered into a joint venture (JV)
partnership in Singapore. These higher control modes outside Europe provide international franchisors
with the geographic proximity to penetrate the neighboring Asian countries with MDF agreements.
Traditionally, in JV agreements control in terms of ownership and decision rights is shared between the
franchisor and local JV partner (Windsperger et al., 2009). Sixt and Europcar both have objections toward
entering into JV agreements and allocating own financial resources and know-how. However, Europcar
advise that due to high institutional and behavioral uncertainty in specific regions, such as China, joint
venture franchising (JVF) is the only efficient way to bypass market entry barriers and safeguard against
trademark violation. Whereas, Sixt’s JV company in Singapore possesses restricted control rights to only
provide operational support with the development of the Asia Pacific region while the local MDF agree-
ments are established directly by the franchise system headquarters. Therefore, these organizational modes
may not be considered as franchise modes in the traditional sense where, according to Konigsberg, “the JV
company in its capacity as [area] developer…or…in its capacity as sub-franchisor [‘master franchi-
sor’]…establishes the franchise business in the foreign country” (Konigsberg, 2008: p.237). Rather, they
relate to the literature on ‘mode modifications’ (e.g. Benito et al., 2009). They can be considered as ‘devel-
opment organizations’ to assist the franchisor in developing specific regions with local MDF partnerships,
e.g. for screening and monitoring of potential franchise candidates, but not entering into franchise agree-
ments directly with the local master developers which remains in the responsibility of the system headquar-
ters.
After a period of local learning and familiarization with the host market characteristics, local operations
and routines become less specific and heterogeneous to the franchisors, who hence become less dependent
on the region-specific knowledge of the JV partners. Many previous studies show a positive relation be-
tween international experience in managing foreign operations and an increase in equity commitment and
control of the franchise firm (Fladmoe-Lindquist and Jacque, 1995; Contractor and Kundu, 1998a, b; Er-
ramilli et al., 2002). For Sixt, the JV partner’s local competence and financial assets are of particular rele-
5 Europcar Activity Report 2009: p.28.
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vance in the initial stage of market access and development. Subsequently, over time, Sixt increased the
equity share in the Singaporean JV company from 65% to 88%.
In sum, our case study findings regarding the international franchise governance structure contribute to the
existing literature on mode combinations, mode modifications and mode changes (Benito et al., 2012).
Thereby, we replace area development franchising and master franchising by MDF, which combines fea-
tures of both area development franchising and master franchising agreements. Furthermore, with the mod-
ification of JVF, the local JV company supports the franchisor’s regional franchise development but is
restricted in its rights of entering into direct regional MDF relationships. The international franchisor’s
path-dependent increase of foreign JV equity participation contributes to recently discussed ‘mode chang-
es’ as a dynamic process in the international market entry literature. Therefore, as illustrated in figure 3,
our findings modify Jell-Ojobor and Windsperger’s (2014) original model by positioning MDF between
area development franchising and master franchising while characterizing JVF as a pure development or-
ganization.
--- INSERT FIGURE 3 HERE ---
Determinants of the Governance Modes of the International Franchise Firm: The Case of Sixt and
Europcar
In the following, the observed determinants of Sixt and Europcar’s foreign franchise governance modes,
i.e. the establishment of WOS, MDF and JVF, are analyzed by comparing the theoretical patterns, based on
international strategy theory, resource-based and organizational capabilities theory, and transaction cost
and agency theory, with the empirical patterns.
International Expansion through Wholly-Owned Subsidiaries
The results of the pattern matching analysis of Sixt and Europcar’s choice of WOS are summarized in table
4.
--- INSERT TABLE 4 HERE ---
International strategy (H1a - confirmed)
Pak (2002), Alon (2006b) and Dunning et al. (2007) argue that the more franchisors seek to gain competi-
tive advantage by engaging in international operations, the more likely they are to enter host markets via
equity modes. The case study results are compatible with this view by showing that the franchise firm’s
international strategic orientation (based on international strategy theory) has an important influence on the
choice of governance modes.
With the established international franchise departments staffed with skilled and well-trained key person-
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nel at headquarters around ten years ago, Sixt and Europcar pursue a global strategy to provide homogene-
ous, sophisticated product standard with WOS in key Western European markets (‘corporate countries’,
such as Germany, France, UK, Italy, Spain, Portugal, Austria, Switzerland, the Netherlands, Belgium and
Luxembourg). Whereas outside of ‘corporate’ Europe and complemented by local modifications, they li-
cense a standardized franchise business format through renewing existing MDF contracts, granting new
ones and entering into alliances with strategic partners. In this respect, similar strategic decisions are made
by the automotive industry, differentiating between high control modes to guarantee market communica-
tions of premium brands consistency, necessary to satisfy well-informed and demanding customers, and
lower control modes to provide cost-efficiency and local adaptation with the distribution of volume brands
(Parment, 2008).
According to Sixt, “the question is where are the customers coming from? Where does it make sense to
franchise and where to be corporate?” The answer according to Europcar is “countries that generate the
most ‘outbound’ business, i.e. business that takes place somewhere else [outside the country of origin]. It
is always good to serve the [big] business customers out of a structure which one controls”. “It is well
known that the German, French, English and Italians travel a lot. These are the big outbound markets that
generate demand, not just for business customer accounts but also for tourism [Sixt]”6.
In 2008 the worldwide vehicle rental market generated 75 billion Euro turnover of which around 43% ap-
pertained to the USA and Canada, 28% to Europe, 14% to Asia Pacific, 7% to Latin America and 6% to
the Middle East and Africa. The size of the European vehicle rental market is estimated to be around eight
billion Euros with Germany being Europe’s most significant single market, accounting for almost one third
of revenue, followed by France, UK and Spain. Apart from one strategic buy-back decision of Europcar’s
master developer in Australia in 2008, Sixt and Europcar establish WOS exclusively in homogeneous
Western European countries where maintenance of brand homogeneity and high system standard is of ut-
most importance in order to exploit the large market shares of business and private customers. This, in
return, is a viable condition to entering into long-term strategic partnerships with the tourism and mobility
industry, such as airlines, hotel chains, hotel reservation and marketing associations and also car manufac-
turers and dealers, through which joint customers benefit from comprehensive, integrated, exclusive mobil-
ity services and competitive prices, thus further contributing to the competitive position of the global car
rental firm. For example, being a partner of global distribution systems (GDS), which are worldwide pro-
grams targeting travel agents, online reservation sites, tour operators and consolidators, can significantly
accelerate reservations and sales.
Therefore, the Sixt and Europcar ‘corporate countries’ are characterized by a mature economy with a
strong business sector and high levels of private consumption, accumulating a strong demand for car rental
services inside and outside the countries of origin (outbound countries).
Resources and organizational capabilities (H2 - confirmed)
6 In the following, citations by Sixt and Europcar are quoted with “[S]” and “[E]”.
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The competitiveness of global car rental brands and systems primarily depends on five factors: Price, vehi-
cle availability, service quality, distribution locations and product innovation7. Table 5 summarizes how
these ‘competitive edge’ characteristics, anchored in Sixt and Europcar’s franchise systems, have a high
potential to attract global customers.
--- INSERT TABLE 5 HERE ---
In order to establish a leadership position in the outbound markets, the provision of high levels of product
and service standards, brand homogeneity (system-wide standardization) and constant innovations are im-
portant. “Innovations give customers a uniformly high standard of quality plus single-source support [S].
Most of the time, innovations originate from the big ‘corporate countries’. Some things [innovations] have
to be tested first, which is done in corporate test markets [E]. A product innovation is always launched
first in the market which generates the highest demand and biggest volume, so that one can successively
‘sweep the market’ according to market potential, feasibility and cost-benefit ratio [S]”.
Sixt and Europcar confirm that the provision of high levels of service standard and brand homogeneity is
very critical to them in homogeneous ‘corporate countries’ in order “to position the brand to reflect the
Company’s strategic orientation and above all to increase brand awareness abroad [S]”. In this respect,
Sixt and Europcar lay particular focus on enhancing ‘state-of-the-art’ technologies in vehicle rental, such
as e-marketing and e-commerce booking channels. The constant enhancement of the IT-system, a major
asset and success factor of car rental transactions, is of utmost importance to them. Fleet management con-
sists of conflicting concerns of assuring adequate vehicle availability to satisfy customer demand while
maintaining a high degree of utilization for each car in the fleet. IT-tools, such as yield management and
revenue management, are indispensable for strategic decisions in planning fleet size, deployment and
product design and also reservations control and pricing, hence ensuring brand loyalty and customer satis-
faction and achieving high yields.
In order to guarantee high levels of system innovation and system-wide standardization, Sixt and Europcar
invest in incentive systems, training and professional development to increase staff performance and at the
same time reduce personnel turnover and with it a loss of know-how which is related to the risk of service
quality deterioration. Case study findings therefore confirm the transferability challenge of value-creating
system-specific assets and resources grounded in resource-based and organizational capabilities theory
which positively influences franchise firms to use higher control modes. Implementing a highly standard-
ized franchise business format, which is needed to exploit the rent-generating system-specific know-how,
results in synergistic advantages for the franchisor with the establishment of WOS. Franchisors can further
benefit from favorable financial terms and conditions offered to them by external suppliers of capital, such
as banking institutes, car dealers and manufacturers and insurance companies, due to their high market
shares, business volumes and brand name value.
7 Hertz Annual Report, 2009: p.16.
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The ‘corporate countries’ are represented by the leading European economies of Germany, France, UK and
Italy and by the matured economies of Spain, Portugal, Austria, Switzerland, the Netherlands, Belgium and
Luxembourg which are characterized by homogeneous cultural, economic and institutional conditions,
such as a positive consumer attitude toward travelling and vacationing, a matured business sector, a high
education and qualification level of human capital, an attractive infrastructure, high income levels and de-
mand potentials, political stability and developed legal and institutional systems. These are important con-
ditions for the investment in R&D and human resources to exploit and develop system-specific know-how
and assets. Furthermore, in homogeneous, developed countries, exploration and internalization of location-
specific assets and know-how with the establishment of WOS have positive spill-over effects on the entire
franchise system, thus market evaluation and learning costs can be reduced.
Transaction and agency costs (H6a - confirmed)
In ‘corporate countries’, franchisors do not rely on the external partners’ transaction-specific assets and
bear full investment costs to guarantee high levels of brand homogeneity with system-wide standardiza-
tion. Europcar and Sixt claim that it is important to exercise higher control in the markets that create the
most demand and outbound business among business and private customers. “Markets are constantly
changing. There may be product innovations by competitors, own innovations or economic changes. And
therefore, one has to evaluate every year how to become better and constantly adapt” [S]. Even if invest-
ments in financial and human resources are much higher under WOS than under lower control modes, the
high profits generated with the provision of a highly standardized franchise business format in economical-
ly strong markets with minor need for local adaptations and decreased market risk, due to cultural, eco-
nomic, political and institutional differences, offset those costs and positively impact the franchise firms’
tendency to use higher control modes. The case study results therefore are consistent with the transaction
cost perspective, which favors higher control modes to economize on transaction costs in homogeneous
host countries.
In addition and consistent with agency-theoretical arguments, while “maintaining 100% brand homogenei-
ty is important in markets with high growth potential” [S], moral hazard risk can be reduced by the fran-
chisor’s use of standardized monitoring devices in geographically and culturally close ‘corporate
countries’. Sixt and Europcar affirm that while monitoring effort increases with geographic distance, it is
not considered a challenge for European countries.
International Expansion through Master Development Franchising
Table 6 gives an overview of the results of the pattern matching analysis of Sixt and Europcar’s choice of
master development franchising.
---INSERT TABLE 6 HERE---
International strategy (H1b - confirmed)
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“Competition among car rental industry participants is intense and, among other things, based on distribu-
tion locations” (Hertz, 2009). “If you are only a regional player, you cannot service the big contracts with,
for example, IBM, Siemens and Daimler. Winning these contracts is one of the main reasons to build up
and expand a franchise network [S]. The goal is to increase international presence, in order to secure the
franchise system’s leading market position. Franchising offers a clear time-to-market advantage. The fran-
chise strategy is by far the fastest way to enter a country and gain a relevant market position [E]”. There-
fore, in order to sustain a globally competitive market leadership position and hence win contracts with the
big corporate companies and strategic partnerships with the tourism and mobility industry, car rental com-
panies must provide a dense network of strategic car rental locations being represented on a global scale,
such as in all major city centers and airports.
Consistent with international strategy reasoning regarding realizing first mover advantages with lower con-
trol modes, Sixt and Europcar stress that the partner’s synergy effects for the local franchise network ena-
ble the franchisor to enter markets rapidly. “It is the master developer’s know-how that is supporting
franchisors in quickly entering the host market. It depends on how much experience one has. If the master
developer has already worked in the car rental industry before, then he knows the basics. Perhaps one has
to raise the local business to an international standard. In principle however, the basic things are in place
[E]”.
Accordingly, besides offering highly standardized products and services with the establishment of WOS in
homogeneous host countries, Sixt and Europcar provide car rental services to customers in heterogeneous
host countries via standardized franchise package to exclusive master developers. The local partners are
responsible for the location-specific implementation, adaptation and operation of the franchise network.
Similarly, the automotive industry applies lower control modes with the distribution of volume brands
where the emphasis of communicating a global (premium) brand content shifts in favor of local adaptation
(Parment, 2008).
Resources and organizational capabilities (H3 & H4 - confirmed)
In line with resource-based and organizational capabilities reasoning regarding the importance of local
market assets for value generation in host countries, the exploitation of rent-generating system-specific
assets to provide highly sophisticated and standardized products and services is not feasible in the case of
expansion to heterogeneous host countries. On the contrary, the local franchise business format must ac-
count for country-specific peculiarities such as different customer tastes, economic conditions and regula-
tions. For example, the implementation of all features of the reservations system, which is a vital asset in
the car rental industry, is only worthwhile in a few developed European countries as “in similar markets,
new things spread fast. But it makes no sense to ‘break a butterfly on a wheel’ by implementing e-invoicing
and e-vouchers in Zimbabwe [E]. For more heterogeneous regions, it is not so easy to implement Europe-
an software just like that [S]”. Thus in (less developed) heterogeneous countries outside of ‘corporate’
Europe new product features are introduced based on the market potential.
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In doing so, Sixt and Europcar possess the necessary ‘transfer’ capabilities to standardize and transfer
those rent-generating system-specific assets and know-how of the franchise business format that are critical
for successful franchise operations at the local network level by external partners. Previous studies show
that large international franchise systems develop efficient system-specific routines in monitoring to assure
uniformity in product and service quality (Huszagh et al., 1992). Sixt and Europcar confirm that master
developers receive all operational and strategic know-how and headquarters support needed to conduct a
successful local car rental business. Becoming part of the franchise network, master developers benefit
from a competitive brand with high awareness and reputation among a global customer base diffused
through a worldwide franchise network and comprising strategic assets such as being connected to the
global reservations, communication and distribution systems via sophisticated IT tools. The franchisors’
capabilities of entering into new strategic partnerships to invent cooperative product offerings, global ad-
vertising to strengthen the brand’s awareness and constantly expanding network growth further increase
the franchise system value to master developers.
However, “it does not make sense to use the same advertising in Kuwait as in Spain” [E]. Due to hetero-
geneous host country conditions, local innovation of existent product and service features and operational
and strategic processes is vital to provide a better market fit and prevent market failure with the provision
of the standardized franchise business format. Sixt emphasize that market analysis is a very time-
consuming process and only of interest to them in the developed ‘corporate countries’ where new
knowledge is applicable system-wide and results in large synergies. On the other hand, due to their geo-
graphic positioning, master developers more easily acquire the local market assets which are important for
the success of the local business but in most cases do not contribute to system-wide value addition. Conse-
quently, Sixt and Europcar’s partner selection criteria refer to local car rental companies which already
possess operational and strategic car rental know-how and experience and are able to contribute an existing
fleet, customer base, location infrastructure, strategic ties and partnerships to gain competitive advantage at
the local market.
Consistent with this reasoning, previous studies show that international franchisors enter into local partner-
ships via different forms of franchising to take advantage of local franchisee skills and resources, such as
market knowledge of local tastes, labor market and recruitment, site selection and financial resources
(Chan and Justis, 1990; Preble et al., 2000; Jones, 2003; Hoffman and Preble, 2003; Doherty and Alexan-
der 2004; Dunning et al., 2007).
Summarizing, “the car rental industry is a very capital-intensive business, with fleet financing covering
about 50% of the investment costs, and the risk of possible incorrect assessments of market conditions is
high in host countries [S]”. Therefore, the master developer’s local market and financial assets are im-
portant when it comes to negotiating favorable financial terms and conditions with external suppliers of
capital. Due to antitrust laws, car dealer and insurance rates are not homogeneously transferable across
countries. Master developers possess critical know-how and organizational capabilities to establish strate-
gic ties with car dealers, insurance companies and banks which grant them favorable local finance condi-
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tions. As a result, “the more financial resources a partner has, the better it is. The franchisee must be able
to set up the car rental business. He must have money and possibilities to finance it [E]. In the first two
years of business the master developer will definitely not achieve a break-even point [S]”.
Transaction and agency costs (H5a, H5b, H6b & H7 - confirmed)
Based on transaction cost and agency reasoning, the establishment of WOS in all countries is not efficient
due to high set-up costs of the coordination and control structure. Expanding to heterogeneous host coun-
tries in terms of cultural, economic and institutional distance increases the franchisors market failure risk
such as “possible incorrect assessments of market conditions in the countries in question, changes to na-
tional legal frameworks, the costs associated with the establishment of an effective infrastructure and the
need to find qualified management personnel and suitable employees. Acquiring the local market assets in
most cases would mean a tremendous investment of time and money [S]”. Europcar claim that “the more
distant countries are from Europe, the more difficult their management becomes” and that they “do not
have enough personnel to travel every month to Zimbabwe”.
The transaction costs of doing business in heterogeneous host countries increase substantially due to the
need for exploration and evaluation of local market requirements, predicting changes, adaptation of the
standardized franchise business format and monitoring of geographically distant outlets on the one hand,
and the often decreased market potential to provide for economic scale operations on the other hand.
Therefore, Sixt and Europcar outsource the increased transaction risks by expanding with lower control
modes, i.e. MDF, to countries characterized by volatile or heterogeneous environments.
Through the effective standardization of the franchise business format, the franchisors’ transaction-specific
investments to transfer the franchise package to master developers are of moderate intensity and result in
economies of scale to apply the same procedures, routines and standards in many different host countries.
For example, the provision of an ‘online marketing agency’ includes ‘best practice campaigns’ for master
developers to download and copy the relevant corporate identity and marketing tools and adapt them to
local needs to create tailor-made advertising with flyers, posters and campaigns [E].
Sixt claim that they “equip the master developer’s first outlet in Sixt corporate design by supplying all
materials directly from Germany, which guarantees that at least with the first outlet, everything is accord-
ing to system standards and that franchise launch is as smooth and professional as possible. By having
established the system head office, contracting with one or two additional countries does not necessarily
result in higher headquarters manpower requirements. Instead, some synergy effects are achieved, insofar
that the centralized system head office becomes more efficient by accelerating profitability with each sign-
ing of a new contract. By contrast, the establishment of a foreign subsidiary requires high investments
initially. With franchising, the risk is minimal.”
Sixt and Europcar’s franchise network size of around 80 (Sixt) and respectively 150 (Europcar) MDF con-
tracts (data collection took place from May 2009 till September 2010) promotes outsourcing the adminis-
trative and logistic tasks with monitoring foreign franchise activities. Thereby they offer exclusive
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franchise licenses for the whole country where the franchisors only deal with one exclusive partner instead
of contracting with many different ones per country. In return for granting the exclusive franchise license
to master developers complemented by the franchisors’ transaction-specific support services, such as prod-
uct innovations, public relations, standardization and global advertising, master developers compensate the
franchisors by paying franchise fees in the form of entrance (initial) fee, royalty and marketing fees based
on sales, and reservation fees. With the granted territorial exclusivity rights under MDF agreements, the
master developers take over the responsibility to operate the franchise network in the entire host country
and provide high transaction-specific investments in the local establishment of the brand such as trade-
marked outlets in highly frequented areas, fleet, market analysis and location-specific adaptations of the
standardized franchise business concept, staff training and local marketing and advertising.
In this context, the franchisor support services, standardization of the business format and hence the fran-
chisor’s increased power to enforce franchise contract terms also decreases the ex post hold-up potential as
argued by transaction cost theory. Due to the master developers’ higher transaction-specific investments
relative to the franchisor, the master developers’ high dependency may result in less opportunistic behavior
such as hold-up and free-riding. While franchisors mainly suffer from moderate sunk costs of initial set-up
investments, master developers are not able to use the investments in transaction-specific assets outside the
Sixt and Europcar network. In addition, it is unlikely that they could realize a sustainable competitive ad-
vantage in the host market without being part of a global reservations system and franchise brand. “The
question is whether the franchisee after contract termination can continue business without the former
brand and if he will have enough business to operate the network at full capacity? The franchise stores in
the corporate design are 100% system-oriented assets. Whatever the franchisee invested into brand
awareness creation during expansion of the local network in order to gain market presence, he will lose,
such as 3% of turnover spent on local advertising [E]”.
On the other hand, by transferring the standardized franchise business format to master developers, fran-
chisors are confronted with an increased safeguarding risk to protect intellectual property and prevent op-
portunistic behavior due to free-riding or other hold-up risks. “Know-how transfer is provided via training
schemes, meetings, workshops and consultations once a year, as well as on a need-to-know basis [S]. The
initial training leads master developers through all disciplines of car rental business from A to Z [E]”.
Especially under conditions of environmental instability, master developers may abuse their strong market
positions and withhold critical local market knowledge unless more favorable contract terms are offered to
them. Nevertheless, according to Sixt and Europcar, the most important incentive effect for the master
franchisor results from its entrepreneurial role at the local market. Particularly, high-powered incentives
lead to the local implementation and adaptation of the standardized franchise business format and the up-
holding of a high level of homogenous product and service quality standard. Sixt and Europcar say “the
franchisee as an independent entrepreneur” [S] and “own master” [E] is motivated “to make a profitable
business at the end of the day. It makes no sustainable sense for the master developer to provide badly
maintained vehicles which break down on half road, thus reducing daily fleet availability and consequently
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his turnover [S]”.
Therefore, Sixt and Europcar dedicate moderate effort to supervise master developers in host countries
such as yearly audits, occasional surprise visits and the provision of regular reports. This network control is
consistent with Dant and Nasr’s (1998) survey results on US franchise activities in Africa and Middle East.
They reveal that tight control mechanisms restrict autonomy and independence in doing franchise business
and can be counterproductive on franchisee performance. Similarly, Sixt and Europcar grant master devel-
opers the flexibility and decision rights to fully exploit intangible market-specific know-how and capabili-
ties in innovating, adapting, implementing and operating a successful local car rental franchise network.
Through the franchisors’ knowledge management strategy all system-specific know-how and procedures
are documented and become an integral part of the franchise contract. This is relevant to provide a homo-
geneous brand name and franchise product and service standard at the local network level. Consequently,
performance and quality standards, benchmarks and homogeneous monitoring tools became applicable.
Furthermore, the incorporation of the master developers’ local market knowledge in a ‘two-year’ business
plan decreases the opportunistic risk of franchise partners. Based on the master developer’s ex ante market
evaluation, a location-specific business plan, development plan and finance plan are established and inte-
grated in the standardized franchise business format.
The franchise contract terms specify the duties of both parties and precisely state the location of outlets and
pace of network expansion, franchise fee structure, training modalities, financial capital requirements, ad-
vertising intensity, corporate identity compliance and service level agreements. “All relevant working steps
of the car rental workflow can be described, the system’s criteria of operating the franchise business are
summarized and documented [E]. The standardization of the franchise business enables performance mon-
itoring. In case of franchisee behavior that is not system-compatible, the franchisor may quit the contract
at any time [S]”. Then termination clauses become applicable. Those entail compensation payments and
non-competition clauses and result in high sunk costs and the loss of quasi-rents for the local partners.
International Expansion through Joint Venture Franchising
Table 7 gives an overview of the results of the pattern matching analysis of Sixt and Europcar’s choice of
joint venture franchising.
---INSERT TABLE 7 HERE---
International strategy (H1a & H1b - confirmed)
Apart from the establishment of a WOS providing a highly sophisticated franchise product and service in
homogenous, developed Western European countries with large market potentials, and the outsourcing of
the challenges of higher administrative effort, transaction risk and local franchise business format adapta-
tion by benefiting from the master developers’ knowledge and financial resources in heterogeneous host
countries, there may be particular environmental conditions which require a different organizational strate-
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gy to enable successful expansion to particular host countries. This is the case with the regions of South
America and Asia Pacific, which are characterized by high institutional uncertainty but at the same time, as
confirmed by Alon and Banai (2000), Alon (2006a) and Aliouche and Schlentrich (2011), consist of the
largest growing economies for service franchising, i.e. China, India, Russia, Brazil and Mexico. Also re-
garding the car rental industry, “in the emerging economies of Asia Pacific and South America, the mobili-
ty demand is set to increase significantly over the coming years [S]”.
For these dynamic regions with increasing market growth potential, the implementation of a highly sophis-
ticated franchise business format and the provision of a homogenous product and service quality are im-
portant to win an accelerating (outbound) market share. Pak (2002) argues that the more a franchisor is
alert to rival firms' activities, the more likely he enters host markets via higher control modes. Similarly,
Paik and Choi (2007) observe that US franchisors grant less autonomy over local operations to their inter-
national franchisees, the higher the level of host market competition is. Consistent with the international
strategy perspective, Sixt and Europcar confirm that the maintenance of homogeneous product and service
standards and the implementation of sophisticated product innovations are more important in markets with
increasing demand potentials and increased competition, such as in Asia Pacific and South America. How-
ever, simultaneously, franchisors need to adapt specific features of the highly sophisticated and standard-
ized franchise business format to the heterogeneous conditions of these emerging growth markets.
Consequently, they need to assure the provision of a franchise business format with both a high level of
system-wide standardization combined with a high level of local adaptation. This is provided through the
establishment of higher control modes, i.e. joint venture franchising, which closely supervise the regional
network expansion by local master developers.
Resources and organizational capabilities (H2, H3 & H4 - confirmed)
Compatible with resource-based and organizational capabilities theory, Erramilli et al. (2002) show that
higher control modes are more effective in culturally distant markets with less developed business envi-
ronments because differences in partner capabilities and routines result in difficulties with the transfer of
highly intangible system-specific assets and know-how across firm boundaries. Also studies by Chan and
Justis (1990, 1992), Contractor and Kundu (1998a, 1998b), Jones (2003), Frazer (2003) and Dunning et al.
(2007) present the same view of the franchise firm’s preference of higher control modes in economically
less developed countries characterized by high growth and demand potential but lower absorptive capacity.
However, consistent with the view of Contractor and Kundu (1998a, 1998b) and Frazer (2003), due to
cultural, economic and institutional differences, the lower absorptive capacity of the local labor force and
the still immature franchise sector restrict the franchisors’ efficient transfer of highly system-specific assets
to provide high levels of system-wide standardization.
Furthermore, relating to the concepts of local market and financial assets relevant for the governance mode
choice in the resource-based and organizational capabilities theory, huge investments in fleet and infra-
structure are required in Asia Pacific and South America regions with large market size and accelerating
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demand potential. For example, “in South Korea, market leaders possess a fleet of over 40,000 cars [E]”.
The need for a large fleet also increases the importance for strategic partnerships with local car manufac-
turers and dealers. In addition, strategic location assets, such as in all major airports, are crucial to establish
a competitive leadership position on a rapid pace in the respective countries. Local master developers pos-
sess effective incentives, critical local market assets, financial assets, and location-specific knowhow to
overcome the franchisors’ financial and human capital constraints and guarantee first mover advantages
with a rapidly and successfully adapted and implemented standardized franchise business format in host
countries. Therefore, in the dynamic but still less developed emerging markets, higher control through joint
ventures guarantees the implementation of a high product and service standard while also benefitting from
quick network expansion and local adaptation by master developers.
Transaction and agency costs (H5a, H5c, H6a & H7 - confirmed)
Norton (1988b) confirms that due to the trade-off between the demand and supply of capable managers,
especially firms that need to expand rapidly with larger-sized operations, as is the case in the dynamic
growth regions of Asia Pacific and South America, face an entrepreneurial capacity problem in screening,
recruiting and training numerous qualified company-owned staff. Sixt admit that the risk of adverse selec-
tion with the recruitment of company-owned staff in the culturally very distant Asia Pacific region is very
high and can result in high sunk costs.
Therefore, Sixt’s and Europcar’s intensity of transaction-specific investments in recruiting, training and
monitoring increases in host countries with prospective market growth rate, still facing economic under-
development. For example, Europcar’s “‘man in Bangkok’ invested more than a year to establish contact
and relationship to a potential partner in South Korea.” Also Sixt quote that “the country’s development
and growth pace justify additional training need.”
According to Sixt and Europcar, the cultural distance is a very important factor for international govern-
ance mode decision in Asian markets. Having found a capable partner, possessing the cultural affinities,
who undertakes the specific investments needed to adapt the franchise products and services to the local
customer preferences, and providing him with franchise market exclusivity rights, exposes franchisors to
another potential risk (Lafontaine, 2014). Relating to the hold-up problem argued by transaction cost theo-
ry, in combination with high institutional uncertainty in terms of weak franchise and property rights protec-
tion laws, the franchisor’s higher transaction-specific investments guaranteeing an efficient transfer of
system-specific know-how and franchise concepts and thereby securing a high level of brand homogeneity
and customer shares, result in higher dissemination and trademark violation risks in those emerging growth
regions. “It is commonly known that in China there is a high risk of trademark violation [E]”. As ex-
plained by Choo (2005), the so-called risk of ‘brand hijacking’ due to an eventual in-balance between sys-
tem-wide standardization and local adaptation of the franchise business format is particularly high in the
Asia Pacific region characterized by different cultural values, such as missing code of ethics and claim for
quality, and hostile franchise business environments, such as missing franchise laws.
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As pointed out by Alon (2006a) and Welsh et al. (2006), adverse institutional and political situations, such
as corruption and poor legal frameworks, make licensing particularly hazardous because of the increased
risks with repatriation of royalties, policing quality standards or protection of copyright and intellectual
property and termination of contracts. Due to the weak legal enforcement mechanisms in the Asia Pacific
and South America regions, local master developers possess an increased hold-up potential to appropriate
the franchisors’ quasi-rents with high transaction-specific investments. Franchise contract terms have lim-
ited coercive enforcement power and contract termination due to franchisee moral hazard results in tedious
and costly legal battles. Due to the high sunk costs and weak institutional systems, franchisors have rela-
tively more to lose with early contract termination than master developers.
Summarizing, the high moral hazard risk of service quality dilution, brand name degradation and/or trade-
mark violation by master developers in emerging but still immature economies requires close monitoring
over the maintenance of a homogeneous quality standard. Due to the high degree of market heterogeneity,
franchisors do not possess the institutional and cultural sensitivity and requisite internationalization and
transfer capabilities to evaluate, recruit and supervise foreign master developers and assure the provision of
a local franchise business format with both, a high level of system-wide standardization combined with a
high level of local adaptation. Therefore, they develop the high-potential growth markets with MDF
agreements from their distant European headquarters. In addition, regional assistance with the development
of local MDF agreements is provided by Sixt’s establishment of a JV company in Singapore and Europ-
car’s company-owned operations in Australia, Bangkok and Florida. These higher control modes protect
franchisors against property rights violation, circumvent entry barriers and provide network stability in
geographically and environmentally very distant regions characterized by dynamic market growth.
Summary of the Case Study Results
To summarize the case study findings, we can conclude that the empirical patterns based on Sixt and Eu-
ropcar’s analysis of the international franchise modes are largely compatible with the theoretical patterns
based on international strategy theory, resource-based and organizational capabilities theory, transaction
cost theory and agency theory. Table 8 illustrates the hypotheses that are supported in our case study anal-
ysis.
--- INSERT TABLE 8 HERE ---
First, international franchise firms expand via the establishment of wholly-owned subsidiaries (WOS) to
host countries, characterized by a homogeneous environment, such as cultural and geographic proximity,
economic development and institutional stability. This high control mode provides franchisors with full
ownership, residual income and decision rights, which are needed to exploit and implement rent-generating
system-specific assets to satisfy the demand of global customers in high-potential markets. Furthermore,
the positive synergy effects gained with the provision of highly standardized products and services can
compensate the higher set-up costs of the company-owned operations.
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Second, in heterogeneous host countries characterized by cultural and economic distance, international
franchise firms sustain their global position by expanding the franchise network with lower control modes,
i.e. master development franchising (MDF). In order to gain competitive advantage in heterogeneous host
countries, the franchisor’s orientation for system-wide standardization and innovation shifts in favor of
local franchise business format adaptation. A decreased level of system innovation makes system-specific
assets more transferable via the standardized franchise business format to master developers. A higher
proportion of residual income and decision rights is transferred to master developers in order to mitigate
opportunistic risk and increase investment incentives. In particular, the master franchisors receive incen-
tives to maintain high service quality, explore local market assets and adapt the standardized franchise
business format, such as established procedures and product and service features, to the host country re-
quirements.
Third, for heterogeneous host countries which are characterized by an increasing market potential with an
under-developed business infrastructure (e.g. the case in the emerging economies of the Asia Pacific and
South America regions), the master developers’ local market assets guarantee the local adaptation of the
standardized franchise business format. Likewise, the franchisor’s system innovation capabilities needed
for capturing a high market share by challenging competitors with the provision of sophisticated products
and services are vital. However, due to the very high institutional distance in those emerging markets char-
acterized by missing franchise laws and protection of intellectual property rights, adverse regulatory sys-
tems and corruption, the franchise network expansion via MDF requires a higher level of formal control by
the franchisor. This is ensured through joint venture franchising (JVF).
DISCUSSION AND IMPLICATIONS
The case study analysis examines the determinants of the international governance modes of two major
franchise companies in the European car rental industry (i.e. Sixt and Europcar), which are the wholly-
owned subsidiary, master development franchising and joint venture franchising. Matching the empirical
patterns of the case study results with the predicted patterns based on organizational economics, strategic
management and international business perspectives shows that multiple factors influence the choice of
governance modes of the international franchise firm. The research model predicts a high level of control,
i.e. through wholly-owned subsidiaries, if the economic, cultural and behavioral uncertainty are low and
the franchisor’s transaction-specific investments are high to capture synergistic advantages with the im-
plementation of rent-generating system-specific assets in homogenous host countries. On the other hand,
the research model predicts lower levels of control, i.e. by using master development franchise agreements,
if the economic, cultural and behavioral uncertainty are high and the franchise partners’ transaction-
specific investments, local market assets and financial assets are critical to capture first mover advantages
with the local adaptation of the franchise business format to heterogeneous host countries. However, under
conditions of very high institutional uncertainty in the host countries, such as the absence of franchise laws
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and protection of intellectual property rights, adverse regulatory systems and corruption, the franchise net-
work expansion requires a higher level of control, i.e. joint venture franchising, by providing the franchisor
with more formal control over local master development franchise agreements in foreign markets with high
institutional uncertainty. Overall, the case study findings show that the empirical patterns based on Sixt and
Europcar’s analysis of the international franchise modes are largely compatible with the hypotheses formu-
lated in the research model (see figure 1).
What are the implications of this study for theory and practice? First, within the international franchise
literature, few studies use more than one theoretical perspective to explain the international governance
mode of franchise firms. Previous research is mainly dominated by applying transaction cost and agency
theory (e.g. Fladmoe-Lindquist and Jacque, 1995; Dant and Nasr, 1998; Burton et al., 2000; Sashi and
Karuppur, 2002; Lafontaine and Oxley, 2004; Perrigot, 2006; Castrogiovanni et al., 2006; Baena, 2015)
and resource- and organizational capabilities theory (e.g. Erramilli et al., 2002; Hoffman and Preble, 2003;
Mariz-Pérez and García-Álvarez, 2009), while multi-theoretical approaches are rare (e.g. Contractor and
Kundu, 1998a, 1998b; Grewal et al., 2011). This study addresses this gap and tests a new integrative model
of the governance mode choice of the international franchise firm (based on Jell-Ojobor and Windsperger,
2014) by conducting a case study analysis. Our case study analysis shows that the governance structure
decision of international franchisors is determined by both cost efficiency considerations rooted in organi-
zational economics literature (i.e. transaction cost and agency theory) as well as value-creation considera-
tions rooted in strategic management literature (i.e. resource-based and organizational capabilities theory).
By doing this, we also respond to the recent call in organizational economics, strategic management, mar-
keting and international business literature (e.g. Brouthers and Hennart, 2007; Rindfleisch et al., 2010;
Combs et al., 2011; Gillis and Castrogiovanni, 2012; Grewal et al., 2012; Windsperger, 2013) to develop
and test multi-theoretical frameworks to explain the governance structure of inter-organizational networks.
Second, we extend the integrative model of Jell-Ojobor and Windsperger (2014) by including the interna-
tional strategy as major determinant of the franchise firm’s governance mode choice in host countries.
Starting from the strategy-structure view of Chandler (1962), international strategy theory (Harzing, 2002;
Cui and Jiang, 2008; Pehrsson, 2008) examines the impact of the international strategy (global vs. multi-
domestic strategy) on the international firm’s governance structure. Applying this reasoning to franchising,
international franchise firms can pursue a standardization or adaptation strategy. A standardization strategy
is related to offer a homogenous product standard with higher control modes, such as wholly-owned sub-
sidiaries or joint venture franchising, in global markets, resulting in synergistic efficiency advantages to
compete against global competitors. Our case study findings show that in the automotive rental industry,
the franchisor’s global positioning can only be sustained with the provision of both, synergistic efficiency
advantages and first mover advantages. This is achieved with choosing higher control modes in those mar-
kets where the provision of innovative, highly standardized products and services is important to capture
large market shares. By contrast, an adaptation strategy focuses on local product and service adaptations
with lower control modes, such as master development franchising, in order to benefit from the local part-
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ners’ market assets and capabilities to adapt the franchise products and services and capture first mover
advantages in heterogeneous markets.
In addition, our findings show that the international strategy theory interrelates with the resource-based and
organizational capabilities arguments on the franchise governance structure decision. According to the
resource-based and organizational capabilities theory, due to the specificity of rent-generating assets and
resources, they are difficult to transfer across firm boundaries. The specific market characteristics, that are
homogeneity or heterogeneity of the host markets in relation to the franchisor’s home country, determine
the relevance of the specific assets in the pursuit of standardization versus adaptation strategy and conse-
quently the choice of governance mode in the host countries. In homogeneous markets, the franchisor
chooses a wholly-owned subsidiary to guarantee the implementation and constant innovation of highly
standardized system-specific assets and procedures which are needed to exploit the high demand of global
customers. In addition, the franchisor enters into exclusive partnerships with local entrepreneurs (that are
the master developers in the case of Sixt and Europcar) to benefit from the local partners’ assets and com-
petencies in efficiently implementing and adapting the franchise business format to the local peculiarities.
Furthermore, in emerging countries characterized by a global demand for franchise products of homogene-
ous standard which at the same time should consider local preferences, franchisors use higher levels of
control with the establishment of a joint venture company. The joint venture company coordinates the
transfer and implementation of the highly standardized franchise business format as well as its adaptation
to local requirements, thereby exploiting the dynamic market potentials in emerging economies.
Third, our findings add to the recent literature on foreign operations as mode combinations, mode modifi-
cations and mode changes (Petersen and Welch, 2002; Benito et al., 2009, 2011). The results indicate that
franchisors combine franchise modes according to the desired level of control over foreign operations as
‘mode packages’ (Benito et al., 2012). Specifically, through the use of master development franchising as
‘mode combination’, European automotive rental systems modify traditional master franchising by restrict-
ing the local partner’s higher control rights of unconditional sub-franchising. In addition, the local JV part-
ner’s shared control rights are decreased by assigning direct control over local master development
franchise agreements to the franchisor only, increasing the franchisor’s decision rights and residual income
rights (‘mode modification’). Furthermore, the international franchisor’s path-dependent increase of for-
eign JV equity participation contributes to recently discussed ‘mode changes’ as a dynamic process in the
international market entry literature (Benito et al., 2012).
Forth, consistent with the view of Hurmerinta-Peltomäki and Nummela, (2006), Sinkovics and Ghauri
(2008), Benito et al. (2009, 2011) and Welch et al. (2011), this study shows that qualitative methods, such
as in-depth case analysis, represent an effective strategy of investigating a large set of variables that influ-
ence the governance structure decision of the international franchise firm. Theory-testing case research is
justified by the complexity of the franchisor-franchisee relationship phenomena, such as the factors influ-
encing the franchisor’s choice of international franchise governance modes. Our study adds to the theory-
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testing case study literature by applying a rigorous method of conducting case research. The application of
a systematic case study approach that is based on an integrative framework can solve the problem of the
inconsistent findings of inferential statistical tests in international franchising. For example, our case study
shows that in general, moral hazard by franchise partners is not considered a challenge by international
franchisors due to the effective unilateral power and bonding mechanism exercised through the car rental
brand name and global reservation system. This observation corresponds with Contractor and Kundu’s
(1998a, 1998b) regression results on the global hotel firms’ tendency towards lower levels of equity in-
vestment and control due to the bonding effect of intangible assets, such as a global reservation system and
strong brand name. However, our case study further reveals that under conditions of high regulatory uncer-
tainty in the Asian countries, international franchisors use higher control modes, i.e. joint venture franchis-
ing and wholly-owned subsidiary, to safeguard against property rights violation and brand hijacking. In
this respect, our results are consistent with Fladmoe-Lindquist and Jacque (1995) who confirm a negative
impact on the firm’s propensity to franchise internationally when high reputation assets are involved, due
to the risk of brand name free-riding.
Finally, our case study findings also contribute to the upcoming research stream on ‘franchising in emerg-
ing and developing markets’ (Dant and Grünhagen, 2014). Increased domestic market saturation and global
competition drive companies to adopt a pro-active approach towards internationalization of their business
operations. Because franchising is a highly flexible entrepreneurial growth strategy, it can facilitate market
entry into high-risk, high-growth markets, such as the five major emerging economies of Brazil, Russia,
India, China and South Africa (BRICS) (Alon, 2006; Aliouche and Schlentrich, 2011; Dant et al., 2016).
The results of our study offer some practical recommendations for the franchisor’s international govern-
ance mode decision: First, the franchisor should choose a wholly-owned subsidiary, when host country
environments are characterized by homogeneous socio-cultural conditions, such as similar consumer tastes
and preferences and a high education level, and economic stability, such as a high market potential, a de-
veloped business sector, high levels of private consumption and advanced technological standards. This
enables the exploitation of scale economies with the implementation of a highly standardized franchise
business format. Second, the franchisor should choose master development franchising, when host coun-
tries are located distant from the system headquarters, and are perceived as heterogeneous in terms of dif-
ferent cultures and unstable economic environment. This generates first mover advantages as well as
mitigates financial scarcity problems for the franchisor by benefitting from the master developer’s assets
and capabilities needed to adapt the franchise business format to local market conditions. Finally, under
adverse institutional conditions, such as a hostile franchise environment (e.g. missing property rights pro-
tection laws, high corruption), a higher level of control is advised, i.e. joint venture franchising, providing
the franchisor local support to overcome market access barriers in regions with high institutional uncertain-
ty. The joint venture company exercises a higher level of control over the implementation and operation of
the local franchise network according to system standard, while at the same time protects the franchise
system against the abuse of its intellectual property due to the higher behavioral hazards in markets with
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high institutional uncertainty.
This study faces some important limitations. First, the criticism that case study results lack generalizability
is also applicable to this study (Simon et al., 1996). The multiple case study design is based on data primar-
ily provided by two international franchise systems in the automotive rental industry, and amplified with
documentary data sources, to account for construct validity through data triangulation. The interviews are
conducted with the key decision-makers responsible for the franchise system’s internationalization deci-
sions. This substantially limits the number of possible key informants. According to Voss et al. (2002:
p.205) there is a „trade-off between efficiency and richness of data”, and the optimum number of respond-
ents. Second, compared to quantitative studies, the results of the small case sample cannot explain the
choice of international governance mode of the franchisors in the whole automotive rental industry. Con-
sequently, an important future challenge will be to test the research model by conducting large-scale sur-
veys (Parkhe, 1993; Gillis and Castrogiovanni, 2012; Gerring, 2017) in different markets and industries
(Lafontaine, 2014). Finally, while our case study analysis uses organizational economics, strategic man-
agement and international business perspectives as the major approaches explaining the governance struc-
ture of international franchise firms, the inclusion of further theories may increase the explanatory power
of the governance structure model. For instance, predictions derived from the cultural theory (Freeman et
al., 2012), institutional theory (Combs et al., 2009; Doherty et al., 2014; Aliouche et al., 2015) as well as
the stakeholder theory (Altinay and Miles, 2006) may account for critical aspects influencing the interna-
tional franchisor’s choice of governance mode when expanding into foreign markets.
CONCLUSION
This research applies case study analysis to test a new integrative model of the franchisor’s international
governance mode choice based on Jell-Ojobor and Windsperger (2014). Specifically, it examines the de-
terminants of the governance structure of the international franchise firm by deriving hypotheses from an
integrative model based on international strategy theory, resource-based and organizational capability theo-
ry, transaction cost theory and agency theory. We conducted a theory-testing case study based on data from
two leading international car rental systems, i.e. Sixt and Europcar. The findings show that international
strategy, resource-based factors, such as system-specific, market-specific and financial resources, and envi-
ronmental uncertainty, behavioral uncertainty and transaction-specific investments are important determi-
nants of the governance modes of the international franchise firm. Consequently, international franchisors
have to consider both organizational economics and strategic management factors for taking the right gov-
ernance structure decision when expanding abroad.
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Dear Reviewers,
We thank you very much for your time and effort dedicated to the revision of our manuscript.
With our current revision, we paid thorough attention to address your critics which we summarized in the following:
1.) We have addressed your comment to “persuade [the] audience - through this paper - that this [theory-
testing case study] is a legitimate approach”. Specifically, we included the following new paragraphs in
our paper:
“…Theory-testing case research is justified by the lack of explanatory research due to the complexity of the fran-
chisor-franchisee relationship phenomena, such as the factors that influence the franchisor’s choice of internation-
al governance modes. The investigation of the complex governance structure phenomenon requires a holistic
analysis.” [compare Abstract, under Methodology, p.1]
“Few previous studies in international franchising have used more than one theoretical perspective to explain the
governance structure of the international franchise firm. This study contributes to the theory-testing case study
literature by applying a rigorous method of conducting case research. This includes developing a theoretical
framework and a systematic research design. A systematic research design requires a holistic analysis by investi-
gating the international franchise governance modes from a variety of theoretical perspectives which are the organ-
izational economics, strategic management and the strategy-structure perspective.” [compare Abstract, under
Originality/value, p.1]
“We use a confirmatory research method by applying a rigorous method of conducting case research that includes
developing a theoretical framework and a systematic research design (Barratt et al., 2011). “Through the devel-
opment of more rigorous methods of conducting case research, the case study…can be effectively used to test theory
in complex environments” (Johnston et al., 2011: 211). Why do we choose theory-testing case research? Theory-
testing case research is mainly justified by the lack of explanatory research due to the complexity of the business-to-
business relationship phenomena in franchising (Bonoma, 1985), particularly the influencing factors on the fran-
chisor’s choice of international governance modes. A systematic research design requires a holistic analysis of the
complex phenomenon (i.e. the international franchise governance structure) from a variety of theoretical viewpoints
(Ghauri, 2004; Ghauri et al., 2009).” [compare Introduction, p.2]
“…Hence, our study adds to the theory-testing case study literature by applying a rigorous method of conducting
case research (Bitektine, 2008; Gerring, 2017). In contrast to many qualitative case studies that miss sufficient
details in research design, data collection, and data analysis (Barratt et al. 2011), we address this deficit in our
theory-testing case study.” [compare Introduction, p.3]
“Theory-testing case research is justified by the complexity of the franchisor-franchisee relationship phenomena,
such as the factors influencing the franchisor’s choice of international franchise governance modes. Our study adds
to the theory-testing case study literature by applying a rigorous method of conducting case research. The applica-
tion of a systematic case study approach that is based on an integrative framework can solve the problem of the
inconsistent findings of inferential statistical tests in international franchising…” [compare Discussion and Impli-
cations, p.28]
Literature sources:
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Barratt, M., Choi, T.Y., & Li, M. (2011). Qualitative case studies in operations management: Trends, research out-
comes and future research implications. Journal of Operations Management, 29, 329 – 342.
Bitektine, A. (2008). Prospective case study design qualitative method for deductive theory testing. Organizational
Research Methods, 11(1), 160-180.
Bonoma, T.V. (1985). Case research in marketing: Opportunities, problems, and a process. Journal of Marketing
Research, 22, 199 - 208.
Gerring, J. (2017). Case study research: Principles and Practices. Cambridge University Press.
Ghauri, P. N. (2004). Conducting and analyzing case studies in international business. In: Piekkari, R., & Welch, C.
(eds) Handbook of qualitative research methods for international business. Edward Elgar, Cheltenham.
Ghauri, P. N., & Firth, R. (2009). The formalization of case study research in international business. der markt (In-
ternational Journal of Marketing), 48, 29 – 40.
Johnston, W.J., Leach, M.P., Liu, A.H. (1999). Theory testing using case studies in business-to-business research.
Industrial Marketing Management, 28(3), 201-213.
2.) The quotation of Jell-Ojobor and Windsperger’s (2014) research model on p.3 continues with a detailed
explanation of it in the “Overview of the Research Model and Hypotheses” section on p.3ff.
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Figure 1: Integrative model on the governance mode choice of the international franchise firm (adopted from Jell-Ojobor and Windsperger, 2014)
International
strategy
System-specific
assets
Local market
assets
Financial
assets
Environmental
uncertainty
Transaction-specific
investments
Behavioral
uncertainty
+/-
+
+/-
+/-
_
_
_H 3
H 2
H 4
H 5
H 6
H 7
H 1
IST
RBT & OCT
TCT & AT
Level of Control
Wholly-owned subsidiary
Joint venturefranchising
Area developmentfranchising
Masterfranchising
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Figure 2: International Governance Modes of Sixt and Europcar
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Figure 3: Control and mode combinations of the international franchise firm
Wholly-owned subsidiary
Joint venturefranchising
Area developmentfranchising
Masterfranchising
Master developmentfranchising
Level of Control
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Table 1: Research hypotheses on the governance modes of the international franchise firm (adopted from
Jell-Ojobor and Windsperger, 2014)
H1a
H1b
System- specific
assetsH2
Local market
assetsH3
Financial
assetsH4
H5a
H5b
H5c
H6a
H6b
Behavioral
uncertainty H7
The higher the financial resources required for implementation of the franchise
concept in the foreign market, the higher the franchisor’s tendency to use lower
control modes.
The higher the transaction costs due to cultural uncertainty, the higher the franchisor’s
tendency to use lower control modes.
The higher the monitoring costs due to behavioural uncertainty, the higher the
franchisor’s tendency to use lower control modes.
Transaction-specific
investments
The higher the franchisor’s transaction-specific investments relative to the franchise
partners, the higher the franchisor’s tendency to use higher control modes.
The higher the franchise partners’ transaction-specific investments relative to the
franchisor, the higher the franchisor’s tendency to use lower control modes.
The higher the transaction costs due to economic uncertainty, the higher the
franchisor’s tendency to use lower control modes.
The higher the transaction costs due to institutional uncertainty, the higher the
franchisor’s tendency to use higher control modes.
Environmental
uncertainty
International
strategy
Standardization strategy is positively related to the franchisor’s tendency to use of
higher control modes.
Adaptation strategy is positively related to the franchisor’s tendency to use of lower
control modes.
The more important the franchisor’s system-specific assets for value creation, the
higher the franchisor’s tendency to use higher control modes.
The more important the franchise partners’ local market assets for the value creation
of the network, the higher the franchisor’s tendency to use lower control modes.
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Hypo-
thesesTheory
Theoretical
constructOperationalization
Indicators applied in the
international franchise literature Code Family Main Codes Sub-codes
Organic growth
Takeovers
Plural form
JVFRegional support with local MDF network
expansion
Exclusive MDF licence of franchise outlets
Restricted right to sub-franchise
Franchise package for sub-franchisees
Selection of sub-franchisees
Management of sub-franchisees
Granting of sub-franchise licences
Sub-franchise fees
Termination of sub-franchise licences
Strategic alliancing Trans-atlantic alliance
Market share
Market potential
Number of outlets per country (scale)
Number of franchise countries (scope)
Brand name, reputation
Corporate identity, marketing
Various reservation channels
Webpage
Call centre
Yield management, fleet management
Supplier network
Tourism and mobility industry, GDS
Global franchise
networkGeographic presence and locations
Corporate customers accounts
Private customers accounts
Customer-segmented products
Vehicle selection
R&D, system innovation
Product and service quality
Human capital Career development and training
Growth and expansion
Cultural affinity, distance management,
international contract management
Standardization and adaptation
Global advertising, marketing, networking,
customer relations
Operational 'car rental'
know-how
Operational procedures, e.g. car damage,
purchase, monitoring, service quality, logistics
Strategic procedures, e.g. sales, marketing,
advertising, pricing
Business plan, finance plan, development plan
Fleet policy
Cost management
Brand name capital, corporate identity
IT and communication systems
Partnerships and cooperation
Global franchise network
Global customer base
Products
Operational and strategic 'car rental' know-how
EMPIRICAL PATTERNS
Level of Control
International
franchise
governance
modes
WOS
Standardization
strategy
Adaptation
strategy
Partnerships and
cooperation
Global customer base
Products
Transferable
system-specific
assets and know-
how
System-specific
know-how and
capabilities
System-specific
assets and
resources
MDF
Sub-franchising
Brand name capital,
corporate identity
Synergistic scale
advantages through
system-specific assets
exploitation
First mover
advantages through
local market assets
exploration
IT and communication
systems
Franchise package
Internationalization and
'transfer' capabilities
Strategic 'car rental'
know-how
H2
System-specific Assets
RBT & OCT
n.a.
(dependent variable)
▪ Control increases from
MF,
ADF,
JVF to
WOS
▪ Global customers versus local
demand
▪ Franchisor 'local learning'
▪ Market potential and economies
of scale advantages through
standardization strategy
▪ Global scale and scope and first
mover advantages through
adaptation strategy
THEORETICAL PATTERNSn.a.
(dependent variable)
H1a & H1b
IST
International
Strategy
DEPENDENT VARIABLE
INDEPENDENT VARIABLES
▪ e.g. Konigsberg, 1991; Contractor
and Kundu, 1998b; Jell-Ojobor and
Windsperger, 2014
▪ System-specific capabilities, such as
organizational competence, quality
competence, customer competence,
entry competence and physical
competence (Erramilli et al., 2002)
▪ Firm size and firm age as indicators
for monitoring capabilities (Shane,
1996; Elango, 2007)
▪ Monitoring capabilities (Petersen
and Welch, 2000; Hoffman and
Preble, 2001);
▪ Capabilities of business format
adaptation to local market
requirements (Choo, 2005);
▪ Franchsie package and centralized
services and support functions
(Quinn, 1999; Petersen and Welch,
2000)
▪ Documentation of the franchise
business format (Quinn and Doherty,
2000; Pizanti and Lerner, 2003)
▪ Foreign locations as a source of
learning (Petersen and Welch, 2000;
Pak, 2002; Dunning et al., 2007).
▪ Control over quality and system
standard maintenance (Contractor
and Kundu, 1998a, 1998b; Petersen
and Welch, 2000; Pak, 2002)
▪ Strategic importance of foreign
market potential, quick market
penetration, gaining global
competitiveness and monitoring rival
firms (Pak, 2002; Dunning et al.,
2007)
▪ System-specific assets, such as
brand name capital, software,
communication systems, strategic
partnerships, propriatory
knowhow, operational and
strategic industry-related
knowhow
▪ Innovation through system-
specific knowledge exploitation
▪ Complexity and standardization
of franchise business format
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Local human resources
Local industry-related partnerships
Local customer base
Local infrastructure, outlet locations
Cultural affinity, e.g. on business practice,
customer tastes, public relations, advertising
Economic affinity, e.g. on demand, competition,
market structure and mechanisms
Institutional affinity, e.g. on laws, regulations,
taxation
Product/service innovations or adaptations
Operational innovations or adaptations
Strategic innovations or adaptations
Fleet
Physical assets, i.e. outlets, workshops,
inventories
Human resources development
Advertising
Public relations and networking
Taste, lifestyle, preferences
Business practices and work ethics
Language barriers
General economic conditions and business
infrastructure
Availability of suppliers and industry-related
services, such as automotive industry, insurance
sector
Industry-specific competition
Industry-specific demand
Capital market regulations
Insurance market regulations
Taxation
Political systems, unrests, conflicts, corruption
Labor laws
Environmental laws
Franchise regulations
Legal safeguards, trademark protection
Proof of liquidity
Local reputation checking and partner investigation
Conceptualization of
the franchise business
format
System manuals, franchise brochures, support
materials
Initial set-up support
Initial training
Implementation into global reservation system,
internal communication systems, local webpage
Corporate identity, outlet design and site evaluation
Monitoring and auditing, customer complaint
management
Regular training and updates
Meetings and consultation
Headquarters support services
Trademarked store layout / signs, logo,
infrastructure
Training materials for employees and sub-
franchisees
Staff training
Brand awareness creation
Safeguarding risk, brand name damage &
reputation degradation
Property rights dissemination risk
Disappearance of local network
Loss of customer base
Sunk costs of the franchisor
Brand-loyal private and business customers
Supplier contracts and finance conditions
Specialized investments (loss of quasi-rent)
Sunk costs of the local partner
Capital-intensive
investments of
local network
expansion
Local innovation
and adaptation
Market-specific
assets and
resources
Market-specific
know-how and
capabilities
Institutional uncertainty
Cultural uncertainty
Local market assets
and know-how
exploration
Capital-intensive
intangible investments
Capital-intensive
tangible investments
Economic uncertainty
Transaction-
specific
investments of
the local partner
Tangible transaction-
specific assets of the
local partner
Intangible transaction-
specific assets of the
local partner
Recruitment
Initial set-up
Financial loss of the
local partner
Switching costs
Standardized
centralized support
services
Local market assets
and resources
Local operational and
strategic 'car rental'
know-how and
capabilities
Transaction
costs due to
environmental
uncertainty
H4
H3
Environmental Uncertainty
H5a, H5b & H5c
RBT & OCT
Local Market Assets
Financial Assets
RBT & OCT
TCT & AT
Transaction-specific Investm
ents (TSI)
Transaction-
specific
investments of
the franchisor
Hold-up risk of
the local partner
Hold-up risk of
the franchisor
▪ TSI of the franchisor, such as
documentation of the franchise
business format, initial set-up,
recruitment and training,
monitoring systems and support
services
▪ TSI of the partner, such as
trademarked equipment,
furnishing/design of the building,
signs, staff training and local
brand awareness creation
▪ Economies of scale (transaction
cost savings) through the
franchisor's standardized TSI
▪ Knowhow transfer risk due to
conceptualized franchise
business format, manuals,
trainings
▪ Ex post adaptation costs and
switching costs
▪ Sunk costs of early contract
termination
H6a & H6b
TCT & AT
▪ Brand name asset specificity and
intangible assets such as a global
reservations systems as well as high
initial start-up costs and outlet-
specific investments support
screening and reduce adverse
selection (Contractor and Kundu,
1998a, 1998b; Quinn and Doherty,
2000; Pizanti and Lerner, 2003;
Castrogiovanni et al., 2006; Elango,
2007)
▪ Franchisor support services (Quinn,
1999; Doherty and Alexander, 2004)
▪ Recruitment effort, and the
availability of qualified franchisees
(Erramilli et al., 2002; Hoffman and
Preble, 2003)
▪ Local market knowhow and strategic
assets of partners, such as access to
prime real-estate sites, financial
assets, existing customer base, local
consumer preferences, cultural
values, location-specific marketing
methods, local competitors and
distribution channels (Chan and
Justis, 1990; Jones, 2003; Hoffman
and Preble, 2003; Pizanti and Lerner,
2003; Choo et al., 2007; Dunning et
al., 2007)
▪ Adaptation of operational
procedures and business format due
to location-specific differences (Chan
and Justis, 1990, 1992; Contractor
and Kundu, 1998a, 1998b; Erramilli et
al., 2002; Frazer, 2003)
▪ Firm size and age as indicators for
tangible resource base of the firm
▪ Financial strength for launching and
developing the foreign brand (Choo et
al., 2007).
▪ Reduction of investment risk and
financial information risk through
franchising (Chan and Justis, 1990,
1992; Petersen and Welch, 2000),
capital market globalization and
advancements in information
technology (Huszagh et al., 1992)
▪ Adaptation costs due to cultural
distance (Chan and Justis, 1990,
1992; Fladmoe-Lindquist and Jacque
1995; Contractor and Kundu, 1998a,
1998b; Quinn, 1999; Quinn and
Doherty, 2000; Erramilli et al., 2002;
Frazer, 2003; Chen, 2010)
▪ Political and institutional distance, as
well as exchange rate fluctuations
(Chan and Justis, 1990, 1992;
Fladmoe-Lindquist and Jacque, 1995;
Contractor and Kundu, 1998a, 1998b;
Jones, 2003; Chen, 2010)
▪ Host economy development, such
as competition and business
infrastructure (Contractor and Kundu,
1998a, 1998b; Dant and Nasr, 1998;
Erramilli et al., 2002; Frazer, 2003; )
▪ Market-specific assets, such as
local industry-related knowhow
and infrastructure, institutional
ties, cultural affinity and supplier
networks
▪ Local innovations in
heterogeneous environment
▪ Franchise concept adaptation
due to environmental uncertainty
▪ Franchise partner seelction
criteria
▪ Capital-intensive factors of the
local franchise business, such as
fleet, outlets, infrastructure,
human resources, public relations
and advertising
▪ Heterogeneity of host markets in
terms of culture, economic
conditions and institutional
regulations
▪ Transaction costs of operations
in heterogeneous countries
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Table 2: Operationalization of constructs (theoretical patterns) and empirical pattern codes
Table 3: Case study candidate franchise systems of the global car rental industry
Logistic, adminstrative effort
Absorptive capacity of human resources
Free-riding Service and product standard maintenance
Sales
Corporate Identity
Market development
Cheating, withholding of information
Adverse selection
Residual claimancy on outlet profit
Financial risk
Benchmarks and standards
Standardized monitoring tools
Fee structure i.e. initial fee and territory fee,
royalties, advertising fee
Contract period, length
Exclusive territory
Termination clauses, such as lack of financial
capital, compensation payments and non-
competition clauses
Franchise manuals containing standardized
operational and strategic procedures, business
plan, finance plan, development plan
Geographic and
cultural distance
Under-investment
Moral hazard
Non-coercive
control
Entrepreneurship
Coercive control Standardized franchise
terms and conditions
TCT & AT
H7
Behavioral Uncertainty
Monitoring effort /
Agency costs
Opportunistic
behavior
IST (International strategy theory), RBT (Resource-based theory), OCT (Organizational capabilities theory), TCT (Transaction cost theory), AT (Agency theory)
▪ Geographic distance and
dispersion
▪ Opportunistic (partner) behavior
▪ Franchise entrepreneurship
▪ Standardized franchise contract
terms and applicable monitoring
devices
▪ Firm experience as an indicator for
power to negotiate franchise fees,
bonding partners and preventing
opportunism (Choo, 2005)
▪ Initial fee as an indicator for ex ante
bonding (Shane, 1996);
▪ Scale and scope operations as
indicators for monitoring effort (Burton
et al., 2000; Castrogiovanni et al.,
2006)
▪ Geographic distance (Fladmoe-
Lindquist and Jacque, 1995; Burton et
al., 2000)
▪ Simple business formats and
standardization lead to higher control
(Pizanti and Lerner, 2003)
▪ Restrictive contract terms/
performance schedule (Choo, 2005)
Automotive rental
franchise systems
Headquarters
location
Year of
founding
Year
franchise
international-
ization began Relational ties Countries*
Consolid-
ated rental
revenue*
Avis Budget Group, Inc. New Jersey,
USA1946 1953 2 200
6 500 70 350 320 3,9 billion
Budget Rent A Car System, Inc.New Jersey,
USA1958
Avis Europe Plc Great Britain 1965 2 9003 900 165
100 0001,2 billion
Hertz Global Holdings, Inc. Illinois, USA 1918 1950 145 444 100 6 billion
Enterprise Holdings, Inc. Missouri, USA 1957 19937 600 1,1 million 12,1 billion
National Car Rental and
Alamo Rent A CarMissouri, USA
1947/
197413 000 150
Europcar Groupe France 1949 19695 300 191 000 1,85 billion
Sixt Aktiengesellschaft Germany 1912 1991 100 67 700 0,96 billion
* in 2009
1 923
Stations
worldwide
(company-owned
& franchise)*
Fleet
(exclusive of
licensees’
fleet)*
2001: Avis U.S. becomes a wholly-owned
subsidiary of Cendant Corporation.
2003: Budget sells its shares to Avis
U.S./Cendant and their European activities to
Avis Europe.
Avis Europe is an independent company,
though it is working in a partnership with Avis
U.S.
8 100
2007: Acquisition of National & Alamo by
Enterprise Rent-A-Car, which are named
Enterprise Holdings in 2009. Europcar take
over for National & Alamo business in
Europe.
2008: Strategic alliance between Europcar
and Enterprise.
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Table 4: Pattern matching results of wholly-owned subsidiary
EMPIRICAL PATTERNS
Theory Theoretical Construct Observed conditions with the Establishment of a Wholly-owned Subsidiary
IST International strategy H1a Standardization strategy is positively related to the franchisor’s
tendency to use of higher control modes.
H1b Adaptation strategy is positively related to the franchisor’s tendency to
use of lower control modes.
RBT
&
OCT
Value creation through
System-specific Assets
H2 The more important the franchisor’s system-specific assets for
value creation, the higher the franchisor’s tendency to use higher
control modes.
- Implementation of a highly standardized franchise business format with state-of-the-art features in
homogeneous host countries.
- Investments in human resources training and career development, R&D and innovation of highly
standardized procedures, routines, assets, products and services in homogeneous (test) markets.
Value creation through
Local Market Assets
H3 The more important the franchise partners’ local market assets for the
value creation of the network, the higher the franchisor’s tendency to
use lower control modes.
- Maintenance of high levels of systemwide standardization and reduced importance of local market
assets.
- Minor adaptations of highly standardized franchise business format by the franchisor in homogeneous
host countries.
- Local learning of location-specific conditions by the franchisor, resulting in positive systemwide spill-over
effects in homogeneous host countries.
Value creation through
Financial Assets
H4 The higher the financial resources required for implementation of the
franchise concept in the foreign market, the higher the franchisor’s
tendency to use lower control modes.
- High investments needed to capture big market shares and outrival competitors, i.e. advertising, public
relations and strategic partnerships, R&D, systemwide standardization, vehicle brands.
- Compensated by favorable finance conditions at the external capital market due to the franchisor's
strategic assets, i.e. partnerships, scale activities, brand name value and reputation.
H5a The higher the transaction costs due to cultural uncertainty, the higher
the franchisor’s tendency to use lower control modes.
H5b The higher the transaction costs due to economic uncertainty, the
higher the franchisor’s tendency to use lower control modes.
H5c The higher the transaction costs due to institutional uncertainty, the
higher the franchisor’s tendency to use higher control modes.
H6a The higher the franchisor’s transaction-specific investments
relative to the franchise partners, the higher the franchisor’s
tendency to use higher control modes.
H6b The higher the franchise partners’ transaction-specific investments
relative to the franchisor, the higher the franchisor’s tendency to use
lower control modes.
Monitoring costs due to
Behavioral Uncertainty
H7 The higher the monitoring costs due to behavioural uncertainty, the
higher the franchisor’s tendency to use lower control modes.
Scale advantages in monitoring due to:
- geographic proximity of host countries, and
- homogenous host country conditions such as similar work ethics, transparent labor laws and
qualification level and absorptive capacity of local staff.
* Hypotheses in BOLD LETTERS are confirmed
TCT (Transaction cost theory), AT (Agency theory), RBT (Resource-based theory),
OCT (Organizational capabilities theory), PRT (Property rights theory), IST (International strategy theory)
Transaction-specific
Investments of the Franchisor
and/or Franchise Partners
Hypotheses *
THEORETICAL PATTERNS
TCT
&
AT
- Gaining a competitive market position in strategic (outbound) markets, which generate business and
private customers demand inside and outside the country.
- Provision of systemwide standardization, brand homogeneity & test markets, resulting in competitive,
homogeneous, state-of-the-art products, technologies & services.
Transaction costs due to
Environmental Uncertainty
- Reduced investment risk and transaction costs in countries with cultural similarities, economic
development and political and institutional stability.
- Economies of scale with the provision of highly standardized franchise products and services.
- Favorable supplier conditions, e.g. repurchase and sales conditions.
- Efficient adaptation to changed environmental conditions.
- High transaction-specific investments of the franchisor to transfer a highly standardized franchise
business format to homogeneous host countries.
- High switching costs and safeguarding costs due to the franchisor's transaction-specific investments in
implementing a highly standardized franchise business format.
- Reduced hold-up risk due to reduced environmental uncertainty in homogeneous countries.
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Table 5: Competitive advantage of the car rental franchise business format
Competitive edge
characteristics of
global car rental
brands
Definition
SYSTEM-SPECIFIC ASSETS*
of Sixt and Europcar
franchise business formats
Explanation
Partnerships and cooperationFleet is a substantial and one of the main cost factors of car rental companies.
Preferential vehicle sales, repurchase and insurance conditions determine fix costs
and in turn affect cost management and pricing policy. Furthermore, strategic
partnerships in the travel industry offer competitive 'car rental' rates with cooperative
products.
Brand name /
Global customer base
The franchise system's global brand awareness and customer base reflect in demand
and business potential for the whole network which positively impact on a lower price
level. Franchise systems with big market shares have the potential to dump prices
and outrival competitors.
Strategic 'car rental'
know-how
The franchisor has strategic knowhow on the complex pricing system which
considers different customer segments, booking channels, seasonalities or week
days.
IT and communication systems
The franchise system's highly sophisticated IT-systems contribute to the key factors
of successful car rental operations to maximise profit by balancing supply and
demand of car rental services. Among others, it provides fast and easy booking
channels, and monitoring and forecasting of fleet availability.
Partnerships and cooperationFlexible release orders with car manufacturers and dealers enable prompt replies in
adjusting fleet capacities to changes in demand.
Operational 'car rental'
know-howProduct and service quality are standardised, trained and supervised.
Partnerships and cooperationFranchise systems hold preferential agreements with car manufacturers and dealers
to provide different vehicle types.
Strategic partnerships constantly innovate different product offerings.
Products /
Human capital
Constant innovations by company expert teams offer new products tailored to
different customer segments (i.e. business, private, holiday customers).
Global franchise networkThe franchise networks are constantly expanded to provide global coverage in scale
and scope.
Strategic 'car rental'
know-how
The country-specific development plan covers key locations such as all major airports
and city centers for each country.
* Observed empirical pattern codes regarding system-specific assets and capabilities (H2)
Distribution
locations
Especially business
customers request rental
offices in key locations and
global coverage.
Price Price in relation to the brand
and service value.
Vehicle availability
& Service quality
Fast and uncomplicated
rental process.
The goal is to maintain high
customer satisfaction and
brand loyalty by ensuring
vehicle availability to all
customers holding a
reservation.
Product innovations Selection among different
vehicle types and product
categories.
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Table 6: Pattern matching results of master development franchising
EMPIRICAL PATTERNS
Theory Theoretical Construct Observed conditions with Master Development Franchising
IST International strategy H1a Standardization strategy is positively related to the franchisor’s
tendency to use of higher control modes.
H1b Adaptation strategy is positively related to the franchisor’s
tendency to use of lower control modes.
RBT
&
OCT
Value creation through
System-specific Assets
H2 The more important the franchisor’s system-specific assets for value
creation, the higher the franchisor’s tendency to use higher control
modes.
- Standardization of system-specific, rent-generating assets and transfer of a competitive franchise package to local partners.
- Market failure risk with high systemwide standardization due to increased need for local adaptation.
- Rent-generating 'transfer' capabilities of the franchisor by expanding the global franchise network, such as international
contract and distance management, global advertising, marketing, networking and lobbying, standardization and adaptation.
Value creation through
Local Market Assets
H3 The more important the franchise partners’ local market assets for
the value creation of the network, the higher the franchisor’s
tendency to use lower control modes.
- High importance of the partners' local market assets for value creation of local franchise network, i.e. strategic location
assets, partnerships, supplier network, fleet, industry-specific know-how, customer base.
- Adaptation of standardized franchise business format to heterogeneous conditions, i.e. local pricing, fleet, rental process,
marketing and advertising, conditions for sub-franchisees.
- Time- and cost-intensive exploration and evaluation of heterogeneous market conditions by the local partner, i.e. demand,
tastes, competition, insurance conditions.
- Provision of local business plan by the local partner.
Value creation through
Financial Assets
H4 The higher the financial resources required for implementation of
the franchise concept in the foreign market, the higher the
franchisor’s tendency to use lower control modes.
- Overcoming of the franchisor's financial constraints by benefiting from the local partner's financial assets and conditions.
H5a The higher the transaction costs due to cultural uncertainty, the
higher the franchisor’s tendency to use lower control modes.
H5b The higher the transaction costs due to economic uncertainty, the
higher the franchisor’s tendency to use lower control modes.
H5c The higher the transaction costs due to institutional uncertainty, the
higher the franchisor’s tendency to use higher control modes.
H6a The higher the franchisor’s transaction-specific investments relative to
the franchise partners, the higher the franchisor’s tendency to use
higher control modes.
H6b The higher the franchise partners’ transaction-specific
investments relative to the franchisor, the higher the franchisor’s
tendency to use lower control modes.
Monitoring costs due to
Behavioral Uncertainty
H7 The higher the monitoring costs due to behavioural uncertainty,
the higher the franchisor’s tendency to use lower control modes.
- High franchisor monitoring costs in geographically and culturally distant and dispersed host countries.
- Self-enforcing goal alignment with the local partner being an independent entrepreneur of multi-unit chain in an exclusive
territory, bearing the costs of shirking and adverse selection.
- Reduced opportunistic behavior due to the application of standardized franchise terms, benchmarks, development plan,
business plan and finance plan.
- Local franchise partners are affine with local business practices, labor laws and cultures to manage local staff and operate a
successful business.
* Hypotheses in BOLD LETTERS are confirmed
TCT (Transaction cost theory), AT (Agency theory), RBT (Resource-based theory),
OCT (Organizational capabilities theory), PRT (Property rights theory), IST (International strategy theory)
Transaction-specific
Investments of the Franchisor
and/or Franchise Partners
Hypotheses *
THEORETICAL PATTERNS
TCT
&
AT
- Provision of first mover advantages with the local partners' quick adaptation of the standardized franchise business format to
heterogeneous conditions.
- Global network coverage (inbound and outbound markets) with strategic car rental locations as in all major city centres,
airports, highly trafficked areas, to win the contracts with big corporations and tourism and mobility industry.
Transaction costs due to
Environmental Uncertainty
- High transaction costs, such as information processing and adaptation costs, and business failure risk in heterogeneous
countries in terms of cultural and economic distance.
- Scale economies due to moderate and standardized transaction-specific investments of the franchisor, i.e. system manuals,
recruitment, set-up, monitoring and training.
- High transaction-specific investments of the local partner to create local brand awareness, such as outlet design, advertising,
corporate identity, staff training.
- Reduced switching costs of the franchisor due to moderate transaction-specific investments.
- Reduced hold-up and re-negotiation potential of the franchise partners due to high transaction-specific investments (loss of
quasi-rent).
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Table 7: Pattern matching results of joint venture franchising
EMPIRICAL PATTERNS
Theory Theoretical Construct Observed conditions with Joint Venture Franchising
IST International strategy H1a Standardization strategy is positively related to the franchisor’s
tendency to use of higher control modes.
H1b Adaptation strategy is positively related to the franchisor’s
tendency to use of lower control modes.
RBT
&
OCT
Value creation through
System-specific Assets
H2 The more important the franchisor’s system-specific assets for
value creation, the higher the franchisor’s tendency to use higher
control modes.
- Implementation of a highly standardized franchise business format with state-of-the-art features in heterogeneous host
countries characterized by a dynamic, accelerating market growth potential, but still under-developed business sector.
- Increased transfer capabilities of the franchisor, needed for the implementation of a highly standardized franchise
business format in a heterogeneous environment.
Value creation through
Local Market Assets
H3 The more important the franchise partners’ local market assets for
the value creation of the network, the higher the franchisor’s
tendency to use lower control modes.
- High importance of local market assets for value creation of local franchise network, i.e. strategic location assets,
partnerships, supplier network, fleet, industry-specific know-how, customer base.
- Adaptation of standardized franchise business format to heterogeneous conditions, i.e. local pricing, fleet, rental
process, marketing and advertising, conditions for sub-franchisees.
- Time- and cost-intensive exploration and evaluation of heterogeneous market conditions by the local partner, i.e.
demand, tastes, competition, insurance conditions.
- Provision of local business plan by the local partner.
Value creation through
Financial Assets
H4 The higher the financial resources required for implementation of
the franchise concept in the foreign market, the higher the
franchisor’s tendency to use lower control modes.
- High investments needed to capture big market shares and outrival competitors in dynamic, accelerating growth
markets.
- Overcoming of the franchisor's financial constraints by benefiting from the local partner's financial assets, i.e. joint
venture partner and master developers.
H5a The higher the transaction costs due to cultural uncertainty, the
higher the franchisor’s tendency to use lower control modes.
H5b The higher the transaction costs due to economic uncertainty, the
higher the franchisor’s tendency to use lower control modes.
H5c The higher the transaction costs due to institutional uncertainty, the
higher the franchisor’s tendency to use higher control modes.
H6a The higher the franchisor’s transaction-specific investments
relative to the franchise partners, the higher the franchisor’s
tendency to use higher control modes.
H6b The higher the franchise partners’ transaction-specific investments
relative to the franchisor, the higher the franchisor’s tendency to use
lower control modes.
Monitoring costs due to
Behavioral Uncertainty
H7 The higher the monitoring costs due to behavioural uncertainty,
the higher the franchisor’s tendency to use lower control modes.
- Diseconomies of scale in monitoring due to high geographic and cultural distance of host countries, such as different
business attitudes and ethic values of local work force.
- Reduced enforcement power of franchise terms due to adverse instiutional systems.
* Hypotheses in BOLD LETTERS are confirmed
TCT (Transaction cost theory), AT (Agency theory), RBT (Resource-based theory),
OCT (Organizational capabilities theory), PRT (Property rights theory), IST (International strategy theory)
Transaction-specific
Investments of the Franchisor
and/or Franchise Partners
Hypotheses *
THEORETICAL PATTERNS
TCT
&
AT
- Gaining a competitive market position among competitors and customers and winning strategic partnerships with the
provision of a highly standardized franchise business format coupled with the local adaptation to heterogeneous
conditions.
Transaction costs due to
Environmental Uncertainty
- High transaction costs, such as information processing and adaptation costs, and business failure risk in very
heterogeneous countries in terms of cultural and institutional distance.
- High litigation costs and property rights protection costs, due to adverse institutional systems, i.e. missing franchise
and property rights protection laws and corruption.
- High transaction-specific investments of the franchisor to transfer a highly standardized franchise business format to
heterogeneous host countries characterized by a dynamic, accelerating market growth rate with a still immature
economy.
- High transaction-specific investments of the local partner, i.e. master developers, to create local brand awareness,
such as outlet design, advertising, corporate identity, staff training, in countries characterized by big market size.
- High risk of 'brand hijacking' due to high levels of local adaptation.
- High hold-up risk and switching costs due to increased environmental uncertainty in heterogeneous countries and the
franchisor's transaction-specific investments in implementing a highly standardized franchise business format.
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Table 8: Confirmed hypotheses of the governance model of international franchise firms
Theory Hypothesis Variable WOS JVF MDF
H1a Standardization strategy x x
H1b Adaptation strategy x x
H2 System-specific assets x x
H3 Local market assets x x
H4 Financial assets x x
H5a Cultural uncertainty x x
H5b Economic uncertainty x
H5c Institutional uncertainty x
H6aHigh transaction-specific investments
of the franchisorx x
H6bHigh transaction-specific investments
of the franchise partnerx
H7 Behavioral uncertainty x x
IST
RBT & OCT
TCT & AT
IST (International strategy theory), RBT (Resource-based theory), OCT (Organizational capabilities theory),
TCT (Transaction cost theory), AT (Agency theory), WOS (Wholly-owned subsidiary), JVF (Joint venture franchising),
MDF (Master development franchising)
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APPENDIX 1: Interview guide
Theoretical
constructNo.
Questions representing operationalized indicators
(including explanation and examples)
1Which governance modes does the franchise firm use with the operation of the network in the foreign
countries?
- Wholly-owned subsidiary, joint venture franchising, single-unit franchising, multi-unit franchising, area development
franchising, master franchising, sub-franchising
2 Which strategy does the franchisor pursue?
- Standardization strategy versus adaptation strategy
- Market conditions, e.g. global versus multi-domestic demand, intensity of competition, market potential, market
homogeneity versus heterogeneity
- Systemwide application of local learning advantages
- Scale advantages versus first-mover advantages
3Which rent-generating assets, knowhow and capabilities does the franchisor possess regarding the
internationalization of the franchise business format?
System-specific assets and knowhow, such as
- Franchise product & service with a strong brand name
- R&D, innovations of product portfolio
- Marketing, sales, advertising
- Networking capabilities
- Cultural adaptability, distance management, internationalization competences
- Quality competence, standardization and adaptation/modification of product/services
4 How are innovations/new product features implemented in the franchise system?
- Transferability challenge of rent-generating system-specific assets
- Innovation through system-specific knowledge and assets exploitation
5 How complex is the car rental business/service?
- Transferability/non-transferability of system-specific assets
6 Which topics does the initial training cover? What makes part of the regular training?
- Transferability/non-transferability of system-specific assets
7 What does the franchise package/business format contain?
- Standardization of the franchise business format (transferable system-specific assets and knowhow)
8Which market-specific assets, resources, knowhow and capabilities do the franchise partners
possess/contribute to the local franchise network?
For example,
- Operational techniques, such as monitoring, training, sales and marketing, advertising and promotion
- Site specificity, access to prime real-estate sites, local infrastructure, human resources, supplier network, existing
customer base
- Market analysis regarding demand, competition, customer preferences
- Industry-specific business knowhow
- Access to finance and investment capital
- Institutional affinity
9 Which features of the franchise business format are adapted to the peculiarities of host countries?
- Product/service adaptation, such as product offerings
- Operational procedures, such as monitoring and training, internal communication, accounting, reporting, procurement
- Strategic procedures, such as pricing, marketing and sales, advertising, promotion
10 Which selection criteria for franchise partners does the franchisor apply?
For example,
- Prior franchising experience, management knowhow, entrepreneurial affinity
- Prior industry-related experience
- Financial assets
11 What are the capital-intensive factors of implementing and operating the franchise network in the host country?
For example, financing of physical assets, such as fleet, real estate and store layout, as well as human capital assets
12 Does the franchisor participate in some form of equity investment or provide finance to the franchise partners?
For example, support with the financing of site location/real-estate, fleet, buy-back of depreciated/old fleet, cheap loans,
favorable fleet purchase conditions, insurance conditions
Level of control/
governance
structure
International
strategy
System-specific
assets
Local market
assets
Financial assets
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13Which financial challenges does the franchisor face with the franchise network expansion in general and to
risky countries in particular?
- Indicator for the importance of the franchise partner's financial resources with the implementation of the foreign
franchise network
14 Which cultural, economic and instiutional differences exist with the expansion into host countries?
- Cultural differences of ethics, tastes, habits, preferences, income, media habits, values, languages, business attitudes
- Economic differences, such as level of demand and competition, business infrastructure
- Institutional differences and hazards, such as regulations, legal system, politics, corruption, property rights protection
15 How time- and resource-consuming is the knowledge exploration and adaptation process?
- Transaction costs due to environment uncertainty
16 Which location-specific adaptations has the franchisor performed in corporate countries?
- Transaction costs due to environment uncertainty
17 Are the processes of the franchise business format well-documented?
- Standardization of the franchise business format, such as franchise manual, operations manual, marketing manual
18 What makes part of the network set-up services?
- Indicator for standardization of the initial set-up support
- For example, training, corporate identity design
19 How does the franchisor search for and screen new partners? How much effort does he dedicate into it?
- Indicator for standardization of the recruitment process
20 Which other support functions does the franchisor provide to the local partners?
- Standardized support services of the franchisor, such as meetings, trainings, consultations, centralized franchise
department
21 Which scale advantages can be achieved through the standardization of the franchise business format?
For example, scale advantages in recruitment, set-up, monitoring, quality control, purchasing, marketing, advertising
22 Which costs do arise for the franchisor if he terminates the franchise agreement with the local partner?
- Indicator for the franchisor's hold-up risk
- Switching costs, such as disappearance of local franchise network, property rights dissemination risk
23 Which are the franchise partners' investments with the implementation and operation of the local network?
- Tangible and intangible transaction-specific investments of the franchise partner
24 Can the franchise partner use these investments after contract termination?
- Indicator for hold-up risk of the franchise partner
25 Which costs do franchise partners incur in case of contract termination?
- Indicator for holdup risk of the franchise partner
- Loss of quasi-rent, such as initial fee, brand awareness creation
26How do geographic distance and dispersion of franchise outlets affect the franchise product and service
quality standard in host countries?
- Opportunistic behavior such as free-riding, under investment, adverse selection
27 How do cultural and geographic distance of franchise outlets affect the franchisor's monitoring effort?
- For example, travelling intensity, frequency of site visits
- Indicator for autonomy versus hierarchical governance
28 Whichmonitoring devices does the franchisor apply?
- Indicator for coercive versus non-coercive control mechanisms
- For example, random vs. frequent site visits, audit system and reporting, customer complaint management
29 Which terms and duties does the franchise contract cover?
- Coercive control, such as performance schedule, territories, fees, market research, reporting, local advertising, service
quality, non-competition clause, termination clauses, contract length
30 How does the fee structure of franchise agreements look like?
- Fee structure, such as initial fee, territory fee, royalties and advertising fee, as well as price bonding
31 What are the reasons for contract termination?
- For example, bankruptcy of franchise partner, breach of contract, such as under-investment
32 Which terms and conditions apply to sub-franchising?
- For example, fee structure and profit distribution, control and monitoring.
Transaction-
specific
investments of
the franchise
partner
Behavioural
uncertainty
Environmental
uncertainty
Transaction-
specific
investments of
the franchisor
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Appendix 2: Selected quotations (empirical pattern codes) regarding the franchise governance modes and their determinants
WOS JVF MDFSynergistic scale
advantages
First mover
advantages
EUROPCAR
In the United States of America, we
have formed a global Alliance with
Vanguard that is National / Alamo,
which were then bought by
Enterprise. We now have a global
alliance with Enterprise / National /
Alamo. So we have practically
covered the North-American market
through such a partnership, global
alliance. They send us their business
for Europe, we send them our
business for USA. That is a
partnership. And that was important
to us. Because many of our
customers also want a service in this
market [USA], and vice versa, if they
[Enterprise] have customers that are
travelling to Europe and the Middle
East, then we are the right network
for them.
MAIN CODES
SIXT
The two criteria
for subsidiaries
are market
potential in
Europe and
proximity to the
German
headquarters. The
larger the
geographic
distance between
our headquarters
and the foreign
country is, the less
control we have.
That is very clear.
We establish
corporate
operations in the
markets in which
we have an
incredibly strong
presence, to
provide a 100%
brand
performance, as in
markets which are
not yet developed
or less mature.
EUROPCAR
Our strategic
objective is to
build our network
around the world.
We want to really
be a global player.
A global car rental
provider. This is
happening since
10 years. To
ensure this, we
developed a
strategy of
establishing
almost exclusively
a European
network of
corporate
countries.
SIXT
Do the products
that I offer in
Germany also
make sense in
India or in China?
In this respect, I
may offer other
products, adopt a
different approach
and a different
organizational
structure, simply
spoken, because
also the
qualification of
the staff in India
or China are very
different.
EUROPCAR
If you want to
enter into a
market and
establish your
brand there, the
franchise model
has been proved
to be the quickest
way to achieve a
reasonably
relevant market
position.
To grow fast and
efficiently without
investing own
resources in the
countries outside
of corporate
Europe, we are
looking for
partners and
providing them
exclusive franchise
licenses for the
whole country
territory.
SIXT
The master developer basically has the
option to also acquire sub-franchisees, but
in the contract, of course, we secure that
master developers operate the most
important territories by themselves. That
depends on the territory. Some territories
are so small so that sub-franchising is
neither possible, nor desired by us. But if
the market develops, then we modify the
contract accordingly.
EUROPCAR
Sub-franchising is the exception and the
partners need to get approval from us. In
Russia, we have already approved one or
two of these sub-franchisees.
In exceptional cases where the countries are
very large, like in Russia and Brazil, it makes
no sense for the master developer to
operate own stations everywhere. For
example, the distance between Moscow
and Vladivostok is 8000 km. In situations of
large distances within countries, the master
developers would naturally work with sub-
franchisees. Take the Greek islands as
another example. The sub-franchisees on
the islands own their own fleet. The cars are
used on the islands and the master
developer does not always have to carry
them back and forth by ferry.
'STANDARDIZATION AND
ADAPTATION STRATEGY' 'INTERNATIONAL FRANCHISE GOVERNANCE MODES' (dependent variable)
SIXT
We have grown incredibly in the last 10
years. In addition to strengthening business
in our European core markets, our strategy
is to expand presence in the other regions of
the world by partnering with highly efficient
franchise partners…Generally we have one
master developer per country. We never
have two partners in one country.
EUROPCAR
Since 10 years, our strategic goal is to build
our network around the world. We do this
usually with individual franchising, meaning
we go to the respective country and look for
a partner, and if we succeed, the partner
will be given the franchise license for the
whole country. Most franchise countries
operate their own outlets and stations.
MAIN CODES
SIXT
Basically, we started with a
corporate expansion in
Europe, which means
expanding outside Germany
by establishing our own
foreign subsidiaries. Besides
Germany, we own rental
offices in the core European
countries like Belgium,
France, Luxembourg, UK, the
Netherlands, Austria,
Switzerland and Spain.
In Germany, France and UK,
we use a hybrid form [plural
form], that is we own the
most important stations
ourselves and in addition,
we are looking for individual
franchisees who receive
territorial exclusivity for
cities, ZIP codes , territories,
etc. in these countries.
EUROPCAR
We have a European
network of almost
exclusively corporate
countries. We call them
corporate countries [these
are countries where wholly-
owned subsidiaries are
established]. These are our
own countries, where our
own national companies
operate. This takes place in
the major markets in
Western Europe, that is
Germany, France, UK, Spain,
Italy etc. the seven major
countries in total ... Last year
we acquired the master
franchisee in Australia and
New Zealand.
In France, Spain and
Australia we also have
domestic franchising, that
means franchising in the
corporate countries [plural
form]. In the UK we had
domestic franchisees, but
we converted all of them
SIXT
Due to the distance of the markets in
Asia, we have established a joint
venture with a local partner in
Singapore. Only for the reasons to
reduce the costs and risks caused by
such an expansion. The joint venture
in Singapore is not an operational
unit. This is a development unit,
which is responsible for searching
new franchisees throughout Asia,
training and supervising them.
EUROPCAR
Usually we do not enter into joint
ventures. There is one exception and
that is China where joint venture
franchising makes sense. Market
access is very difficult, the legislation,
foreign investment issues, etc.
Strategic alliance Sub-franchising
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Brand name IT Partnerships Global network Global customers Products Human capital
'SYSTEM-SPECIFIC ASSETS'
SIXT
Flexible agreements
with vehicle
manufacturers enable
the Company to a
certain extent to
stagger vehicle orders
over a period of time
to meet concrete
demand.
Usually, almost all our
vehicles purchases are
covered by fixed buy-
back agreements with
the manufacturers or
dealers.
Strategic, long-term
partnerships and
cooperative ties with
airlines, hotel chains
and other key players
in the mobility and
tourism industry, such
as GDS systems which
are world-wide
programs targeting
travel agents, tour
operators and
consolidators, are an
important factor in the
Sixt Group’s success.
EUROPCAR
We constantly
establish strategic
partnerships that
reinforce our position
in our markets
worldwide. Our most
important strategic
partners are easyJet,
Europe’s leading low-
cost airline, Accor, the
European leader and
world’s third largest
hotel services group,
TUI, the world’s
largest tour operator,
and SWISS
International Air Lines.
In addition, we have
strong relationships
with the automotive
industry, as a
purchaser of fleet
covered by buy-back
commitment from the
manufacturers.
SIXT
Sixt has created the
most elaborate
software of the car
rental industry,
including internet
booking solutions,
central billing and
yield management
system.
A complex, high-
performance IT
system is essential for
processing rental
transactions. System
malfunctions and
failures can cause
considerable
problems in operating
processes and, in
serious cases, even
bring them to a
standstill. In order to
counter these risks,
we have our own IT
department.
EUROPCAR
We use a variety of IT
systems. The car
rental business deals
with huge investment
volumes. To make car
rental business
profitable, one must
primarily know the
costs and key
performance
indicators. First and
foremost, this is a
matter related to IT.
An IT system is a
prerequisite for the
management of the
whole story and one
of the main success
factors of car rental
business.
Through our IT
platform we manage
the business of all our
subsidiaries and the
reservations for our
franchise network
around the world,
including sales,
marketing, billing and
insurance, as well as
fleet management
and maintenance.
SIXT
The “Sixt” brand
name in particular is
a significant asset.
Sixt won numerous
awards for its high
level of customer
orientation and high-
quality mobility
solutions.
Based on a
representative
online survey
commissioned by
the Company and
conducted in 2007,
spontaneous
awareness of the
Sixt brand stands at
84% among
business travelers in
Germany. It found
that Sixt is
perceived as a
premium brand with
the best service, the
friendliest
employees and the
fastest and least
complicated rental
processes.
EUROPCAR
We received
numerous awards,
including the World
Travel Award for
“World’s Leading
Car Rental
Company” for the
10th consecutive
year.
We were also
named “Leading Car
Rental Company” in
Europe, the Middle
East, Africa and
Central America,
reflecting the high
quality of its
services around the
world.
MAIN CODES
SIXT
In Germany, Sixt has
a market share of
over 30%, making it
the market leader.
Sixt covers over 70%
of the European
rental market.
The Sixt brand has
an almost global
presence and offers
more than 3,500
rental locations with
a fleet of 170,000
rental cars
worldwide.
EUROPCAR
If you want to be
global player, you
need to have a
solution for the
United States. This
is the largest vehicle
rental market.
Therefore, we
entered into a
strategic alliance
with Vanguard. We
now operate in the
EMEA market,
which is Europe,
Middle East and
Africa, while the US
market is covered
by our alliance
partner.
Our franchise
partners recognize
the importance of
an international
network and brand.
For instance, South
Koreans travel much
to Europe and the
USA, and then it
makes sense for our
South Korean
franchisee to be
part of the global
network.
SIXT
Our sales
department takes
care of multi-
national key
accounts.
We acquired a large
number of new
customers, including
some high-profile
international
corporations and
middle-market
companies.
In addition, we
continuously
intensify our
business with
private customers
and holidaymakers.
EUROPCAR
This strategy has
allowed Europcar to
further expand its
presence by gaining
access to a broader
base of customers.
Europcar and
easyJet together
have served nearly 2
million customers.
Europcar serves
customers in more
than 60 countries
where TUI does
business, primarily
through the TUI,
Nouvelles Frontières
and Wolters Reisen
brands.
SIXT
Ultimately, all of our
products and
services have the
same goal: to
provide our business
and corporate
customers with
premium mobility
services that is
comprehensive,
comfortable and
cost-effective. This is
the benchmark by
which we want to be
judged.
Depending on
market
requirements, we
offer customer-
segmented mobility
services, such as
“Sixt Limousine
Service & Chauffeur
Drive”, “SIXT
holiday”, “SIXTI”,
etc.
EUROPCAR
We just launched a
new product for
urban customers
and small and
medium-sized
businesses, the
EuropcarClub. This
subscription-based
system offers a real
alternative to car
ownership, with the
possibility of
occasional car
rentals that allow
customers to save
money and reduce
CO2 emissions.
In a highly
competitive market
such as vehicle
rental, service and
technological
innovation go hand
in hand as strong
sources of
differentiation. We
constantly strive to
anticipate our
customers’ needs by
innovating to
provide new
services.
SIXT
The personal skills
and know-how of
our employees
constitute an
important success
factor and
guarantee service
quality.
If, for instance,
there is a higher
turnover and
therefore a loss of
know-how, this
could affect the
quality of service in
the car rental
business. We guard
against these risks
through increased
involvement in
training and
professional
development, as
part of our
corporate culture
and through the use
of incentive
systems.
The basic principle
of our business
policy remains to
develop
sophisticated IT
systems and to
invest in new
technologies.
Accordingly, every
year, we think of
what to customize
and how to become
better. These
innovations are
important features
that distinguish us
from our
competitors.
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14
Operational know-how Strategic know-how Transfer capabilities Franchise package
'SYSTEM-SPECIFIC KNOW-HOW AND CAPABILITIES' AND THE 'FRANCHISE PACKAGE'
SIXT
The better you become, the more you learn, the
better you handle the countries, the more you
think about expansion.
Of course, I make sure that I find people who
have an academic background and have a certain
intercultural experience.
We are a German company and a lot of our
communication is in German. This might create
the impression that we operate internationally in
the same way as in Germany. But that's not the
case. Our operations are adapted to the specific
markets. For example, software, webpage,
corporate identity features, etc. all are adapted to
the country and the local business plan.
Our activities involve entering into a large number
of different agreements. This is generally only
possible by using standardized agreements. This
means that even minor inaccuracies in the
wording or changes to the legal framework could
have a material effect on business activities. We
counteract this risk via contract management
with the help of legal experts.
Marketing has been a core competence of Sixt.
Driven by innovation, a major portion of our
growth can be attributed to fabulous advertising
and multi-awarded marketing strategy.
EUROPCAR
In Europe, the Middle East and Africa, we have
established our network fully. In Latin America,
there are still a few countries left. We negotiate
for Chile, Brazil and Columbia. Bolivia and
Paraguay are not interesting as there is no market
for car rental business. We conducted a market
analysis in both countries and the whole rental
market is made up by 1000 cars. That does not
make so much sense. Of course, at some point we
will deal with Paraguay and Bolivia, but at the
moment we are dealing with Brazil and Chile,
Korea, perhaps also Taiwan…
One has to be flexible enough to implement the
criteria according to local requirements. For
example, we could suggest making the contract
“offshore”.
We have a highly experienced franchise team at
headquarters. One colleague has been a former
fleet director while the other one was operational
director in France. Further colleagues are from
Holland and UK. So we are a multicultural team.
We still have one colleague in Florida who is in
charge for Latin America, and the one in Bangkok
is responsible for Asia.
MAIN CODES
SIXT
We have experience and know-
how in the car rental industry
since 1912.
We have pursued a very
cautious fleet policy. The
reduction in the fleet size,
combined with strict cost
management and successive
price increases, subsequently
led to an improvement in
earnings.
EUROPCAR
We accelerated the
implementation of programs
designed to integrate recent
acquisitions, as well as
numerous initiatives to
improve network and fleet
productivity.
We will pursue our strategy of
improving profitability by
maintaining strict pricing
discipline, optimizing our
business portfolio and
improving the operating
efficiency and yield of our
fleet.
SIXT
Sixt were one of the first
providers in the market to
analyze the costs of the entire
rental process, including
selection of manufacturer,
booking channels, vehicle
check-out and return, accident
management, etc.
We reduce bureaucratic
administration and focus on
sales and marketing to support
our franchise partners'
operation.
EUROPCAR
It is of course our expertise to
perform car rental business
efficiently...It is important that
you are familiar with certain
procedures, for example claim
management and the
expenditures. If a car is
damaged during the rental
process, then it has to be
managed very efficiently in
order to avoid high sunk costs
otherwise. There are special
procedures to detect and
report damage, immediately
repair the car and bring it back
into our IT system.
SIXT
Our franchisees benefit from our
worldwide network, e.g. having
access to existing international key
accounts such as EADS, Siemens, Mc
Donald’s, Danone, KMPG, UPS as well
as integration in our global call center
system generating millions of
reservations per month. We are
running call centers in 85 countries –
in English and each national language
and offer special call center training
programs to all our partners.
Our online reservation platform will
be tailor-made to local country needs
by offering the same Sixt-corporate
identity.
Franchisees benefit from our
longstanding relationships with
leading car manufacturers, such as
Mercedes-Benz, BMW, Audi, Ford.
Nevertheless, the franchise
agreement does not guarantee
preferential purchasing conditions.
We transfer business planning tools,
fleet cost calculation schemes and
customer margin analysis models to
help our franchisees secure their
investments and build a profitable
business.
EUROPCAR
Our network structure and
procedures, business plan, the whole
knowledge to run a reasonable car
rental business are transferred as
part of the franchise package to our
partners. Of course, they must accept
our corporate identity, and will
receive training on that. Our
marketing package is a virtual
marketing agency where all of our
advertising campaigns and tools can
be downloaded, such as poster
templates. We teach our partners to
produce their own flyers and posters.
I can tell you from experience that
someone who acts as part of the
Europcar group, will receive better
financial conditions. Being part of the
franchise system opens profitable
funding opportunities.
We extend our European and pan-
European framework agreements
with Daimler, Volkswagen, etc. to our
franchise partners as well.
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15
Local market assets &
know-how exploration
'MARKET-SPECIFIC ASSETS, RESOURCES, KNOW-HOW & CAPABILITIES'
CAPITAL-INTENSIVE INVESTMENTS
OF LOCAL NETWORK EXPANSION
Capital-intensive tangible and
intangible investments
SIXT
For example, in
most countries in
Eastern Europe,
the population is
moving between
2-10 million
inhabitants.
Hence, in most
cases, there is a
major city and
many smaller
cities, and the
focus of
development will
be of course, to
build a network in
this major city, at
its airport, and
maybe 1 or 2
additional city
offices.
Physical assets,
fleet and staff are
the largest costs,
which the partner
must finance.
In some contracts,
we also include
minimum capital
requirements.
Because in the
first two years,
they [our
partners] will
definitely not
achieve a break-
even point.
EUROPCAR
The partner must
be able to
establish a car
rental business.
This means having
money or options
to finance it. 100
cars simply cost
money, and you
need to cough up
some millions.
We operate in a
capital-intensive
business. The
investments are
large. Therefore,
we do not want to
establish a
company in each
country. This is
simply too costly.
We cooperate
with solvent
partners who will
not, after a year
or so, notice that
they do not have
enough financial
resources.
The most
important thing
are the cars and
the costs of
financing. As a
rule, fleet covers
50% of the total
investment
volume.
MAIN CODESMAIN CODES
SIXT
…which is positive
because he [the
franchise partner]
knows the
market, he
probably already
celebrated
success stories
there, he is
adding an
existent business
volume to the
local franchise
operations, and
we will naturally
more quickly
achieve a certain
market position.
…he [franchise
partner] adds
certain synergies
to our business,
that are finances,
cars, or strategic
ties to the travel
industry … these
are the three
important
business
segments which
our industry
depends on.
EUROPCAR
These [our partners] are
either automobile
dealers, importers,
someone from the travel
industry or who has his
own workshop or a bit of
infrastructure.
If he now has a counter at
the airport, then this is
usually his asset. And our
partner in India is Jet Air,
the second largest airline
company. They have a
structure anywhere in
India, they have good
contacts to the airports
and now fly to Europe.
Getting market access to
the USA, you need to be
located at the airports.
This is a very big hurdle to
enter the market,
because contract
negotiations are very
tedious and there are no
spare capacities at the
airports.
This depends a bit on the
situation in that particular
country. The
manufacturers do not
always offer the same
conditions for all
countries. Therefore, due
to the country-specific
situation, to each country
apply different vehicle
purchase conditions in
Europe.
SIXT
…if he ensures
that added-value
comes into play,
such as insurance,
fleet purchasing,
etc. then this will
be his business
model in the
country…
We had the
opportunity to
open a
development
office with a
partner in Asia.
This partner is
naturally
interested that
we work
relatively efficient
there. The
partner has also a
management
function and we
now try via this
joint venture
office to acquire
franchise partners
throughout Asia
and supervise
them on site.
EUROPCAR
It is the partner’s
knowledge that
will take us
quickly into the
market. It is all
about speed.
We want to have
people who can
deal with cars and
understand the
business. This are
people who own
local car rental
companies or
who are in the
automotive
business. We
believe there are
a lot of synergies.
Today we have a
franchise partner
in Switzerland,
probably
contributing one
of the best results
in our network.
So you can see
that local
expertise and
synergies make
sense…
SIXT
It is essential for our
partners to adapt their
products and services
to the changing
economic and social
environment and to the
individual requirements
of their customers.
It makes no sense to
use the same
advertising in Kuwait
and in Spain.
We advertise a high
premium content of
our fleet especially in
the Central European
markets, like Germany,
Austria, and
Switzerland. But in
France, for example, it
is completely different.
The Frenchman prefers
small cars from French
manufacturers, above
all Renault, Peugeot,
and Citroen. Whereas
in Palma de Mallorca,
customers would drive
convertibles, but
certainly not Mercedes
C Class. Therefore, the
fleet is adapted in each
country.
EUROPCAR
In Paris, rather smaller
cars are rented,
because people know
they will generally have
difficulties to find a
parking space.
Local market assets and resourcesLocal operational & strategic
'car rental' know-how
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16
Cultural
uncertainty
Economic
uncertainty
Tangible and
intangible transaction-
specific assets of the
partner
Financial loss of
the partner
'TRANSACTION-SPECIFIC INVESTMENTS OF
THE FRANCHISE PARTNER'
MAIN CODES
SIXT
Investments into the
store, corporate
design, all these are
100% system-specific,
even staff training. To
improve service
quality in the vehicle
rental area, we also
took on staff who
were previously
employed by our
partners.
EUROPCAR
We operate in a
capital-intensive
business. The
investments are large.
Our partner invests
into the brand to gain
a presence with the
local network.
There are great
franchisees who also
establish their own
training centers and
train their people.
SIXT
Initial Fee, of
course we do not
pay back. Also the
franchise store,
which is held 100%
in the Sixt design,
the partner can no
longer use, if the
contract is over.
EUROPCAR
If the contract is
over, then the
franchisee is on his
own. Whatever he
has invested in the
brand, in the
awareness of the
Europcar business,
he will lose. For
instance, the
partners must
spend 3% of their
turnover on local
advertising.
The question is
whether the
partner can
continue car rental
business without
the former
trademark.
EUROPCAR
The political stability of countries
is very important. Who wants to
invest in North Korea or
Afghanistan where there is war?
We rather cover risky countries,
such as Syria, with our partners.
This is our principle.
Before, Eastern Europe was
difficult to access due to its
political situation.
Of course, there are always
market entry barriers which are
easier to circumvent with a local
partner than starting your own
car rental business in that
country. We only need to look at
China or other countries with
high entry barriers or
protectionism of markets. For
example, in the US, it is
incredibly difficult for a foreign
corporation to establish car
rental business there. In
principle, this is a free market,
but still the entry barriers are
considerable. Of course, these
conditions encourage us to
expand with the franchise
model. As a rule, the reason why
we do franchising is simply quick
time-to-market pace.
The legal environment for a
franchising can be totally
underdeveloped or not yet
existent in some countries.
That’s why in China there are a
lot of joint ventures. In China,
the risk is very high that the
trademark cannot be protected,
since there is no legally safe
environment.
In Brazil, we are having a court
case with our former partner
since three years. This is
incredibly difficult. Brazil is very
protectionist towards their own
people. Currently there is no
Europcar in Brazil.
'TRANSACTION COSTS DUE TO ENVIRONMENTAL UNCERTAINTY'
SIXT
Demand in the
vehicle rental
business is also
dependent on
numerous random
factors, such as the
weather and short-
term changes in
customers’ mobility
requirements, and is
therefore
intrinsically difficult
to forecast.
The vehicle rental
industry continues
to be dominated by
intense predatory
competition, in
which price is also a
factor.
No reliable estimate
can be given of the
extent to which the
weaker economic
environment will
continue to impact
on the readiness of
companies and
private individuals to
spend money on
mobility services in
future.
EUROPCAR
In a challenging
economic
environment, we
confirmed our ability
to adapt quickly
thanks to our flexible
business model. We
rolled out efficient
adjustment
measures that have
strengthened our
competitive
position.
MAIN CODES
Institutional uncertainty
SIXT
The expansion strategy
involves various risks
including market-
specific, legal, fraud,
financial and personnel
risks. These include
possible incorrect
assessments of market
conditions in the
countries in question,
changes to national legal
frameworks, the costs
associated with the
establishment of an
effective infrastructure
and the need to find
qualified management
personnel and suitable
employees.
Our business is
influenced by a number
of different legal
systems. These include
road traffic,
environmental
protection and public
order regulations, tax
and insurance laws, and
capital market
regulations.
Our business is exposed
to national and
international
developments such as
political unrest, armed
conflicts, acts of
terrorism and epidemics,
and by restrictions on
private and business
travel as a result of such
events. Since such
events are difficult or
even impossible to
predict, consistently
reliable forecasts
regarding the
development of travel
can only be made to a
very limited extent, if at
all, even in the short
term.
SIXT
Cultural and
political stability
are of course
critical factors to
consider with the
expansion into
foreign countries.
We would
definitely not
invest in Russia in
the next 5 years,
simply because
the legal
uncertainty is so
great, the
language barrier
is so large, and
cultural
differences are so
great. So, this is
certainly one
reason to
franchise.
Cultural factors
are very great.
Regarding
franchising in
Asia, it is quite
clear that each
Asian market has
different
conditions.
EUROPCAR
Australians have a
quite similar
business
understanding as
ours, as compared
with Japan or
Indonesia for
example. That’s
why we decided
to convert the
Australian master
franchise license
into corporate
operations.
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17
Recruitment
Conceptualization of
the franchise
business format
Initial set-upStandardized centralized
support servicesSwitching costs
SIXT
The start-up will be
guided by our franchise
team. Tailor-made
training programs (e.g.
station manager training,
call center management)
will ensure that the
partner's know-how and
service level will be
according to the
standards of Sixt.
The set-up includes the
implementation into the
Sixt booking system, as
well as initial training of
everything that was
considered relevant in
the business plan. We
provide marketing
materials, equip the
partner’s first station in
Sixt corporate identity
and provide all these
materials from the
German headquarters.
Software, webpage,
corporate identity
features ... we offer all
these start-up services,
tailor-made according to
country, culture, climate
and the local business
plan.
EUROPCAR
The first week is called
our introductory week.
We show our partners
how to conduct an
efficient car rental
business according to
our standards, how to
set up a station, and, of
course, we will connect
them to our reservation
system.
SIXT
The franchise system
is documented with
system manuals,
operation manuals,
training manuals,
corporate identity
manuals which we
constantly update.
Monitoring, quality
control, purchasing,
marketing,
advertising… These
are the processes of
our franchise
business format.
EUROPCAR
That's part of the
whole package. We
have developed an
internet platform for
our partners. This is
like a virtual
marketing agency,
including all our
advertising
campaigns and the
tools you need for it,
such as any
templates, posters.
SIXT
We screen
applicants based on
financial
information by
credit institutions
and business
partner references.
We like to ask for
references. We just
call people over the
telephone. If our
potential partner is
a car dealer, then
we would call the
manufacturer.
EUROPCAR
Sometimes it is us
who contact the
potential partners,
sometimes they
approach us. We
use all the
elements to find an
appropriate
partner, also a local
consultant. All
information about
potential local car
rental companies,
leasing companies,
banks, which could
be interesting for
us to partner with.
Partner selection is
a systematic
process.
For a year or so,
our man in Bangkok
established contact
with potential
applicants. Now we
found one. This is a
bank that is into
the leasing
business.
MAIN CODES
SIXT
With the non-
competition clause,
we want to protect
ourselves against the
fact that the partner,
whose agreement had
to be terminated, will
start acting as a direct
competitor in the
market. Because this
would be the worst
thing that could
happen, that I develop
a partner in a country
who, someday, simply
switches the brand
and then uses
everything he was
trained against us in
the future.
EUROPCAR
There are certainly
partners who exploit
their bargaining
power.
If the partner has
achieved a leading
position in the market,
then that is also a
certain pressure
situation for us. If we
would decide now to
terminate working
with him, then we
would lose leadership
position and presence
in this market.
SIXT
Regular training is conducted at
headquarters and on site, on a „need-to-
need“ basis, depending on staff turnover
and growth potential of the local network.
We conduct on site audits based on
demand potential as well as customer
complaints over quality.
The Sixt marketing team supports the
partners in implementing the system and
quickly and efficiently growing the
business through advertising assistance.
In order to enhance the communication
and best practice exchange between the
countries in terms of corporate sales,
marketing and operations, we have
structured the Sixt world in 6 geographical
areas. Once a year, area summits will be
held in every region. In each Sixt area, one
area director is in charge of coordinating
the region with a direct link to Sixt
headquarters.
EUROPCAR
We visit our partners once a year and
carry out an audit, for instance, regarding
the state of the fleet and the local
network overall. And then we have the
official audits of accounts, books,
operations, etc. conducted by our internal
audit department once every few years.
We also implemented a complaint
management system to find out where
the causes of customer dissatisfaction lie.
In Hamburg, there is a large training
center. Training is part of the franchise
system. We teach our partners on what
makes up the Europcar system. Of course
they must accept our corporate identity.
We organize regional meetings once a
year for each region.
The supervision of our franchise partners
is quite intense and we travel a lot. We
have four regional directors at
headquarters plus two persons on site in
Asia and Latin America respectively, who
take care of the countries.
'TRANSACTION-SPECIFIC INVESTMENTS OF THE FRANCHISOR'
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Geographic and cultural distance Free-riding Under-investment EntrepreneurshipStandardized franchise terms
and conditions
SIXT
This is generally only possible by using
standardized agreements.
We implement all features of our car rental
software in about 20 countries. This makes it
relatively easy then to control the revenues in
these countries.
Basically, I would say that our monitoring is
standardized. We can break down, describe
and control all necessary work processes, so
that performance measurements can be
carried out.
The Sixt Group also relies on intellectual
property rights to protect its business
activities. Preserving these rights at national
and international level is an important
precondition for maintaining competitiveness.
The franchise agreement describes above all
the relationship between franchisor and
franchise partners. It refers to the franchise
system which in turn, is documented with
system manuals, operation manuals, and
corporate identity manual.
Our contract durations are quite different. If
we start with a new partner, then we usually
stipulate a 5-years minimum contract length.
Our contract also includes a business plan,
financial plan, and development plan.
If the partner violates the contract, we may
terminate the contract at any time…Poor
service, high rate of complaints, non-paying of
franchise fees would be reasons for
termination.
EUROPCAR
We have a list according to which we check
whether the partner fulfills our predefined
criteria of car rental business.
For new partners, our contracts vary from 3 to
5 years duration.
After five years, we want to have the
opportunity to say that we will not continue.
The franchise contract is established between
us and the exclusive partner who represents
the whole country and is also responsible for
the sub-franchisees.
Contracting is in English. We have an English
contract which is binding.
We usually develop the business plan and
development plan together, and agree on how
the area must be developed in the next 2 to 3
years. And all that becomes part of the
contract. Our procedures, manuals, service
level agreements are also incorporated in the
contract.
SIXT
But in Asia or South America, it is not as
easy to implement our European software
and control the partners' business
operations.
With the expansion to South America, we
needed to hire staff at headquarters who
speaks Spanish. Supervision of countries
from distant cultures cannot be done in
English. That is clear.
The greater the distance from Germany,
the harder it is to acquire information
regarding the partner’s competences and
experience. How would you do a credit
check or a reputation check of a potential
franchisee in Congo? This is virtually
impossible.
We use franchising in the markets that are
remote and where we can use less
logistical synergies. The greater a country’s
distance from system headquarters, the
less control we have and the more likely
franchising will be our chosen distribution
strategy.
The qualifications of the staff in India, in
China are very different. The cultural
differences, the salary structure and the
personnel situation are country-specific.
EUROPCAR
Europe is not a big problem. But the further
you get away from Europe, the more
difficult monitoring of the franchisees will
be.
We had to develop a strategy of how to
expand to very distant countries, not only
in terms of geographic distance, but also
the culture and business attitude. So there
is not much choice but to franchise.
We want to develop the Asia Pacific region.
And our corporate unit in Australia gives a
little stability in the structure. If we would
only work with franchise partners there,
then these would be quite far away.
There are always country-specific
characteristics and differences. In Asia,
they work differently than in Africa or in
Europe.
We know that one cannot apply the same
standard in Zimbabwe as in Germany.
When I get to exotic countries where
people probably do not have so much
experience with the car rental business yet,
then knowhow transfer is not so easy. It is
different if one talks with people from
Poland as with people in Honduras.
'MONITORING EFFORT, OPPORTUNISITC BEHAVIOR, NON-COERCIVE AND COERCIVE CONTROL'
SIXT
Franchise partners, most
likely, will first oppose to
invest in brand-specific
assets, such as new logos.
EUROPCAR
If we introduce something
new, then it must also be
introduced in the partner’s
country. Uniformity is
indeed desired. But we are
not so strict. We see this a
little more flexible. The
logo, the corporate identity,
that's holy. These must
certainly not be affected ...
or of course if the partner
does not fulfill the terms of
the development plan...that
is a different, more serious
story then.
Moral hazard
MAIN CODES
SIXT
The advantages of
franchising are access
to financial capital
and motivation.
Basically, the master
developer is his own
boss, of his own
enterprise. He is
motivated to make a
profitable business at
the end of the day, of
course, much more
than an employed
manager.
And our joint venture
partner is naturally
interested that we
work relatively
efficient in China.
EUROPCAR
And if the partners
generate business
that takes place in
other countries, then
they receive a fee for
it. This is only fair.
SIXT
The reports, which we
receive from our
franchisees, might not
always be 100% correct. I
think it is quite normal that
a franchisee is trying his
franchisor…to try at least
once, to get the optimum
out of the contract.
EUROPCAR
In Thailand, we terminated
the contract with our
former partner, out of
contractual problems. They
were not satisfied with
certain contract terms, they
would not want to pay so
much money [fees,
royalties] to us.
SIXT
In the markets in
which we have an
incredibly strong
presence, we
quest to maintain
the highest level of
service standard
and quality. While
for markets which
are further away
from Germany,
such as
somewhere in
Eastern Europe or
perhaps in Asia,
keeping a 100%
service standard is
less important. The
more distant the
markets are
located from the
system
headquarters and
the higher the
number of
distribution levels,
the more we
compromise on
the service level.
EUROPCAR
We cannot force
people to be nice
with the
customers. This is
an essential part of
the service. From
time to time,
customers
complain, for
example, if
something was not
working well with
the rented
vehicles.
Page 63 of 63 International Marketing Review
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