Franchise Chains Governance in Emerging Markets: Studying the Presence of Multi-Unit Franchisees in Brazilian Chains

Abstract

The proportion of owned and franchised stores (contractual mix) is a recurring theme in the discussion around the governance of franchise chains. In the present study, a third possibility in terms of this contractual mix is ​​addressed: the multi-unit franchisee or MUF (franchisees that operate two or more units of the same network). The literature on the subject has, almost unanimously, indicated benefits arising from the presence of MUFs. Our study develops and tests a theoretical model relating horizontal agency costs and intangible assets (systems locations) to franchisors' option for more intensive use of multi-unit franchises in comparison to traditional franchises (single-unit franchisees or SUFs) or owned stores. Econometric procedures are applied to a sample of 202 chains for the year 2018. The results indicate that the concentration of stores in contiguous markets, uniformity issues, and the importance of maintaining the chain's value proposition are associated with a higher proportion of MUF stores. It is expected to contribute to the literature on governance and control of franchise chains by approaching a phenomenon that is not so new, but is still very little known in terms of structuring these networks.