Does The Franchisor Provide Value To Franchisees Business Essay

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An important theme in research related to business strategy concentrates on understanding of the basis for and assessing the sustainability of competitive advantage.

One change in the competitive environment that renders these assessments more challenging is the movement away from traditional business arrangements and toward longer term, more cooperative associations. These types of associations, which have been named alliances or partnerships, have cooperative arrangements in distribution channels.

In the context of small businesses, franchise arrangements illustrate this phenomenon; these arrangements represent significant levels of cooperation between the franchisor and franchisee and may serve to protect the franchised operation from market forces. An assessment of competitive advantage in small firms is clearly an important topic; yet there has been limited research in this area. This article is based on research that applies the concept of competitive advantage to identify small businesses that would be good franchisee candidates. The basic approach was to assess the nature and extent of the competitive advantage held by a small business and uses this as the basis for identifying firms likely to have favorable attitudes toward franchise arrangements. It also was an opportunity to more fully understand the reasons for those attitudes to achieve the best business performance.

Chapter One: Introduction

Research problems:

Franchisor-franchisee relationships typically are characterized as contractual arrangements and thus represent relational exchanges. As relational exchanges, franchisor-franchisee relationships entail a sharing of benefits and burdens the quantity of benefits and burdens shared between the franchisor and its franchisee can result in cooperation (agreement) or conflict (disagreement) among the relationship partners. Moreover, the rate to which a franchisor franchisee relationship evolves depends on the value of the relationship to each partner.

A potentially important feature of a franchise arrangement is its ability to increase the competitive advantage of the franchisee. It is not clear, however, that this is actually the case.

The research is studying differences between franchisees and franchisors regarding their perceptions of various dimensions of franchising, including advantages of franchising and initial and ongoing services provided by the franchisor

The study reports on legal issues related to the franchise system of distribution in the U.S. focusing on a legal issue relating to franchising that is known as the tying agreement.  The author goes on to examine legal issues involving the business relationship between franchisors and franchisees, including the "disclosure problem" and the "capricious termination" problem. It is suggested that legal issues such as the tying agreement have little to do with quality control and more to do with extracting more money from franchisees through illegal, anticompetitive means. 

The franchising trade associations the National Association of Franchise Companies and the International Franchise Association are also mentioned.

Research Questions

Does the Franchisor Provide Value to Franchisees? 

What variables influence the adoption of passive ownership restrictions in franchise systems and what are the effects of these restrictions on the rate of franchisee failure of such systems?

Is Franchising Entrepreneurship? Yes, No, and Maybe So?

How to optimize franchisee sales and business performance?

How franchising marketing strategy to prevent "investment cycle tyre from puncturing"?

Importance of the study

This research outlines the use of disclosure in the regulation of the franchise sector, demonstrating the effective informational regulation. First, there must be enough reliable information to gauge the risks in informing the design of regulatory process and the choice of tools; second, the information should be uniformly reliable, accessible and useable; and, third, a franchisee's ability to act on the information shouldn't be limited and the franchise contract should be subject to negotiation and variable alternatives should be available in the market. 

As potential solutions, this research proposes that increased cooperation among and fuller representation of stakeholders, better information from dispute resolution processes, and registration of disclosure would improve the level of information about the sector generally. 

To ensure reliable, accessible and useable information, the information that is required to be disclosed should be identified by all stakeholders, with assurance that it is provided in an accessible, useable way. 

Also this study advice that educational initiatives are needed to enhance franchisees' ability to act on the information. 

This study also briefly surveys some other regulatory tools used in the regulation of franchising, but urges that these tools be selected as part of a democratic and participative regulatory process that accurately represents the interests of all stakeholders.

This study also showing few applied different cases of franchising,

Chapter Two: Relationship between Franchising and Entrepreneurship



Franchising is a method of distributing products and services. At least two levels of people are involved in the franchise system: (1) the franchisor, who lends his trademark or trade name and a business system; and (2) the franchisee, which pays a royalty and often an initial fee for the right to do business under the franchisor's name and system. Technically, the contract binding the two parties is the "franchise," but that term is often used to mean the actual business that the franchisee operates (Rothenberg, 1967).

fresh look at franchising :

history of franchising:

Through many difficulties in the usual forms of distribution in the middle third of the century was an overall reduction in prices on the independent retailer. The impact of lower retail prices on price charts and profits obtained by the distributor whether a manufaturer or dealer was and in addition to that, it opened the road for chains of companies during this period to create multiple retail outlets across the regions in which they operate, at the expense of the independent stores,

There is a change happened to the first independent stores in the modern shopping malls that put the concept of one stop. With changes in the real estate activity and the idea of ​​managing shopping centers and sited and select the size of the compressed volume of specialized shops opened the way for the franchise outlets efficiency,

The principle of "innovate or die" make retailers suggests additional ways of marketing, such as the "cash and carry". This had innovation heroes, then came the idea of cooperative buying group, who are accustomed to collectively use the total purchasing power of buyers to buy goods at a good price in order to compete in the retail market. And there is another group working as a group specializing in wholesaling, in order to offer the best prices for those wishing to purchase from stores in large quantities,

And there was a problem there was none exist of continuous and coherent information for marketing you need for the process of selling a product or service. (Rothenberg, 1967).

evolvement of franchising:

Franchise strongly submitted by General Motors Corporation in 1898 and Rexall in 1902. And many other companies operating in the fields of petroleum and soft drink bottling stores and car accessories in a variety of other areas used this method of distribution. But even after the end of World War II, which affected the further spread of many new products and services to a large extent by the franchise,

As of today, the franchisor "service-sponsors" the franchisee, so he could work in the manner specified by the franchisor and the consumer gets the same products and services as if he had bought directly from the franchisor (Rothenberg, 1967).

International franchising:

Because academic research on franchising have a significant long history, dating to the late 1960s, in the process, has appeared several specialized research on the subject of franchising in disciplines such as economics, marketing, law, and management.

As has been studied several aspects such as" 'ownership redirection " of franchised units of companies, and the scarcity of resources as a catalyst for the franchise, franchise control system, cooperation and development of systems and determining reasons for failure, and that at the local level and at the global level, and focused interests franchisees mainly on research excellence, while not gets attention for a franchise perspective increasing attention only recently, the Securities and research excellence only interested in the positive economic effects of franchising (Grünhagen, Witte, & Pryor, Effects of US-based franchising in the developing world: a middle-eastern consumer perspective, Jan/Feb2010).

Importance Of Franchisee Selection:

Agency theory explains how best to organize relationships in which one party (the principal) determines the work, which another party (the agent) undertakes, Under conditions of incomplete information and uncertainty, which characterize most business settings, at least three agency problems can arise: adverse selection, moral hazard, and holdup .

Adverse selection occurs when the principal cannot ascertain if the agent accurately represents his ability to do the work for which he is being paid.

Moral hazard occurs when the principal cannot be sure if the agent has put forth maximal effort, Holdup occurs when at least one of the parties will act opportunistically to renegotiate an agreement after a relationship-specific investment has been made, in each of these situations, the franchisor's assessment of the prospective franchisee during franchisee selection becomes crucial. Without strong monetary incentives, free riding, shirking, and moral hazard may not pose major issues for social franchisors. Adverse selection, however, could lead to franchisor reputation loss. Thus, franchisee selection is crucial for a social franchisor.

Commercial franchising serves in organizational expansion, Organization expansion needs capital and management inputs. Between these two inputs, commercial franchisees in many cases provide financial capital to the franchisor. In addition, they offer better business management skills and this helps in reducing agency costs, Franchisee expansion represents successful franchising. Choosing the right franchisee enables this expansion. The franchisor in a commercial franchising system owns the business concept and implementation expertise. We can expect therefore that franchisors take informed decisions on franchisee selection.

A prospective commercial franchisee too can decide on whether to be part of the franchise or not. This represents self-selection as put forth in agency theory. The relational view of franchising, however, posits that franchisors spend a lot of time, money, and effort on deciding the right fit between them and franchisees. This is to reduce risk, franchisee turnover, and litigation costs, and help achieve better overall franchise performance. Hence, franchisor needs to use appropriate selection criteria in choosing right franchisees as partners for efficient functioning. Franchisee failures in spite of selection can be attributed to inadequate franchisee selection procedures; adequate franchisee selection by the franchisor is one finding to lower franchise failure rates.

Prospective social franchisees in rural areas in most cases either have limited competencies or are seeking franchisor partnership. Thus, franchisor's selection of franchisee rather than self-selection operates in social franchising. Among various social franchising forms, clinical health care franchising is the most common form. In this franchising form at the village level, health workers and independent private medical practitioners seek established franchisors for obtaining additional knowledge, skills, and brand reputation. Thus, key responsibilities of franchising concept proposal and franchisee selection lie with the social franchisor (Sivakumar & Schoormans, 2011).

Ingredients of a Franchised Business:

Six key ingredients should be included within a well-balanced franchise offered to a franchisee. These are given here in order of importance:

1. Technical knowledge in its practical form is supplied through an intensive course of study.

2. Managerial techniques based upon proved and time-tested programs are imparted to the franchisee on a continuing basis, even after the business has been started or taken over by the franchisee.

3. Commercial knowledge involving prescribed methods of buying and selling are explained and codified. Most products to be obtained, processed, and sold to the franchisee are supplied by the franchisor.

4. Financial instruction on managing funds and accounts is given to the franchisee during the indoctrination period.

5. Accounting controls are set up by the franchisor for the franchisee.

6. Protective safeguards are included in the intensive training of the franchisee for his employees and customers, including the quality of his product, as well as the safeguards for his assets through adequate insurance controls (Rothenberg, 1967) .

relationship between franchising and entrepreneurship :

Franchisors and Entrepreneurs:

When asking of ETP editorial board members to respond to four questions regarding the relationship between franchising and entrepreneurship. The first was, "Do you consider franchisors to be entrepreneurs?" Of the 38 respondents who answered this question, a slight majority (20 [52.6%]) said yes, five said no (13.2%), and 13 (34.2%) said that some are and some are not.

In elaborating on their answers, respondents offered a variety of provocative thoughts.

Thus, opinions vary considerably across board members. Opportunity recognition was stressed within some open-ended responses. One scholar who believes that franchisors are entrepreneurs encouraged the field to remember that "the franchisor identified the opportunity and found a way to take advantage of it through franchising." Similarly, others noted that "a franchisor is involved in the exploration of an opportunity, typically has started a firm (engaged in the entrepreneurial process) and is using franchising as a means to expand their business" and that "franchisors come up with new ideas for value creation."Amore contingent approach was adopted by the respondent who asserted that "if the franchisor comes up with an innovative franchise idea, then I consider him/her to be an entrepreneur. If he/she is just copying some other franchise, then I do not consider them to be an entrepreneur.

" Finally, one detailed response tied the opportunities pursued by franchisors to corporate (Lumpkin & Dess, 1996) (Seawright, Smith, Mitchell, & McClendon, 2011)entrepreneurship: The franchisor identified the initial market opportunity, assumed considerable risk, and developed organizational processes and innovations to create value for the customer in a way that generates a profit. They are the creator of the business model and as such, are entrepreneurs. The subsequent act of creating a franchise operation is entrepreneurial as well, as it creates new revenue streams. Perhaps this is more of an issue of corporate entrepreneurship.

Others emphasized that building a franchised system should be viewed as one entrepreneurial growth strategy among several that are available to firms, but opinions varied as to whether this implies that franchisors are entrepreneurs. Those who believe that franchisors are entrepreneurs stressed that "a franchisor is in a business of selling businesses and does this with a growth imperative, a key characteristic of an entrepreneur" and that "a franchisor can behave in an entrepreneurial fashion-with intent to build the franchise and then sell or expand." A cautionary approach was offered by a respondent who argued that "franchising is one alternative of several possible ways to grow a business. The foundational characteristics of entrepreneurs-opportunity identification, cobbling together resources not owned/controlled, etc.-are not part of this process."

A similar response was that "from the franchisor's perspective," franchising is "an opportunity to grow and expand to saturate the market using other people's resources; thus, a growth strategy.

However, if the franchisor is launching a new business with the intention to become a franchisor, then, only then, is the franchisor an entrepreneur." Other responses suggested that franchisors are entrepreneurs in part because of the risk involved in trying to build a franchise system. One noted that franchisors "risk capital on what is a new, often groundbreaking, enterprise" while another emphasized that franchisors "innovate brands, commercialize knowledge, and take risk." Two respondents noted that "franchisors typically are growth-oriented, and they bear the financial risk of the franchise chain" and that "the franchisor bears the risk in the result of failure. This risk is not confined to losing their employment." Even if franchising is less risky than some other endeavors, another respondent noted the importance of recognizing that "entrepreneurship is a broad field that encompasses both high-risk/high-return projects such as venture-funded ideas and low-risk/lower-return projects such as franchising." Many of those who believe that some but not all franchisors are entrepreneurs pointed to franchisors' size and stage of development as key contingencies. Invoking the world's best-known franchisor, one respondent claimed, "McDonald's is not an entrepreneur, but many franchisors are. If they have a new idea and are moving to gain acceptance of that idea, they are. Otherwise, they are not." A similar view was offered by a person that asserted franchisors "would be considered [entrepreneurs] while they are working to make a business franchiseable." Two respondents differentiated between firm founders and subsequent leaders. One contended that "a founding franchisor is certainly an entrepreneur; the successor is not." Another argued that "a franchisor who is also a founder is clearly an entrepreneur.

A franchisor who is an owner but not a senior manager is primarily an investor (or perhaps part of a family-business system). The franchisor who is a senior manager but not an owner is not an entrepreneur. The gray area is a franchisor who is an owner and a senior manager, but not a founder." In sum, franchisors are more likely to be viewed as entrepreneurs by ETP editorial board members early in their firms' development (Ketchen, Short, & Combs, 2011).

Franchisees and Entrepreneurs:

Our second question was, "Do you consider franchisees to be entrepreneurs?" Of the 38 respondents who answered this question, 12 (31.6%) said yes, six said no (15.8%), and 20 (52.6%) said that some are and some are not. Two advocates for franchisees, meeting the threshold for being entrepreneurs, simply suggested that "they do almost all functions as other entrepreneurs except that they do not need to come up with the business idea" and that "from the individual franchisee's perspective, a franchise is a new venture and therefore can be considered an entrepreneur."

Other advocates stressed that franchisees engage in risk-taking, a key element of an entrepreneurial orientation (Lumpkin & Dess, 1996).

For example, a comparison of the level of entrepreneurial orientation harbored by single vs. multiunit franchisees could be illuminating. Such work could help move the literature past simplistic generalizations such as "franchisees are less like entrepreneurs and more similar to non-entrepreneur managers" (Seawright et al., 2011)

franchisor value to franchisee :


Franchisor-franchisee relationships typically are characterized as contractual arrangements and thus represent relational exchanges. As relational exchanges, franchisor-franchisee relationships entail a sharing of benefits and burdens (for example, Macneil 1980). The quantity of benefits and burdens shared between the franchisor and its franchisee can result in cooperation (agreement) or conflict (disagreement) among the relationship partners. Moreover, the rate to which a franchisor franchisee relationship evolves depends on the value of the relationship to each partner. Conflicts between franchisors and their franchisees are well documented in the U.S. domestic marketplace, in the popular press (Bongiorno 1993; Singletary 1993; Touby 1993; Pollack 1996; Shivell and Banning 1996), as well as in the academic literature (Stern and Gorman 1969; Porter and Renforth 1978; Smith 1993; Kaufmann and Lafontaine 1994; Kaufmann and Dant 1996; Michael 1999; Frazer 2001). Conflict issues include territorial encroachment, geographic scope of advertising campaigns, vertical price restraints, and the composition of the product mix, to name a few. Porter and Renforth (1978) found that "sharing advertising costs" is one of the most important and most frequent causes of tension and litigation in franchise relationships.

Franchisees complain that their advertisements do not yield results commensurate with the fees paid (Shivell and Banning 1996; Tomzack 1994; Webster 1986). Along the same lines, franchisees often voice concerns about the amount paid as an entry fee into a franchise system, particularly when more than one franchise outlet is acquired. In fact, new franchisees who are contemplating the opening of multiple units regularly expect a discount on the entry fee of each new unit. Also, anecdotal evidence suggests that franchisees often are unhappy about the contractual stipulation that monthly royalties are figured as a percentage of sales and not of profits (For a recent comparison of royalty structures, see Jeon and Park 2002). For example, a nationally advertised promotion on a signature hamburger may drive sales and hence royalties for the franchisor yet may leave participating franchisees struggling in the face of marginal profits (Sanderson 1995).

Correspondingly, the worth of a franchisor to a franchisee, which is referred to here as franchisor value, can be described as the difference between the overall benefit from being a franchisee and the total cost of acquiring the franchise, including entry fee, royalties, and advertising fees. While many franchisors levy other fees in addition to the advertising fee, such as training or legal fees, advertising fees are the typical and most frequently used fees across franchise systems (Michael 1999) and thus represent such miscellaneous fees in this study.

Many franchise agreements often entail 10 or 20 years of commitment at the signing of the contract, with various franchise fees being paid monthly. Moreover, the level of benefit franchisees realize from their fees to the franchisor may change over time. Correspondingly, it is likely that the perceived value of a franchisor to its franchisees also changes over time.

short term and long term relationship :


Relationship marketing has shifted its focus from discrete transactions to long-term relationships; hence, the different types of exchanges can be appropriate depending on the results desired by firms (Frazier, 1999; Jap & Ganesan, 2000). Thus, relationship marketing needs to distinguish between short-term transactions and long-term relational exchanges (Dwyer, Schurr, & Oh, 1987).

Business-to-business (B2B) exchanges can be assessed by the transactional- relational continuum (Ferguson, Paulin, Muller, & Moslein, 2002). Both the relationship and transactional marketing strategies have advantages and drawbacks (Kumar, Bohling, & Ladda, 2003). In general, long-term relationships are more profitable than short-term ones (Reichheld, 1996), although some new customers may be more profitable than old ones (Reinartz & Kumar, 2000).

Information exchange and co-operative behaviors:

Information exchange reflects the expectation of openly sharing information that may be useful to both parties. It is one of the major connectors in buyer-seller relationships (Cannon & Perreault, 1999). The parties are willing to use different communication modes to exchange information in order to facilitate their adaptation and co-operation. Communication enables information to be exchanged, which may reduce certain types of risk perceived by either one of the partners. Prior research has examined the positive effect of the exchange of information on trust in B2B settings (Anderson & Weitz, 1989; Aulakh, Kotabe, & Sahay, 1996; Geyskens et al., 1998; Mohr & Spekman, 1994; Morgan & Hunt, 1994; Young- Ybarra & Wiersema, 1999). Trust develops from the constant and detailed exchange of information (Han, Wilson, & Dant, 1993). Communication aligns the individual and collective objectives, improves partners' perception about the relationship and favours trust (Morgan & Hunt, 1994). Furthermore, communication is a key factor of partners' trust in dyadic relationships (Anderson & Narus, 1990; Larson, 1992).

Co-operation is a frequent phenomenon in franchise systems. Co-operation has been defined as the co-ordinated actions partners take to achieve mutual or singular outcomes with expected reciprocity over time (Anderson & Narus, 1990). This conceptualization has been most accepted in the marketing literature (Kalafatis, 2002; Ruyter, Moorman, & Lemmink, 2001). Co-operation can consist of joint planning and collaboration, among other activities (Fontenot & Wilson, 1997).

Although some empirical studies in business contexts have posited co-operation as a consequence of trust (Morgan & Hunt, 1994), other studies argue that cooperation is an antecedent of trust (e.g. Anderson & Narus, 1990; Ruyter et al., 2001; Zabkar & Zuzel, 2003). Thus, the causal direction of the co-operation-trust link has been subject to debate, suggesting that the interrelationship between these two variables is reciprocal. The reason why co-operation is posited as an antecedent of trust is that trust relates to a present state, whereas co-operation refers to a past behavior (Anderson & Narus, 1990).

Behaviors directed towards relationship maintenance develop when the relationship has extended over time (Currall & Judge, 1995). Furthermore, the parties in franchisor-franchisee relationships need to develop congruent objectives to maintain the relationship over time, including commitment, information exchange and co-operation (Spinelli & Birley, 1996).

Thus: The positive and direct effect of information exchange on trust will be greater in longer relationships than in shorter ones.

The positive and direct effect of co-operative behavior on trust will be greater in longer relationships than in shorter ones.


Trust is a central construct in relationship marketing (Morgan & Hunt, 1994). Others areas in which it is recognised as a key construct are service marketing (Moorman, Zaltman, & Deshpande´, 1992), industrial marketing (Hakansson, 1982), selling partnerships (Smith & Barclay, 1997), supplier relationships (Ganesan, 1994), sales relationships (Doney & Cannon, 1997) and customer relationships (Jap, 2001). Trust has been defined as a belief that the partner will fulfil its obligations and perform actions that will benefit the firm's long-term interests (Scheer & Stern, 1992). It has also been defined as confidence in the partner's integrity and reliability (Morgan & Hunt, 1994). Trust implies that each relationship partner will act in the other's best interests, and the expectation that the other party will fulfil its obligations (Rousseau, Sitkin, Burt, & Camerer, 1998). Although the definition of trust is disputed among authors, most definitions contain a cognitive component and a behavioural facet (Ahmed, Patterson, & Styles, 1999).

In B2B contexts, trust is a risk-reduction mechanism, which strengthens the intention to maintain the relationship over time (Anderson & Weitz, 1989; Doney & Cannon, 1997; Dyer & Chu, 2000; Gounaris & Venetis, 2002; Hewett et al., 2002; Kumar et al., 1995a). Relationship continuity reflects the possibility of future interaction, not only the historic duration of the relationship (Garbarino & Johnson, 1999).

Studies of relationship marketing have considered trust as an essential element for relationship success (Hunt, Lambe, & Wittmann, 2002; Morgan & Hunt, 1994).

However, trust may be active or latent in different phases of the relationship development process (Wilson, 1995). Trust is an essential variable at the beginning of the relationship (Hallen, Johanson, & Seyed-Mohamed, 1991; Jap, 1999, 2001; Wilson, 1995), when the members depend on the partner's honesty and trust in the reliability and quality of their services (Garbarino & Johnson, 1999). Therefore,

The positive and direct effect of trust on commitment will be greater in shorter relationships than in longer ones.

The positive and direct effect of trust on satisfaction will be greater in shorter relationships than in longer ones.

The positive and direct effect of trust on intention to continue will be greater in shorter relationships than in longer ones.


Commitment is a key element of long-term relationships (Gundlach et al., 1995; Morgan & Hunt, 1994). Commitment has been defined as the desire to develop a stable relationship (Jap & Ganesan, 2000). Mutual commitment reflects the extent of shared goals, incentives and even contractual commitment (Blankenburg Holm, Eriksson, & Johanson, 1999). It reflects specific intentions and behaviors directed towards increasing value for both partners in the long term (Farrelly & Quester, 2005).

Although the concept of commitment has mainly been studied from the social exchange literature (Morgan & Hunt, 1994), it is a new concept to B2B research (Benett, Coll-Kennedy, & Coote, 2000). Commitment is considered a key factor in inter organizational relationships, as it reduces risks and enhances governance mechanisms and the results of relational exchange (Sollner, 1999).

Exchange partners attain their mutual objectives more easily if they are committed and, consequently, satisfaction is achieved (Mohr & Spekman, 1994).

Commitment implies the desire to maintain the relationship (Dwyer et al., 1987; Ganesan, 1994; Garbarino & Johnson, 1999; Hewett et al., 2002; Morgan & Hunt, 1994; Ruyter et al., 2001; Wilson, 1995). Furthermore, commitment has a temporal dimension, insofar as it becomes meaningful only when it develops consistently over time (Moorman et al., 1992).

Differences in commitment distinguish trade partners with an orientation towards single transactions from partners oriented to long-term relationships (Garbarino & Johnson, 1999; Morgan & Hunt, 1994), since the necessary proximity between committed parties is developed in the long run.

Thus: The positive and direct effect of commitment to the partner on satisfaction will be greater in longer relationships than in shorter ones.

The positive and direct effect of commitment to the partner on intention to continue will be greater in longer relationships than in shorter ones.


Satisfaction reflects an overall evaluation or attitude about the partner or the relationship itself (Selnes, 1998). In a consumer setting, satisfied customers have a stronger intention to stay with their existing provider (Beerli, Martin, & Quintana, 2004; Burnham, Frels, & Mahajan, 2003; Shemwell, Yavas, & Bilgin, 1998). In B2B contexts, when partners are satisfied they wish to maintain their relationship in the long run (Ganesan, 1994; Patterson & Spreng, 1997; Wetzels, Ruyter, & van Birgelen, 1998).

Relational exchanges are different from discrete transactions in continuity expectations. From the relationship marketing perspective, relationship duration increases partners' relational orientation (Gopalakrishna & Sharma, 2003). Thus, the more experience a partner has with the other party, the more likely it is that the relationship will continue (Dwyer et al., 1987), since both parties make adjustments and learn about each others' procedures and values over time (Pettersen et al., 2003).

A customer who has been recently captured by a provider differs from one who has been a client for a long time. First, the perceived satisfaction differs between short- and long-term clients (Mittal & Katrichis, 2000). Second, new clients' loyalty also differs from old clients' loyalty (Ganesh, Arnold, & Reynolds, 2000; Wangenheim, 2001). Therefore, loyalty will be more strongly affected by satisfaction for old partners than for new ones in B2B relationships (Wangenheim & Bayo´n, 2001). Thus:

The positive and direct effect of satisfaction on intention to continue will be greater in longer relationships than in shorter ones.

franchising and franchisee behavior :

Two functions found to be crucial for the success of franchise operations were the search for information and new opportunities and promotion. Because of the diversity of franchising opportunities available in different industries such as the merchandise and service sectors, long with the changing characteristics of the entrepreneurial environment, franchisees frequently seek information regarding franchising alternatives and support facilities. Alertness to promotion involves the available opportunities for image-building and development of goodwill. While by definition franchisees are not permitted to engage in many innovative and promotional activities, they have perceived promotion to be a function essential to success. Several studies support this finding, as often franchisees complain about the controls and strings attached to facilities provided by the franchisors and lack of autonomy in decision making (Knight, 1984; Ayling, 1987).

It is important to note the small emphasis placed by the franchisees on administrative and organizational activities. Franchise administrative operations seem to be efficient since personnel are usually centrally selected, oriented, and trained by the franchisors.

Another study has suggested that franchisors often emphasize an effective system of checks and balances in franchisor-franchisee relations in order to minimize administrative and organizational problems (Knight, 1986).

Despite the perceived greater stability of the franchisee environment over that of an independent business, respondents felt risk taking was the most important factor to a successful operation. A recent study on franchising clearly stated that enthusiasm for starting a franchising business needs to be blended with a good knowledge of the realities of the marketplace and before launching a franchised business; all concerned should try to obtain the clearest possible understanding of the problems and prospects which await them(Weinrauch, 1986). Also, searching for relevant information, including new opportunities, and promotion were important to franchisees. Due to lack of relevant information and knowledge of options provided by the franchisors, and the non-availability of independent organizations such as advisory councils for franchisees or franchisee associations, franchisees often lack knowledge of the broad franchise environment.

In the United States, franchisees seem to be more experienced and well organized than in Canada in terms of negotiating with franchisors, and developing less risky scenarios for their business operations. Since American franchises have been in existence longer than those in Canada, they seem to have developed a more efficient system of information management.

The findings of the study show that the franchisees need some structural changes and the franchisor franchisee relationships should he more flexible. In particular, some flexibility in the contractual agreement between the two parties to provide the franchisees more autonomy in decision making and promotional activities has been suggested. Provision of more opportunities to franchisees for participation in overall business strategy formulation may enhance franchisees' entrepreneurial spirit and commitment to the organization (Withane, 1991).