Inner strength against competitive forces: Successful site selection for franchise network expansion

Abstract

For every franchise system, making the leap from the unknown to the commonplace requires a strategic plan for growth. The exogenous market perspective holds that evaluating market conditions is central to defining promising outlet locations since there are direct economic effects on performance arising specifically from location. The endogenous firm perspective (the resource-based view) and the social network approach together provide an inner strength perspective on interconnected firms; this perspective holds that access to internal and external resources offered at a certain spot determines site attractiveness, rather than location-specific market factors. This study combines both literature strands and, using a sample of 201 German franchisees, tests hypotheses (1) that explore which perspective dominates location decisions in practice, and (2) that seek to clarify the relevance of the decisive criteria for outlet performance. Results show that location decisions rely on both perspectives, yet, franchisee performance depends rather more on inner strength factors. We also find that expansion is better served by following a geographically dispersed cluster-approach, than by growing steadily from a baseline site.