The influence of international franchising on corporate culture: a case study of Max Hamburgerrestauranger AB

B A C H E L O R T H E S I S

The Influence of International Franchising on Corporate Culture

A Case Study of Max Hamburgerrestauranger AB

Linda Engman Nina Thörnlund

Luleå University of Technology Bachelor thesis

Marketing

Department of Business Administration and Social Sciences Division of Industrial marketing and e-commerce

2008:174 - ISSN: 1402-1773 - ISRN: LTU-CUPP--08/174--SE

This bachelor thesis was conducted at the Division of Industrial Marketing at Luleå University of Technology during the spring of 2008.

Several people have contributed to the development of this thesis. Our largest appreciation goes to our supervisor, Mr. Håkan Perzon for his support and guidance throughout this thesis. We would also like to thank Mr. Masse Biouki at Max Hamburgerrestauranger AB for taking the time to participate in our research and providing us with the necessary information. Finally, we would like to thank our families and friends for their support and beliefs.

Luleå, June 5, 2008

Linda Engman Nina Thörnlund

Franchising is today a widespread entry mode and has become a cornerstone for companies who want to expand into foreign countries. It also helps companies to adapt to different cultures and business regulations. This thesis focuses on how companies that has chosen to use franchising as an entry mode can preserve their corporate culture within the franchised outlet. To be able to gain a deeper understanding of the topic, research questions regarding factors that influence the choice of using franchising, managers’ maintenance of the corporate culture, and how franchisors plan to implement its corporate culture were formulated. Based on the research questions, a literature review was conducted, which led to a conceptual framework that worked as a guide to the data collection. In order to collect data, a qualitative case study of one Swedish Service Company, namely Max Hamburgerrestauranger AB was carried out. The main findings in this research indicate that (1); Companies that choose to use franchising as an entry mode are affected by internal and external factors, (2); Managers that are employed from within the company, best preserve the corporate culture and, (3); Within a franchised outlet, the franchisor easier implement its corporate culture if the two cooperating companies have same or similar values.

Franchising är idag en utbredd inträdesstrategi och har även kommit att bli en bas för företag som vill utöka sin affärsverksamhet till olika länder. Franchising hjälper även företag att acklimatisera sig till olika kulturer och affärsvärldar. Denna uppsats fokuserar på hur företag som valt att använda franchising som inträdesstrategi kan bibehålla sin företagskultur. För att kunna erhålla en djupare förståelse om detta ämne så har forskningsfrågor rörande vilka faktorer som påverkar företag att använda franchising som inträdesstrategi, företagsledares påverkan på företagskulturen och hur franchisegivaren planerar att implementera sin företagskultur formulerats. Utifrån forskningsfrågorna genomfördes en litteratur studie, vilket resulterade i en teoretisk referensram, som fungerade som guide för det data som skulle samlas in. För datainsamlingen genomfördes en kvalitativ fallstudie på ett Svenskt företag, vid namn Max Hamburgerrestauranger AB. De huvudsakliga upptäckterna som denna studie har kunnat påvisa är (1); Företag som valt att använda sig utav franchising som inträdesstrategi påverkas i högsta grad av interna och externa faktorer, (2); Företagsledare som anställs internt inom företaget bibehåller bättre företagskulturen och, (3); Inom ett franchiseföretag, kan franchisegivare lättare implementera sin företagskultur om de två samarbetande företagen har samma eller liknade värderingar.

1. Introduction ...1

1.1 Background ...1

1.2 Problem discussion ...2

1.3 Purpose and research questions ...4

1.4 Demarcations...4

1.5 Outline of the thesis...4

2. Franchising Theories ...5

2.1 International Franchising...5

2.1.1 Motives for franchising internationally by Welch...5

2.1.2 Motives for franchising internationally by Eroglu ...6

2.2 Maintaining Corporate Culture...8

2.2.1 Building an Organizational Culture of Respect and Trust ...8

2.2.2 The Manager's Role in Building the Culture of Respect...8

2.2.3 A Shared Responsibility ...9

2.3 Agency Theory ...9

2.3.1 Discretionary Behavior ...11

2.3.2 Social Categorization ...11

2.3.3 Principal and Agents as social categories...11

2.4 Conceptual Framework ...12

2.4.1 Conceptualization of Research Question One ...12

2.4.2 Conceptualization of Research Question Two ...12

2.4.3 Conceptualization of Research Question Three ...12

2.4.4 Relation between the Theories and the Research Questions ...13

3. Methodology ...14

3.1 Research Purpose: Primary Explanatory...14

3.2 Research Approach: Qualitative...15

3.3 Research Strategy: Case Study ...15

3.4 Sample Selection: Max Hamburgerrestauranger AB ...16

3.5 Data Collection: Interview and Documentation ...17

3.5.2 Primary and Secondary Data ...19

3.6 Data Analysis ...19

3.7 Reliability and Validity ...20

4. Max Hamburgerrestauranger AB...22

4.1 Factors that influence the decision to use franchising as entry strategy ...22

4.2 Managers maintenance of corporate culture ...23

4.3 Franchisors implement its corporate culture...24

5. Data Analysis...26

5.1 Within – Case Analysis: Research Question One ...26

5.2 Within – Case Analysis: Research Question Two ...28

5.3 Within - Case Analysis: Research Question Three ...29

6. Findings and Conclusions ...31

6.1 How does different factors influence ...31

6.2 How does a manager maintain ...31

6.3 How does franchisors implement ...32

6.4 Implications...33

6.4.1 Implications for Managers ...33

6.4.2 Implications for Theory ...33

6.4.3 Implications for Future Research...33

List of references ...

Appendix 1 ...

Appendix 2 ...

Figure 1.1 Outline of the thesis ...4

Figure 2.1 Influence on international entry by franchisors ...6

Figure 2.2. Conceptual model of the determinants of franchise Internationalization ...7

Figure 2.3 Basic idea of Agency Theory ...10

Figure 2.4 Conceptualization ...13

Figure 3.1 Methodology issues for the thesis ...14

Figure 3.2 Relevant Situations for Different Research Strategies ...16

Figure 3.3 Six sources of Evidence: Strengths and Weaknesses...18

Exhibit 5.1 With – in case analysis: Factors that influence the decision to franchise internationally ...27

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1. I

This first chapter will discuss background to the area of research followed by problem discussion. This will be the base for the development of an overall purpose of the thesis and the research questions. Finally, demarcations and an outline of this research will be provided.

1.1 B

International trade is booming and the world is shrinking rapidly due to faster communication, transportation, and financial flows. Today’s business environment is undergoing a fundamental transformation as the result of globalization (Kotler & Armstrong, 2001, p. 709). Globalization is according to Hodgetts and Luthans (2003, p. 141) “ the production and distribution of products and services of a homogeneous type and quality on a worldwide basis” (ibid). This movement is so widespread that investment and patterns of trade are being shaped by companies that operates on a global level (Brake, Walker & Walker, 1995, p. 2).

According to Root (1994, p. 2) the new global economy has created business environment that require companies to look past the traditional thinking of the domestic market, and start looking at business from an international perspective (ibid). Participation on the international marketplace has become a reality for small, medium and large sized companies (Czinkota & Ronkainen, 2007, p. 282). In this constantly changing new world, it is important for companies to understand the behavioral role of management and organizations. The main challenge for global companies are to develop managers that are capable of working across cultures and who are competent in international business (Brake, et al. 1995, p. 2).

According to Elashmawi (2000), companies that want to react effectively to changes in its global marketplace, has to have a flexible and adaptable corporate culture. Want (2003) explain corporate culture as the collective belief system that people within a company has about their ability to compete in the marketplace. The author further explains, “corporate culture is reflected through the attitudes, behavior, belief system, commitments, values, decision making process, innovation, and productivity that impact the long-term, day-to-day, performance of the business” (ibid). Studies on national and organizational culture shows that there is national difference in work values, beliefs and orientations of companies across countries (Bhaskharan & Sukumaran, 2007).

According to Hoffman and Preble (2004), franchising is a well working theory that helps companies adapt to different cultures and business regulations. Hodgetts and Luthans (2003, p.

269) define franchising as “a business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee”. Sashi and Karuppur (2002) argue that the franchisor and franchisee are independent institutions located in different environments. The transactions between them are influenced by different factors, such as technical complexity, brand name, unstable environment, culturally diversity, and opportunistic behavior. These factors affect transactional cost and the mode of operation in the global market. The authors further explains that when a company chose franchising as entry mode, the franchisor only need to supervise the overall performance instead of manage all units (ibid). Root (1994, p. 24) states that an entry mode is an “institutional arrangement that makes possible the entry of a company´s products, technology, human skills, management, or other resources into a foreign country” (ibid).

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Quinn (1998) continue to explain that franchising is considered to be a relatively low-cost, low- control entry mode, compared with high-cost, high-control modes such as investment entry modes. Root (1994, p. 28) explain that investment entry modes involve ownership of manufacturing plants or other production units in the target country. According to Quinn (1998), franchising has become the cornerstone of international expansion for companies such as McDonalds, Body shop and Benetton among others. The author further argues that there are many advantages with franchising as an entry mode, such as the ability to expand the company rapidly and the spreading of risks and costs across the network. Although franchising is a popular market entry strategy for international companies, the research community has only recently begun to examine franchising within the context of internationalization (ibid). According to Doherty (2007), research on international franchising has been dominated by studies on how companies, that have built domestic franchising business, bring their tried and tested franchising concept into the global market.

According to Huszagh and Mclntyre (1995) a company can either franchise domestically or internationally and domestic franchising often precedes international involvement. Through domestic franchising, a company aquire knowledge about marketing methods and general customer characteristics that can be transferable across borders. Thus, distribution strenght within the domestic market is among the major success factors crucial to international expansion (ibid).

1.2 P

Birkeland (2002, p. 1) states that franchising has since the Middle Ages been modified and adopted by companies and has grown to be a dominate distribution tool for goods and service.

Now days, franchising is so wide spread that it is possible to purchase a wide range of product and service from all over the world. Hoffman and Preble (2004) explain that East Europe, Middle East and parts of Asia are regions where franchising is emerging.

An international franchising system provides opportunities to use the hybrid strategy meaning that some part of the marketing mix is standardized by the franchisor across the global market and the other part are adapted to local preferences by the franchisee. By having a franchisee that is familiar with the local market, the labor costs become lower, as the franchisee can manage local employees at low costs (Sashi & Karuppur, 2002). However, Quinn (1999) argues that companies that expand international will lose some degree of control over their products, marketing or image because of the distance between home and host country. Rajshekhar and Charles (2007) further state that control is crucial for a company as it ensures success of strategic objectivies.

Control is also important as it determines the degree of interaction between customers and suppliers, risks and returns, and the performance of a company in a foreign market. Oden (1997, p. 2), argues that a company must be innovative and develop new products and new business faster and with better quality than its competitors, to be successful on a global market.

However, that alone will not ensure that a company will create competitive advantage. The product and business development processes must be supported by an approriate corporate culture troughout the company (ibid). Sadri and Lees (2001) explain that corporate culture has become important during the last 20 years. People in a company come from different cultures, social and ethnic backgrounds with different personalities and experience from life and work (ibid). These factors influence them in their work environment in many ways, which after a while

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become a norm in their daily activities. The authors continue to explain that other factors such as the industry where the companies operate, the geographical location, history, and employees’

personalities also influence the corporate culture. Companies that maintain a positive culture will benefit from it, the morale will be improved, and the headquarters will be more enjoyable which, in turn, influence the teamwork. Furthermore, new ideas are created and more information is shared among employees (Sandri & Lees, 2001).

According to Filho (2007), a company’s corporate culture should be seen as what the managers do, inspect, reject or reward. Filho (2007) further explain that the employees then should adopt the culture and let it influence their daily activities (ibid), as the culture is what holds a company together and motivates the people within it (Meehan, Rigby and Rogers, 2008). Slater (2001) explains that business culture is the source of competitive advantage when its value is unusual and difficult to imitate. Bradt (2008) states that a winning culture is a culture that all employees in the company understand (ibid) and it should concern three areas; (1) serving their customers; (2) growing the business, and; (3) developing the employees (Filho, 2007).

According to Machusic (2006), a corporate culture is the personality of a franchise’s business and is reflected in its image, services and values. Culture is about how a franchise’s members act and interact and the right culture may create an environment that each individual within the company supports. One issue for the franchisor, according to Altinay and Wang (2006), is to choose the right franchisee that will adopt the franchisors wide perspective and maintain the objectives. Shay (2007) states that the relationship between the franchisor and the franchisee is what makes international franchising a unique form of business, and it also provides a strategic advantage over competitors in the market. The author further argues that it is important for both the franchisors and the franchisee to remember that the franchised company’s success almost entirely depends upon the strength of their relationship. LeFranc (2005) states that, vision, mission and culture statements must be clearly defined for a franchisor to succeed. The franchisor also needs to be willing to share it with the franchisee.

International franchising offers companies to expand their market especially those companies that have services that are more difficult to export (Altinay & Wang, 2006). Quinn and Alexander (2002) explain that international franchising is commonly used by the service sector, especially the fast food industry (ibid). International Franchising is a company form chosen by managers in order to compete in industries such as the retail trade and services sectors. The transactions between franchisor and franchisee are similar to those between two independent companies in legal aspect. The relationship between the franchisor and the franchisee is almost the same as that between a company and its employees. International franchise chains account for between one- third and two-third of total sales in retail trade and service industries where it compete, for example, hotels, restaurants, car rentals and fast food (Avinandan, 2003). Furthermore, fast food and business services account for more than 50 % of the international franchising operations in the United States and continue to be a popular entry mode for companies that want to expand to different countries (Yongsun & Choi, 2007).

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1.3 P

Based on the problem discussion, the overall purpose of this thesis is to gain a deeper understanding of the concept international franchising and how it influences the franchisor’s corporate culture. The first research question provides an insight in the concept of why companies use franchising, meanwhile the following two concentrates on how the corporate culture can be preserved.

RQ 1: How do different factors influence the choice of using franchising as an entry mode?

RQ 2: How do managers maintain the corporate culture?

RQ 3: How do franchisors plan to implement its corporate culture?

1.4 D

As international franchising can be used of all companies, it should be noticed that this thesis attempts to limit itself to the service sector. This because franchising is commonly used within that sector.

1.5 O

As seen in Figure 1.1 this thesis consists of six chapters. The first chapter, introduced background, problem discussion, the overall research purpose and the research questions. The second chapter will discuss previous theories connected to the research questions and the third chapter will introduce the different methods used when gathering data. In chapter four, the gathered data will be presented and in chapter five, the data will be analyzed and compared with theories. Finally, in chapter six, findings and conclusions derived from research and theory is presented. In addition, suggestions for managers, theory and further research can be found in the chapter.

Figure 1.1 Outline of the thesis SOURCE: Authors own design

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2. F

T

In this chapter, an overview of previous studies related to the research questions is presented. We will start by presenting literature studies related to our first research question regarding international franchising, and literature studies related to our second research question regarding manager’s maintenance of the corporate culture. This is followed by literature studies related to our third research question about how franchisors plan to implement its corporate culture. Finally, the most relevant theories for our research are outlined in a conceptual framework.

2.1 I

F

According to Alon and McKee (1999), even though the rapid expansion of international franchising, little is known about the motives and factors that influence companies to franchise internationally.

2.1.1MOTIVES FOR FRANCHISING INTERNATIONALLY BY WELCH

Quinn (1998) refers to a theory written by Welch (1990). Welch (1990) argues that a complex interaction of several factors, both internal and external, influences a company to franchise internationally. The main factors that influences a company is background factors, direct stimuli and decision-maker characteristics and are illustrated in figure 2.1 (ibid).

The background does not directly influence the internationalization process, but it prepares the company for an international move. According to Welch (1990) there are three main background factors influencing the decision to franchise internationally; an expansion ethos, a network spread and a learning curve. These factors represent the core characteristics of franchising and are what makes it an attractive strategy for growth. In the case of the expansion ethos, it is questionable if it is anything unique with franchising that makes it different from other forms of entry modes, as companies using other methods of expansion are highly growth orientated and have achieved growth objectives as rapidly (ibid).

However, the author argues that franchisors use expansion as a test, a measure of success, which is not so evident in other forms of entry modes. Regarding the network spread factor, a successful domestic expansion includes an extensive network with associated advertising and other public activities. This may increase the possibility of an approach by foreigners. The learning curve is involved because establishing a franchising chain in the home market often precedes steps towards international franchising (ibid).

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Figure 2.1 Influence on international entry by franchisors SOURCE: Adapted from Quinn, 1998

The second factor that influence - direct stimuli, can be both internal and external. Internal stimuli are defined as “any excess capacity in the firm’s resources (e.g. management, marketing, production, finance) and/or any unique competence for instance, product superiority” (Welch 1990). External stimuli include orders from foreign customers, domestic competitors enter into foreign markets, increased competition in the domestic market, and various market opportunities (ibid).

Decision makers are the third factor that influences franchisors. At this point, the decision to internationalize depends, not only on the company and its environment but also on the characteristics of the individuals within the company, such as values, attitudes, experience, and knowledge (Welch 1990).

2.1.2MOTIVES FOR FRANCHISING INTERNATIONALLY BY EROGLU

Altinay (2004) illustrates and describe a model developed by Eroglu (1992). The model illustrated in figure 2.2 describes the primary determinants and process of international franchising. The basic assumption of the model is that a franchise system survives by striving to increase long- term profitability and keep risks at lowest possible level. These two competing factors are shaped by various organizational (internal) and environmental (external) variables and influences top management’s intention to internationalize (Eroglu, 1992).

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According to Eroglu (1992), firm size (including numbers of employees and annual volume) influence the decision to franchise internationally by affecting the perceived risk component. The author states that the larger the company size is, the lesser possible impact of cost, consequently, lowering the overall perceived risk associated with international franchising. Operational experience (number of years on the market), correlate positively with perceived benefits and negatively with perceived risk. A company with long experience in the market has lower perceived risk associated with its internationalization (ibid).

Figure 2.2. Conceptual model of the determinants of franchise Internationalization SOURCE: Adapted from Altinay, 2004

The model also emphasizes the critical role that top managers have in a franchising system.

Characteristics such as international orientation, risk tolerance, and open mindedness are important factors that contribute to a positive attitude towards internationalization (Eroglu, 1992).

Environmental factors that influence the internationalization refers to conditions and developments of both home and target market (Eroglu, 1992). The author further states that high competitive pressure and high domestic saturation will give the company greater perceived benefits. The external agents such as banks, government, etc. influence both the importance and probability of benefits associated with internationalizing. Perceived favorability of the external environment (the political, economic and currency dimensions of a target market, and its cultural distance) is negatively associated to risk perceptions, and positively associated with perceived

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benefits of internationalization. In general, a target market with high fluctuations in these dimensions is associated with high risk. Thus, lowering companies desire to enter that specific market (ibid).

2.2 M

C

C

Hunt, Richards and Wallace (1999), state that all companies consist of both formal and informal dimensions, and it is not possible to know or understand a company without understanding its informal character. Organizational cultures consist of systems explaining how people think, reason and make decisions. It also consists of different levels of culture and the deepest level consists of a set of values, assumptions, and beliefs that define the ways a company conducts its business (ibid).

2.2.1BUILDING AN ORGANIZATIONAL CULTURE OF RESPECT AND TRUST

According to Buhler (2007), today’s employees want to be appreciated, treated with respect and engaged in a trusting relationship with their employer. They are no longer satisfied with just a paycheck and managers must be proactive in responding to their workforce needs (Buhler, 2007).

A loyal workforce is important and companies need to build strong relationships with employees so that they remain within the company for longer periods. The author further explain that a work environment consisting of trust and respect foster a loyal workforce that is more engaged, and employees who are engaged less likely leave the company (Buhler, 2007).

2.2.2THE MANAGER'S ROLE IN BUILDING THE CULTURE OF RESPECT

Top management are primarily responsible for creating a culture of respect and trust, but each company member play a critical role as the creation and maintenance of a corporate culture is a group effort not individual. In a respectful culture, the focus is on fair and neutral treatment of all employees. Policies are applied consistently, and favoritism is avoided (Buhler, 2007). Open communication is also an important part in a company’s way towards creating a respectful and trusting work environment. It is very important that managers communicates the company’s vision and mission, as if employees do not have a clear understanding of the company and where it is heading, they will not be able to contribute in helping the company achieve its objectives.

When employees are not informed, they may make up scenarios and then spreading the word.

Thus, creating a work environment that is not pleasant. A company that has an open communication creates an environment of trust and respect and communicate that it have faith in and value its employees (ibid).

Moreover, to generate trust, managers must say what they mean and mean what they say. For example, many companies say that human resources are the most important resource and yet it treats employees as they can easily be replaced (ibid). Managers need to continually improve their management skills and their ability to manage people, as research has shown that the number one reason that people quit their jobs is because of their managers, and a company cannot afford to lose employees because of that reason (Buhler, 2007). Managers need to think creatively and openly about what kind of benefits and incentives that they provide to their employees. Strategies should no longer be “one size fits all” as that approach can be destructive, because it shows that managers do not know their employees and what they actually value. All employees want to be recognized and awarded for their achievements, but not all of them react equally to the same

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rewards. Managers that understand this, create an environment that is modified for each employee (ibid).

Buhler (2007) further states that challenging work, opportunities for training and development are important for all employees. Managers who provide this communicate a willingness to invest in their employees; this sends a clear message that they truly value their employees. The author furtherexplains, if managers want to gain an engaged workforce, they have to pay attention to their employees´ career development. When employees sense that they can advance and acquire new skills within the company, they are more likely to stay longer. Career management involves the connection of company needs/goals with individual needs/goals, as not all employees want the same career path (ibid).

2.2.3ASHARED RESPONSIBILITY

As managers model respectful behaviors, these are learned by their employees as the

“appropriate” way of behaving. To create a trusting relationship with employees, managers often need to give trust first and once they give trust, they often get it back (Buhler, 2007).

Furthermore, all people in the company should respect each other’s time, as time is a valuable resource and few people seem to have enough of it. Employees must also learn to respect each other’s free time as well, recognizing the balance between work and non-work activities. Thus, a respectful environment uses time wisely and has zero tolerance for violence and workplace incivility (ibid).

Companies that build a respectful, trusting culture benefits in the long-term as it better understand its employees. In turn, it will win the war for talent and be considered employers of choice. It will also foster a more committed workforce with increased productivity and improved performance. A trusting culture also reduces fear and encourages people to be more creative (ibid).

2.3 A

T

According to Doherty and Quinn (2000), control is very important for an international franchise company, as it operates in diverse economies and in locations geographically distant from the home market. Consequently, more attention needs to be given to managing the relationship between the franchisor in the home market and the franchisee in the foreign market (ibid).

Doherty and Quinn (1999) explain that agency theory involves the relationship between principal and agent. The principal can be an individual or a group of individual, who has ownership or belongings that makes them in control over the economy or asset. The principal then gives the agent right to operate the day-to-day activities. The author further gives an example over which the principal and the agent could be, the principal could be the shareholder in a company and the agent could be the manager that handles the operation. Agency theory can help giving a deeper understanding into the process and operation of international franchisee activities (ibid).

Castrogiovanni, Combs and Justis (2006) explain that agency theory favorite franchising when the companies want to expand their market. Figure 2.3 explain the basic idea of Agency Theory.

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Figure 2.3 Basic idea of Agency Theory SOURCE: Adapted from Wikipedia, 2008

According to Doherty and Quinn (1999), the problem in the principal- agent relationship is the information flow, which is called asymmetric information problem. The problems arise when the agent has more detail knowledge of the operation than the principal. According to Castrogiovanni et al. (2006), the principal have two basic tools to make sure that the agent cooperates, which are: (1); direct observation over the agents behavior and (2); incentives which is attached to the agents output. This can be seen in the result from the division of labor between principal and the agent, but also from the objective conflicts and the level of risk that they take (ibid).

Doherty and Quinn (1999) explain another problem that can arise within this relationship is the moral hazard effect. This happens if the agents start to work in their own self-interest, against the objectives that the principal have set up. When this is combined with the asymmetric information problem the principal will be put in a disadvantage. Therefore, the principal wants an instrument to control the agent’s behaviors before enter into the relationship. The authors further explain that in the financial market, where the agency theory has been used mostly, to monitor the agent, financial contracts and building premiums have been used (ibid).

According to Dalziel and Knapp (2007), the effort to control agent activities, restrain agency cost, and improve companies’ performance is difficult. The agency theory has a perspective that is under socialized or neglecting the social context and to deal with this issue the authors combine agency ideas of control with the concept of discretionary behavior (ibid).

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2.3.1DISCRETIONARY BEHAVIOR

Dalziel and Knapp (2007) explain that discretionary behavior can be classified as both positive and negative. Positive discretionary consist of innovative and impulsive actions that goes beyond the job requirements, which help companies to success. Negative discretionary behavior involves hiding information, stealing or deceitful activities. The authors further state that there is a relationship between discretionary behavior and performance. If principals (franchisors) utilize control over agents (franchisees) discretionary behavior, it may provide valuable insights into company performance. This may occur when natural processes (the daily work) that result from control also affect discretionary behavior. The authors argue that social categorization is such a process.

2.3.2SOCIAL CATEGORIZATION

Dalziel and Knapp (2007) explain that, “individuals understand and act within the world by constructing categorical distinctions and by drawing inferences and attributions based on those distinctions”. Categorization is used to simplify the environment and advance information processing and when it involves people, it is called “social categorization”. This means that people identify and classify themselves and others in to larger social groups so that their world make sense and can be managed. In a company, it takes form as a social roadmap and is used as a guide over company performance (ibid).

2.3.3PRINCIPAL AND AGENTS AS SOCIAL CATEGORIES

According to Dalziel and Knapp (2007), individuals place themselves and others in different social categories, especially when the categories are easily “accessible” and when they “fit” the current situation. The principal - agent relationship, for example executive/employee, are indivisible and defined as a mutual relationship created because of the need for cooperation efforts among people who has different power and access to resources. Furthermore, these social principal – agent categories are important as it helps individuals to understand the function and relative position of themselves and others (Dalziel & Knapp, 2007). The authors further state that when principals are making demands and setting expectations on agents for their fulfillment, the differences between agents and principals are highlighted. There is a probability that the principal – agent category will provoke principals and agents to depersonalize one another by exaggerate the similarities among and the differences between their respective categories. This may lead to mistrust and “us vs. them” thinking and shift the individual’s interest away from self and towards the group. Consequently, individuals start to think and act in ways that emphasize their group interests. They attach value to category membership and adopt membership as a part of their “social identity” (ibid).

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2.4 C

F

According to Miles and Huberman (1994, p. 18), a conceptual framework explains, in geographical or narrative form, the main things that are to be studied. It decides which key factors, variables or constructs that is most important, and the presumed connection among them. By conceptualizing the theories into a framework, it will support the researchers when collecting and analyzing the data that are needed to answer the research questions (ibid).

2.4.1CONCEPTUALIZATION OF RESEARCH QUESTION ONE

The purpose of the first research question was to provide a better understanding of how different factors influence the choice of using franchising as an entry mode. To answer our first research question literature by Welch (1990) and Eroglu (1992) have been used.

According to Welch (1990) and Eroglu (1992), different factors influence companies to franchise internationally. Welch (1990) states that there are three different factors that influence the decision; background factors, direct stimuli and decision – makers’ characteristics. Eroglu (1992), on the other hand, has developed a model consisting of two competing factors namely, organizational and environmental factors. We chose to conceptualize these factors, as they all were relevant for our research.

2.4.2CONCEPTUALIZATION OF RESEARCH QUESTION TWO

The purpose of the second research question was to provide a better understanding of how managers maintain the corporate culture within the company. To answer our second research question, a theory by Buhler (2007) has been used.

Buhler (2007) has developed a theory that states that companies can maintain the corporate culture if it builds on respect and trust. The theory also states that managers have a critical role in building and maintaining the culture. We chose to conceptualize this theory, as it is relevant for this research. The theory also had significant importance for us to receive an overall picture of how managers maintain the corporate culture.

2.4.3CONCEPTUALIZATION OF RESEARCH QUESTION THREE

The purpose of the third research question was to provide a better understanding of how franchisors plan to implement its corporate culture. To be able to answer, explain and explore research question three, theories by Doherty and Quinn (1999) and (2000), Castrogiovanni et al. (2006), Dalziel, and Knapp (2007) have been used.

Doherty and Quinn (1999) explain that the relationship between the franchisor and the franchisee needs to be given more attention. They further explain that the agency theory can help giving a deeper understanding of the process and operation of international franchisee activities.

Doherty and Quinn (2000) further state that control is crucial for the franchisor, as the franchisor and the franchisee operate in different countries. According to Castrogiovanni et al. (2006), the franchisor can control the franchisee in two ways, either with direct observation or with incentives. Dalziel and Knapp (2007) further state that it is difficult to control agent’s activities because of social categorization. These theories have been used as they explain the relationship between the franchisor and the franchisee from different perspectives and that is important for our research.

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2.4.4RELATION BETWEEN THE THEORIES AND THE RESEARCH QUESTIONS

Our research questions are focusing on franchising and how the corporate culture can be preserved with the use of that entry mode. The first question investigates which factors that influences companies to franchise internationally. The second question are concerned about how managers maintain the corporate culture within its company and finally, the third question looks at how the franchisor implement its corporate culture by investigating several factors that affects the relationship between the franchisor and the franchisee.

Figure 2.4 briefly explain the different theories that have been used in this thesis. It also shows how the different theories and the research questions are connected.

Figure 2.4 Conceptualization SOURCE: Authors own design

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3. M

In this chapter, the methodology used in this thesis will be presented. Throughout the chapter, different perspectives on research methods will be introduced. It starts with presenting the research purpose, research approach and the research strategy. Then, the sample selection will be summarized followed by the data collection and data analysis.

Finally, reliability and validity are discussed. The outline of the methodology is presented below in figure 3.1.

Figure 3.1 Methodology issues for the thesis SOURCE: Adapted from Foster, 1998, p.81

3.1 R

P

: P

E

There are three types of research characteristics: explanatory, exploratory and descriptive (Yin, 2003, p.

4-5). Most of the research classifies from how much knowledge the researcher has about the problem before starting the investigation and further, the type of information that is needed in order to deal with the purpose of the thesis (ibid).

The purpose with exploratory research is to gather a lot of knowledge, and many different techniques are used to gather the material (Patel & Davidson, 2003, p. 12-13). Eriksson and Wiedersheim - Paul (1991, p. 155) explain that exploratory research is most suitable when a problem is difficult to define, and when the researcher is uncertain about which models, characteristics and relationships that are important (ibid). Kinnear and Taylor (1996, p. 127) further states that exploratory research is most suitable in the early stage of the research process.

Our research was in the early stage exploratory, as we had to explore the thesis topic in order to gain some knowledge, to be able to answer our research questions.

In areas where there already exists a lot of information that can be described by models, the research is descriptive. With descriptive research the researcher is focusing on different aspects, for example, he/she could focus on all aspect or he/she can focus on the connection between different aspects. In this strategy, only one technique is used when information is gathered (Patel

& Davidson, 2003, p. 12-13). Our research was also to some extent descriptive, as we used gathered data to describe the current situation.

According to Eriksson and Wiedersheim - Paul (1991, p. 156) explanatory research explain the casual relationship between cause and effect and is used in areas where there already exists lots of knowledge and existing theories. To test the theories the researcher prepare hypothesis that the researcher examine empirically (Patel & Davidson, 2003, p. 13). As the purpose of our thesis was to gain a deeper understanding of the concept international franchising and how it influences the franchisor’s corporate culture, we define our research as mostly being explanatory. We firstly explored the topic in order to gather a lot of information and then we described and explained the patterns.

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3.2 R

A

: Q

According to Denscombe (2000, p. 203) there are two classes of research approaches, qualitative and quantitative methods. The purpose with these methods is to generate, adapt, and analyze the information that the researcher has gathered (Patel and Davidson, 2003, p. 12).

Quantitative research transform measured data into numbers, and to analyze the data, statistical methods are used (Denscombe, 2000, p. 204). In quantitative research, it should not be closeness to the object; it is more about the researcher on one side and the object on the other side. One problem with quantitative research is that when something is explained in numbers, it could be seen as an objective truth. Another problem is that the researcher could have problem being neutral and objective toward the situation he/she is researching (Holme & Solvang, 1991, p. 154).

Newman and Benz (1998, p. 16) define qualitative research as “a detailed descriptions of situations, events, people and interactions”. Qualitative researchers study things in their natural setting, attempting to make sense of the meaning that people bring to them (ibid). Qualitative research is characterized by closeness to the research object and the purpose is to come face-to- face with the situation. Thus, the focus of qualitative methods is not to give the information a general approach but rather to gain a deeper understanding of the problem (Holme & Solvang, 1991, p.

100). As the purpose of this thesis was to gain a deeper understanding of how international franchising affect the corporate culture, our research approach was classified as qualitative. A qualitative approach was also most suitable for our research as the answers to the research questions could not be quantified and measured in numbers.

3.3 R

S

: C

S

According to Yin (2003, p. 5) there are five research strategies; survey, experiment, archival strategy, history, and case study. Each strategy has its own way of collecting and analyzes data, and all has its advantage and disadvantage. What strategy to use in research can be determined by looking at three conditions:

• The types of research question posed (ibid).

• The extent of control an investigator has over actual behavioral events (ibid).

• The degree of focus on contemporary as opposed to historical events (ibid).

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As seen in figure 3.2 each condition is connected to the five research strategies.

Strategy Form of Research Question Requires Control of Behavioral Events?

Focuses on Contemporary

Events?

Experiment How, why? Yes Yes

Survey Who, what, where, how many, how much?

No Yes

Archival analysis Who, what, where, how many, how much?

No Yes/No

History How, why? No No

Case study How, why? No Yes

Figure 3.2 Relevant Situations for Different Research Strategies SOURCE: Adapted from Yin, 2003, p. 5

Research question that ask “how” and “why” is an indication that the research is a case study (Yin, 2003, p. 6). Our research questions begin with how, and the fact that we did not require control over behavioral events, shows that a case study was the most appropriate research strategy.

A case study is a strategy when the researchers is focusing on one or few objects and the purpose is to gain a deeper understanding about event, experience, relationships and process (Denscombe, 2000, p. 43). As we wanted to gain a deeper understanding about how international franchising companies could maintain its corporate culture, the most suitable strategy for our thesis was a case study.

3.4 S

S

: M

H

AB

According to Miles and Huberman (1994, p. 27) the researcher cannot study everyone, everywhere, doing everything. The choices that the researcher makes, whom to talk with, where, about what, and why – all limits the conclusions that he/she can draw (ibid). Sampling may sound easy but it involves decisions not only about which persons to observe or interview, it also involves settings, events, and social processes (op cit, p. 30).

We chose to perform our research on Max Hamburgerrestauranger AB. We based our choice on the following criteria: (1); a company that is located in Sweden, (2); a company that operates within the service sector, (3); a company that have no experience in global activities and (4); a company that has the intention to internationalize.

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Our first criterion was that the company had to be located in Sweden, as we had limited time to perform our research. We also believed that it would be easier to come in contact and interview a Swedish company than a foreign. We also wanted a company that operated within the service sector because franchising is commonly used there, especially in the fast food industry. The company also needed to have no experience in global activities, but had to have the intention to internationalize, as our research focuses on how the corporate culture can be preserved when expanding globally with franchising. A company that already conducts business globally may have overcome the difficulties with preserving the corporate culture and we believed that such a company might not contribute to our research. The reason that we chose Max Hamburgerrestauranger AB was that the company fulfilled our criteria and was willing to contribute in our research.

We firstly contacted Lars Olsson, vice president, at Max Hamburgerrestauranger AB via email and he told us that the most suitable person to talk to was Masse Biouki, business development manager at Max Hamburgerrestauranger AB. We contacted Masse Biouki via telephone and he was positive about our idea about corporate culture and franchising, and was willing to take part in our interview and answer our questions. The interview was conducted over telephone and took place at Luleå University of Technology on April 18, 2008.

3.5 D

C

: I

D

According to Yin (2003, p. 85) there are six sources that are used in case studies; interviews, archival records, documentation, observation, participant - observation, and physical artifacts.

Source of Evidence Strengths Weaknesses

Documentation • Stable – can be reviewed

repeatedly

• Unobtrusive – not created as a result of the case study

• Exact – contains exact names, references, and details of an event

• Broad coverage – long span of time, many events, and many settings

• Retrievability – can be low biased selectivity, if collection is

incomplete

• Reporting bias – reflects (unknown) bias author

• Access – may be deliberately blocked

Archival Records • [Same as above for

documentation]

• Precise and quantitative

• [Same as above for documentation]

• Accessibility due to privacy reasons

Interviews • Targeted – focused directly on

case study topic

•Insightful – provides perceived casual inferences

• Bias due to poorly constructed questions

• Response bias

• Inaccuracies due to poor recall

• Reflexivity – interviewee gives what interviewer wants to hear Direct Observations • Reality – covers events in real

time

• Contextual – covers context of

• Time consuming

• Selectivity – unless broad coverage

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events • Reflexivity – event may proceed

differently because it is being observed

• Cost – hours needed by human observers

Participant – Observation • [Same as above for direct observations]

• Insightful into interpersonal behavior and motives

•[Same as above for direct observations]

• Bias due to investigator’s manipulation of events

Physical Artifacts • Insightful into cultural features

• Insightful into technical operations

• Selectivity

• Availability

Figure 3.3 Six sources of Evidence: Strengths and Weaknesses SOURCE: Adapted from Yin, 2003, p.86

As seen in figure 3.3, each of these methods have their advantages and disadvantages and the researcher must decide which methods that are most suitable for the research (Denscombe, 2000, p. 101).

Yin (2003, p. 89) explains that interviews are the most important source of information in case studies, as the researcher is able to customize the information. With interviews, the researcher meets the person face-to-face or does it over the telephone (Patel & Davidson, 2003, p. 69).

Previously, telephone interviews were a questionable research method, because it could give a twisted result, but today it is a very common data collection method because it is cheap and easy to use (Denscombe, 2000, p. 15). In our research, we have used documentation and interview, as we believed that they were the most suitable methods for our research. We chose to perform an interview because it gave us the benefit to use every aspect and opinion that the responded stated during the interview, as a source in our research. An interview also gave us better control and we were able to ask follow-up questions if we needed more information or if there was something that we did not understand. As our responded is located in Stockholm, Sweden, we had to perform the interview by telephone but we send out the interview guide in advance so that our respondent could prepare himself.

Documentation could be an alternative to interviews, questionnaire, and observation. There are several types of documentation such as books, journals, web pages, Internet, and newspaper etc.

(Denscombe, 2000, p. 188). Documentation that we have used in our research is different books, journals and web pages.

3.5.1LITERATURE REVIEW

Denscombe (2000, p.187) explains that a literature review has an essential function for the research and should:

• Show that the researcher is aware about the existing work that already has been undertaken in the area (ibid).

• Indentify what the researcher considers as key problem areas, the crucial questions and the obvious gaps in the existing knowledge (ibid).

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• Provide the reader with an indication of where the research is coming from (ibid).

Thus, a literature review lies as a foundation for the research questions and increase our knowledge about the topic (ibid).

In order to find full-text and peer-reviewed journals that where related to our area of research, the databases Business Source Elite (Ebsco) and Emerald Insight at Luleå University of Technology have been used. The search words used was: entry mode strategies, business culture, internationalization, international management, international marketing strategy, international franchising, corporate culture, franchising, managing corporate culture, agency theory and organizational culture. We have also used books and master thesis in order to gain more knowledge about our topic and they were found via Luleå University Library’s catalogue Lucia.

3.5.2PRIMARY AND SECONDARY DATA

There are two types of data, according to Wiedersheim-Paul and Eriksson (1991, p. 76), secondary data and primary data. Secondary data is data that has been collected by other researchers and primary data is data that the researcher gathers during the research. In our research, the primary data consisted of information collected during the telephone interview and it gave us the opportunity to gather data that was specific for our research. Our secondary data was the data that we got from Max Hamburgerrestauranger AB´s webpage.

3.6 D

A

After collecting the data, the process of data analysis was performed. According to Yin (2003, p.

109) analyzing a case study is difficult because it involves techniques and strategies that are not well defined. Yin (2003, p.109) further explains that a case study should attempt to have an analytic strategy that defines what is analyzed and why. When analyzing data, three strategies can be used:

• Theoretical proportions – The research questions are developed from previous studies about the topic. The data that the researcher collects during the research period are then compared with previous studies (ibid).

• Setting up a framework based on rival explanation – A strategy that tries to define and test rival solutions. It is appropriate for case studies (ibid).

• Develop case descriptions – The researcher should develop a descriptive framework in order to organize the research (ibid).

We have relied on theoretical proportion when we formed our analytic strategy, as our research questions are based on previous studies.

According to Miles and Huberman (1994, p.29), the researcher can choose between two different types of analyses, namely within – case analysis and multiple - case analysis. Within – case analysis compare the collected data against the theory while multiple – case analysis compares data from different cases with each other. In our research we have used a within case analysis where we compared the data collected from Max Hamburgerrestauranger AB with previous theories.

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Miles and Huberman (1994, p.10) further explain data analysis as a process, containing three stages; data reduction, data display, and conclusion drawing and verification.

• Data reduction: This first stage is the part of the analysis that sharpens, sorts, focuses, discards, and organize the data so that final conclusion can be drawn and established (op cit, p. 11).

• Data display: The second stage gives an understanding of what has happened and from that the researcher can analyze or take action (ibid).

• Conclusion drawing and verification: In this final stage, the researcher decides what things mean and should here be able to draw the conclusions (ibid).

When performing the data analysis, we followed Miles and Huberman (1994, p. 10) three stage analyzing process. The data from the interview was written down in order to organize the information and to draw some conclusions. Then we compared and verified the collected data from the interview against previous theories.

3.7 R

V

Wiedersheim-Paul and Eriksson (1991, p. 28) explain validity as a measurement to measure what it was suppose to measure. Yin (2003, p. 33) state that to establish the qualities of a research, four tests are usually used:

• Construct validity: means that operational measures for a research should be establish correctly (ibid).

• Internal validity: can only be used on explanatory research. Informal relationships get established and certain condition lead to other conditions (ibid).

• External validity: establishing the area where the findings from the research can be generalized (ibid).

• Reliability: means that if it is possible to do the same research all over again, and get the same conclusion. The goal is to reduce errors and biases in a research (ibid).

In our research, we have used multiple sources such as previous theories, documentation, and interview. We have also compared those with each other, so called triangulation. Our primary data where gathered from the telephone interview with a person who is responsible for the internationalization of Max Hamburgerrestauranger AB.

A person that has good knowledge in our topic read our interview guide in order for us to avoid mistakes and makes sure that our questions was easy to understand. The interview guide was sent out in advance to the respondent so that he could prepare himself and make sure that he could answer our questions. We constructed our interview guide in Swedish and then translated it into English. The interview where carried out in Swedish so that our respondent easily could understand the questions and could speak freely. After the interview, we translated it into English. As we translated the interview, there exist a possibility of translation errors. In order to avoid this we let a person with superior knowledge in English read our interview.

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In our research, we used an interview guide, which can be used as a base by researchers that want to perform the same research again. The interview guide can be found in Appendix 1 and 2.

During the interview, we used a tape – recorder and both of us took notes. This was done so that we could compare our notes against the tape – recorder and to be certain that we had not missed any important information. The notes were also taken in case that the tape – recorder would not function.

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4. M

H

AB

In this chapter the data that where collected through an interview with Mr. Masse Biouki, business development manager, at Max Hamburgerrestauranger AB will be presented. The chapter begins with a brief presentation of the company, followed by a presentation of the data collected during the interview.

Company Background

Max Hamburgerrestauranger AB war founded 1968 by Curt Bergfors. During 1970 to 1990, the company expanded with several activities such as; hotel, gas stations, and gourmet cuisine, but since 1999 it only focuses its competence on hamburger restaurants (Max Hamburgerrestauranger AB¹, 2007).

Today, Max Hamburgerrestauranger AB has nationwide coverage and family Bergfors are still in charge. Curt Bergfors is active as chairman of the board and he owns 100 % of the company.

However, his two sons, Richard Bergfors, CEO and Christopher Bergfors, assistant manager, manage the company (Max Hamburgerrestauranger AB², 2007).

The head office is located in Luleå, Sweden and the branch office is located in Stockholm, Sweden. Max Hamburgerrestauranger AB has 65 restaurants with approximately 2,500 employees and the company’s result was in 2007 around 100 million SEK (ibid). According to Mr. Biouki, Max Hamburgerrestauranger AB expects to gain 1.2 billion SEK in turnover during 2008. If the company succeeds, it is the first time that it has come up to a billion SEK.

4.1 F

According to Mr. Biouki, Max Hamburgerrestauranger AB vision is to be “the best in the world”, and by that, it means that the company should be best in hamburger within every market it operates. In Sweden, the company already is the best when it comes to taste, quality and profitability. Max Hamburgerrestauranger AB does not want to be the largest hamburger chain in the world as it realizes that it is unreachable. Instead, it wants to be the best substitute for the larger hamburger chains.

The plan for Max Hamburgerrestauranger AB is to have 140 restaurants in Sweden in four to five years, and after that, it believes that the Swedish market will be matured. This has forced Max Hamburgerrestauranger AB to look at the international market and the strategy is to get there in approximately five years. The internationalization is among the largest event in its history and the management has shifted their focus from the domestic market to the international market.

The main objectives with the international expansion are to:

• Determine if Max Hamburgerrestauranger AB can compete on an international arena.

• See what people outside Sweden know and think about Max Hamburgerrestauranger AB.

• See if Max Hamburgerrestauranger AB is able to grow larger.

Max Hamburgerrestauranger AB strategy is to enter the Norway and Denmark fast food market, as these two countries do not have any Scandinavian fast food chain that operates in the market.