Franchisees with multiple stakeholder roles: perceptions and conflict in franchise networks

ABSTRACT

Although the causes of conflict in networks and interorganizational relationships have long been investigated, scholars have overlooked the importance of stakeholders with multiple roles in eliciting managerial (mis)perceptions and potential for conflict. We find that franchisees take on multiple stakeholder roles, as customers, employees, investors, and business partners. Drawing from agency and stakeholder theories, we empirically demonstrate that the franchisor’s perception of franchisees’ multiple stakeholder roles affects managerial support and conflict outcomes in franchisor-franchisee relationships. The primary data support our claims that when franchisees are viewed as investors and business partners, franchisors increase the level of support offered and franchise systems experience less conflict.

KEYWORDS:

• Conflict
• stakeholder roles
• franchising
• managerial perceptions
• stakeholder theory
• agency theory

Introduction

Franchising is a system of relational exchanges wherein the hub firm (franchisor) and the local entrepreneurs (franchisees) cooperate to mutually promote a brand and co-create value (Kaufmann & Stern, 1988; Palmatier et al., 2006). Entrepreneurs who choose franchising expect to receive managerial support, whilst retaining some level of managerial autonomy. However, the franchisor’s goal is to expand its business by retaining service uniformity, even at the expense of franchisee autonomy. As a result, tensions and disputes may arise between franchisees and franchisors (Altinay et al., 2014). The literature suggests that a lack of franchisee experience and autonomy, franchisor support, and efficient communication weakens network ties and heightens conflict (Blut et al., 2011; Frazer et al., 2012; Grace et al., 2013; Kidwell et al., 2007; Pondy & Huff, 1985; Spinelli & Birley, 1998; Weaven et al., 2010). Conflict typifies destructive relational sentiments, resulting in opportunistic behavior that undermines the franchisor-franchisee relationship and harms the overall franchise brand image (Blut et al., 2011; Gaski, 1984; Pondy, 1992; Rosenberg & Stern, 1970). Hence, the success of franchise networks depends, in part, on minimizing conflict in franchisor-franchisee relationships (Altinay et al., 2014; O. E. Omar, 1998).

The literature is replete with studies investigating the existence, antecedents, and consequences of conflict in franchisor-franchisee relationships (Frazer, 2001; Frazer et al., 2012; Grace et al., 2013; Grünhagen & Dorsch, 2003; Kaufmann & Lafontaine, 1994; Spinelli & Birley, 1998; Victoria Bordonaba‐Juste & Polo‐Redondo, 2008; Weaven et al., 2010). However, there is a paucity of research that examines how the franchisor’s perceptions of franchisees’ roles and goals may lead to differing expectations and, therefore, conflict. For instance, Top management’s perceptions have been shown to be the primary drivers of managerial effort and organizational outcomes (Falbe & Welsh, 1998; Hambrick & Mason, 1984; O. Omar & Blankson, 2000; Petrenko et al., 2016). The lack of research in this field is surprising, given that, in franchising, the franchisor may view the roles of its franchisees as that of customers, employees, investors, and business partners. For instance, the franchisor may view its franchisees as taking on the role of its customers owing to the fact that they may repeatedly purchase from the franchisor’s appointed suppliers (e.g. Davies et al., 2011; Hajdini & Raha, 2018; Michael, 2000). Similarly, the franchisor may view the role of its franchisees as that of investors, who make specific investments (Brickley, 2002; Dant & Berger, 1996) or may even invest in the franchisor’s stock (Justis et al., 1991). Hence, role perceptions are important for relationship cultivation (Brown & Peterson, 1993; Grace et al., 2013) because, depending on how the franchisor perceives its franchisees’ stakeholder roles (i.e. as customers, employees, investors, or business partners), it may adjust the level of support it provides to them, which can increase or decrease the level of conflict in its relationships with franchisees.

Agency theory views the franchisor (i.e. principal) and franchisees (i.e. agents) as intentionally and unintentionally pursuing divergent goals (Barney & Ouchi, 1986; Doherty & Quinn, 1999). Franchise partners design organizational structures, contracts, monitoring mechanisms, and other incentives to mitigate risks of opportunism and conflict that arise from goal divergence. The theory encompasses how principals’ perceptions of agents’ behavior influences the quality of the principal-agent relationship (Cruz, Gómez-Mejia, & Becerra, 2010). More specifically, the principal’s decision to exercise or delegate control and provide support depends on its subjective assessment of agents’ behavior. This implies that the franchisor’s subjective assessment of its franchisees’ behavior influences the franchisor’s level of provided support and the quality of the franchisor-franchisee relationship.

Stakeholder theory emphasizes, however, the important role of all primary stakeholders (i.e. customers, shareholders, employees, suppliers, and the local community) that affect and/or are affected by the achievement of a firm’s objectives (Clarkson, 1995; Freeman, 1984; Parmar et al., 2010; Savage et al., 1991). Primary stakeholders are viewed to be of critical importance to the survival of the firm; therefore, their claims and interests are to be attended to accordingly in order to improve stakeholder relationships and organizational performance. Mitchell et al. (1997) argue that the level of salience that certain stakeholders attract from managers depends on the attributes they possess; in particular, their power, legitimacy, and urgency.

Although proponents of both agency and stakeholder theory acknowledge the existence of conflicting agents’ goals and demands and the existence of more salient stakeholders, they do not address relationship quality between the principal and agents with multiple stakeholder roles, such as franchisees. There is a lack of research concerning the amount of attention and support that agents with multiple stakeholder roles attract from their principals (Agle et al., 1999). Consequently, the literature does not sufficiently address the following research questions: Does the franchisor view its franchisees as taking on the multiple stakeholder roles of customers, investors, employees, or business partners? If yes, is the level of the franchisor’s provided support adjusted according to its perceptions of the respective stakeholder roles that the franchisees might take on? Furthermore, eventually, how does the adjustment to the level of support provided influence the level of conflict?

Answering such questions is important because agents who may be viewed to take on multiple stakeholder roles may warrant higher attention, have more complex demands, or even pursue more divergent goals than their principals. Drawing from agency and stakeholder theories, this paper represents the first attempt to reveal franchisor perceptions of franchisees with multiple stakeholder roles, which may enhance franchise partners’ ability to cultivate healthier franchisor-franchisee relationships and minimize agency costs and potential conflict.

The objective of this paper is to empirically demonstrate how franchisors’ perception of franchisees’ multiple stakeholder roles affects the level of provided support and conflict potential in franchising networks. We contribute to the literature on franchising and alliance relationships (Davies, 1994; Grace et al., 2013) by demonstrating that the level of support and conflict is contingent on franchisors’ perception of franchisees’ multiple stakeholder roles as customers, employees, investors, and business partners. Further, this study provides important implications for agency and stakeholder theories because it sheds new light on the fact that some agents can take on multiple stakeholder roles, thereby requiring higher managerial attention and support. These findings suggest that the franchisor perceptions of franchisee stakeholder roles are a determinant of the quality of the relationship between franchise partners.

We next explore the related literature. Then, we develop four hypotheses, describe our data collection method, and present our main findings. We conclude by discussing the study’s main inferences.

Theoretical background

Agency theory

Agency theory regards agency relationships, which, under a cooperative schema, describe how one individual or group of individuals (i.e. a principal) allows another individual or group (i.e. agents) to perform business activities on their behalf (Barney & Ouchi, 1986; Eisenhardt, 1989). The theory relies on two main assumptions (Jensen & Meckling, 1976). First, the goals of agents barely converge with those of the principal. The principal pursues shareholders’ goals, while an agent may, at the same time, pursue its own goals. Disagreement on goals between principals and agents result in agency costs (e.g. costs of monitoring and conflict). Second, the attitudes of principals and agents toward risk differ: the principal is risk-neutral, whereas agents are risk-averse in order to preserve their own wealth. Contracts serve as a governance mechanism to ensure efficient alignment of interests between the principal and agents (Shankman, 1999). Thus, agency theory views firms as a nexus of contracts between principals and agents (Hill & Jones, 1992). However, contract incompleteness, asymmetric information, and goal divergences prevent perfect convergence between the goals of principals and agents (Wright et al., 2001).

Several studies in the franchising literature examine franchise relationships from a principal-agent perspective (Combs et al., 2004). Lafontaine (1992) and Bhattacharyya and Lafontaine (1995) show empirically that a double-sided moral hazard (e.g. franchisor-franchisee bidirectional free riding) exists in franchise relationships owing to the existence of shared contracts that affect the franchisor’s propensity to franchise (Grünhagen et al., 2017). Falbe and Welsh (1998) posit that agency theory can explain how the decision on the proportion of franchised-outlets compared with company-owned outlets affects the quality of communication in franchise relationships. Doherty and Quinn (1999) explain key elements of relationship development in international retail franchising. Michael (1999) finds that cooperative advertising in franchise systems can generate conflicts if several franchisees operate under a common brand. Grünhagen and Dorsch (2003) find that, compared with multi-unit operators, single-unit franchisees have stronger tendencies to nurture positive perceptions of the value of their franchisor’s business model. Roh and Yoon (2009) classify franchisor’s provided support into pre-opening support (e.g. initial training) and ongoing support (e.g. central purchasing, communication, and business assistance), and show that less conflict exists when franchisors provide ongoing support. Investigating the relational constructs of support and conflict in franchising in China, Doherty et al. (2014) find that non-compliance and counterfeits by franchisees are among the most prominent reasons for conflict. Building on agency theory, López-Fernández and López-Bayón (2018) examine the antecedents of early franchise relationship terminations, finding that franchisees’ entrepreneurial autonomy reduces terminations.

Stakeholder theory

Stakeholder theory acknowledges the interests and well-being of any individual or group who affects or is affected by the achievement of organizational objectives beyond shareholder wealth (Boatright, 1994; Freeman, 1984; Phillips et al., 2003). The underlying assumption of stakeholder theory is that firms’ stakeholders are its constituents who, in supplying the firm with vital resources, expect the firm to satisfy their individual interests (Hill & Jones, 1992; Tantalo & Priem, 2016). Stakeholder theory provides the basis for exploring the nature of relationships as a way of managing various stakeholders’ interests in relation to joint value creation (Donaldson & Preston, 1995; Freeman, 2010; Jones & Wicks, 1999). Stakeholders are grouped according to their importance and contribution to the firm’s survival and durability: primary stakeholders directly impact the firm’s survival, while secondary stakeholders have no direct influence. Customers, employees, suppliers, the local community, and shareholders are typically considered primary stakeholders, while the media, government, activists, and interest groups are secondary stakeholders (Clarkson, 1995; Parmar et al., 2010).

The literature regarding the explicit application of stakeholder theory to franchising systems is scarce. Weaven et al. (2014) present an integrative model of knowledge management across the franchisor–franchisees and customers triad. They show that each franchise partner’s knowledge influences their own interests as well as that of customers. Perrigot et al. (2012) investigate the antecedents of using social media networks such as Facebook to communicate with stakeholders in franchise systems. In a case study of the hotel industry, Altinay and Miles (2006) use the stakeholder salience framework to explain the selection process of international franchisees. Welsh et al. (2006) examine international franchising in emerging markets, and identify some of the most important stakeholders in these markets.

According to stakeholder theory, the nature of resources that stakeholders possess and their contribution to firms’ overall value creation enable stakeholders to influence firms’ managerial perceptions (Agle et al., 1999; Mitchell et al., 1997). However, this theory has still not been applied to explain the influence of the multiple roles of such stakeholders on the perceptions franchisors may have of them. Similarly, agency theory has not addressed stakeholders with multiple roles. Such stakeholders may have more complex requirements, warrant higher attention, or even have goals with greater divergence from those of the principal, thereby exacerbating potential agency costs and conflicts. Thus, in the next section, building upon agency and stakeholder theories, we illustrate our conceptual model and develop our hypotheses concerning the effects of franchisor perceptions of franchisees’ multifaceted stakeholder roles on the level of conflict through the mediating effect of franchisor’s provided support. We next discuss franchisee stakeholder roles, and then posit the hypotheses.

Hypotheses

Franchisors’ perceived roles of franchisees as customers and employees

The franchising literature implicitly views franchisees as customers and employees. Some authors argue that franchisees should be perceived as customers because franchisors sell business formats to them (e.g. Davies et al., 2011). Indeed, franchisees may repeatedly purchase products from franchisor-appointed suppliers or directly from franchisors (Michael, 2000) and pay additional fees to renew their contracts or become multi-unit franchisees (Blair & Lafontaine, 2005). The franchisor may additionally perceive its franchisees as customers who supply an ongoing stream of revenues.

Drawing from agency theory, the franchisor is advised to exercise tighter control over franchisees operations to mitigate potential vertical and horizontal agency problems (Lafontaine, 1992; Rubin, 1978). When the franchisor views its franchisees as customers, a vertical agency problem may arise as franchisees bargain for lower supply prices or royalty fees, acquire inputs from suppliers other than the franchisor’s appointed suppliers, or free ride by reducing product/service quality. Such problems eventually harm the franchisor’s brand image and income. To protect its interests against the costs of such vertical agency problems, the franchisor might specify more detailed contracts and use monitoring mechanisms at the expense of more provided support.

Franchisors might also view franchisees as employees. United States labor and employment regulations expand the scope of franchisor liability by potentially treating a franchisee’s employees as ‘joint’ or ‘related’ employees of the franchisor (Hagedorn et al., 2017). This may affect how the franchisor perceives its franchisees and how it monitors their treatment of their own employees (i.e. in our case, managers of company-owned outlets) to avoid litigation. When the franchisor’s employees are promoted to franchisee consultant positions or hired by other multi-unit franchisees, the franchisor may perceive its franchisees and employees interchangeably (Bradach, 1997). Accordingly, the role of a franchisee resembles that of a quasi-employee in terms of its relationship with the franchisor, as they willingly or unwillingly relinquish part of their own identity to adopt that of the franchisor’s (Caves & Murphy, 1976; Lawrence & Kaufmann, 2011).

When the franchisor views its franchisees as employees, a horizontal agency problem may prevail because the franchise network is a hybrid form of business comprising both franchised and company-owned outlets. The managers of company-owned outlets are the franchisor’s employees who are in charge of the same business operations as franchisees. They may shirk because of the weak incentives that are tied to their job performance, thereby imposing high monitoring costs on the franchisor and franchisees (Bradach, 1997; Rubin, 1978). The franchisor may therefore enforce high level of control and monitoring at the expense of more provided support.

The possibility that ‘customer franchisees’ or ‘employee franchisees’ may free ride or shirk may fuel the potential for heightened conflict by encouraging the franchisor and franchisees to behave opportunistically (Piercy, 1998). Therefore, when the franchisor perceives its franchisees as its customers or employees, it may design franchise contracts that favor the franchisor (Storholm & Scheuing, 1994), even using termination clauses to fire negligent ‘employed franchisees.’ In addition, franchisors may exercise contract termination clauses or violate franchisees’ territorial exclusivity by placing their own outlets close to those of franchisees in an attempt to impose a higher level of control, increasing the likelihood of franchisee retaliation with non-compliance to system standards or fee arrangements (Hajdini & Raha, 2018; Hajdini & Windsperger, 2019). Thus, when the franchisor perceives its franchisees as customers or employees, it may adopt an arms-length relationship that results in higher levels of administrative control.

An arms-length relationship is based on contractual agreements, and results in interactions between a firm and its stakeholders being strictly grounded in bargaining power (Bridoux & Stoelhorst, 2014). When the franchisor adopts an arms-length approach, it relies on economic and legal sanctions to enforce obligations specified in formal contracts, including detailed performance standards and requirements (Chiles & McMackin, 1996; Dyer & Singh, 1998; Rousseau, 1989; Zhao & Wang, 2011). However, the adoption of an arms-length customer-business approach may discourage the franchisor from offering additional support, possibly resulting in greater potential for conflict (Davies et al., 2011; Falbe et al., 1999; Grace et al., 2013; Grünhagen & Dorsch, 2003; Spinelli & Birley, 1998). Accordingly, we propose the following hypotheses:

H1a: When the franchisor perceives franchisees as customers, a lower level of support is provided to them, which causes a higher level of conflict between the franchisor and its franchisees.

H1b: When the franchisor perceives franchisees as employees, a lower level of support is provided to franchisees, which causes a higher level of conflict between the franchisor and its franchisees.

Franchisors’ perceived roles of franchisees as investors and business partners

Franchisees may also be perceived as investors who own the outlet by investing specific resources and becoming members of a cooperative network (Barthélemy, 2011; El Akremi et al., 2011). Franchisees pay upfront fees, royalties (Brickley, 2002), and advertising fees (Dant & Berger, 1996), and may invest in franchisor stock (Justis et al., 1991).

As highlighted by stakeholder theory, primary stakeholders can benefit a firm by providing access to vital resources (Freeman, 1984; Parmar et al., 2010). To expand, the franchisor needs capital resources from franchisees (Windsperger & Dant, 2006). In order to effectively compete against established rivals in the market, franchisors strive to achieve economies of scales in areas of purchasing and advertising by increasing their number of franchisees (Caves & Murphy, 1976). Because franchisees are required to make specific investments, such as payment of fees upfront, designing the outlet, and training employees, they are viewed as quasi–investors that provide the means for expansion (Norton, 1995). Unlike lenders who may diversify their investment portfolio to reduce risk, franchisees put all their investments into one or a small number of outlets. Franchisees with quasi–investor roles can enable the franchisor to accomplish its growth objectives by providing access to vital resources such as capital (Barney, 2018). If franchisors view franchisees as quasi–investors, they may decide that franchisees deserve more support, which can motivate ‘investor franchisees’ to continue investing and cooperating.

Franchisees can also play the role of business partner with franchisors. Business partner franchisees enable franchisors to expand in return for the right to operate a proven business concept (Altinay et al., 2014; Bennett et al., 2010). According to Spinelli and Birley (1996), the franchisor and franchisees are distinct entities, and franchisees enjoy autonomy while enabling the franchisor to grow and prosper (Dant & Gundlach, 1999). Franchisees are reliable business partners because they possess local market knowledge, which is exceedingly important for the franchisor to enter and succeed in new markets (Windsperger, 2004).

Franchisees’ local market knowledge regarding customer tastes, local procurement, labor market conditions, or legislation facilitates chain expansion. These resources, according to the stakeholder theory, provide franchisees with greater power to attract franchisor attention (Agle et al., 1999; Mitchell et al., 1997). Consequently, when the franchisor perceives its franchisees as business partners, it provides higher support to boost franchisees’ entrepreneurial spirit and encourage them to behave more cooperatively. Accordingly, mutual understanding and alignment of interests are more probable, which decreases the potential for conflict between partners. When the franchisor views capital provided by franchisees as essential to growth, the ‘investor franchisees’ and ‘business partner franchisees’ receive more support, thereby reducing conflicts. Formally,

H2a: When the franchisor perceives franchisees as investors, the franchisor provides a higher level of support to franchisees, which causes a lower level of conflict between franchisors and its franchisees.

H2b: When the franchisor perceives franchisees as business partners, the franchisor provides a higher level of support to franchisees, which causes a lower level of conflict between franchisors and its franchisees.

Methods

To test the hypotheses, we conducted a survey of franchises in Austria, the Czech Republic, Germany, and Slovakia: four neighboring countries known as the Central European Union states, with an interdependent franchising market. The countries engage in high degree of economic and political exchange, which affects business interactions. There are strong cultural and economic ties between the Czech Republic and Slovakia as these countries were unified in the past. According to the European Franchise Federation (2012), over 60% of German and Austrian domestic brands have expanded to the markets of the other two Central European countries, i.e. the Czech Republic and Slovakia.

The survey questionnaire was developed from several interviews with franchise experts from franchise associations. From the interviews, we identified 1,245 franchise systems in the four countries. We then mailed the questionnaire to 374 Austrian, 165 Czech, 577 German, and 129 Slovak franchise systems. To maximize the number of respondents who would receive the questionnaires, we sent emails containing a link to an electronic version of the questionnaire. We attached a cover letter explaining the study’s objectives and assuring respondent anonymity. The target persons for filling out the questionnaire were key informant personnel such as franchise expansion managers or franchisors’ CEOs. To increase the response rate, we sent a reminder email and carried out one round of telephone calls to remind respondents to return the questionnaires.

A total of 221 questionnaires were returned by recipients during the survey period, which corresponded to a response rate of 17.7 percent. We received 63 responses from franchisors in Germany (29%), 69 from those in Austria (31%), 35 from those in Slovakia (16%), and 54 from the franchisors in the Czech Republic (24%). We excluded 58 questionnaires owing to missing responses to some items, resulting in a final sample of 168 questionnaires.

To check for non-response bias, we compared early versus late respondents with respect to various aspects of the franchisors’ size and age. The ANOVA test showed no significant difference between these two groups. We also included age and size of the franchise systems in our analysis as control variables. Age is a proxy for interorganizational experience and was measured as the number of years the respondent reported being in business (Roome & Wijen, 2006). The inclusion of age allows us to examine whether level of conflict is influenced by length or duration of franchise relationship. We also controlled for the effect of franchise system size. Larger franchisors differ in their resources and capabilities to deal with their franchisees (Reuer & Ariño, 2007). For this purpose, respondents were asked to provide the number of employees in their headquarters, allowing us to check whether size influences the level of conflict within franchise systems.

Analyses of measurement models

Our hypotheses were tested using structural equation modeling with LISREL 8.80. Prior to running the structural model, we conducted a series of confirmatory factor analyses (CFA) to check the reliability and validity of constructs in the measurement models. First, in regard to the dependent variable conflict, we included four items adopted from Grace et al. (2013). However, one of the four original items was excluded from the final measurement model because it did not significantly load on the construct (t-value = 0.89), and its standardized loading was below the recommended cut-off threshold of 0.50 (Hair et al., 2006). Second, in regard to support, we included five items adopted from Grace et al. (2013) to create the construct of interest. The CFA results showed that all indicators did significantly load on the construct (see Table 1). The final two-factor multi–item measurement models including both conflict and support indicated decent fit by chi-square = 36.47, degrees of freedom = 19, p-value = 0.00923, RMSEA = 0.07, NFI = 0.96, GFI = 0.95, CFI = 0.98, and SRMR = 0.04. Table 1 shows the item framing and standardized loadings.

Table 1. Measurement models: item scales and convergent validity

Measurement Items	Standardized Loadings	T-values	AVE	CR
Conflict
There is a lot of conflict in the relationship between me and my franchisees.	0.81	11.67	0.66	0.85
I frequently disagree with my franchisees.	0.79	11.30
The disagreements I have with my franchisees are usually quite intense.	0.84	12.38
Support
We strongly consider our franchisees goals and values.	0.70	10.17	0.88	0.90
We help our franchisees out, no matter what.	0.75	11.07
We understand and accommodate franchisees problems and needs.	0.94	15.93
We support franchisees whenever possible.	0.88	14.24
Help is readily available for my franchisees when they have a problem.	0.74	10.87

We conducted several tests to check for convergent validity, discriminant validity, and common method bias. In relation to convergent validity, we calculated the average variance extracted (AVEs) and the composite reliability of support and conflict (Bagozzi & Heatherton, 1994). Results showed that AVEs were greater than the recommended threshold of 0.50 (Fornell & Larcker, 1981) and composite reliabilities were greater than 0.60, demonstrating that the convergent validity of support and conflict constructs is supported (see Table 1 and Figure 1).

Figure 1. Measurement and structural models with standardized coefficients.

To check discriminant validity between conflict and support, we conducted a chi-square difference test as recommended by Bagozzi et al. (1991). We compared the difference in chi-squared values between two nested models: one model was constrained with covariance of one between conflict and support; the second model was unconstrained, allowing the two constructs to covary freely. Results showed that the difference between the chi-squared values for the nested models were significantly different from zero, indicating that the constructs are distinct and capture different concepts ($\mathrm{\Delta }{\chi }^2=199.23,\mathrm{\Delta }df=1,p<0.005).$

To test whether common method variance affects the validity of our results, we conducted a chi-square difference test between two measurement models as recommended by Podsakoff et al. (2003). In the first model, we created a one-factor construct that reflects all measurement items; we call this construct common. Then, we compared this model through a chi-squared difference test with a two-factor measurement model, in which conflict and support were measured separately. The results showed that the hypothesized model is superior to the one-factor measurement model (COMMON), indicating that common method bias does not bias our findings ($\mathrm{\Delta }{\chi }^2=277.08,\mathrm{\Delta }df=35,p<0.005).$

Third, the independent variables that capture how the franchisor perceives its franchisees were derived by asking respondents to rate the following: ‘We perceive franchisees as our … ’ ‘ … customers,’ ‘ … employees,’ ‘ … investors,’ or ‘ … business partners’ (1 = strongly disagree to 7 = strongly agree). The development of these measures was inspired from the literature in which managerial perception is viewed as a strong factor affecting organizational decisions and outcomes (Falbe & Welsh, 1998; Hambrick & Mason, 1984). The franchisor may perceive the role of its franchisees as those of customers, employees, investors, or business partners. Thus, the independent variables of our model are franchisor perceptions, which impact the organizational outcomes of support and conflict in franchise networks.

Results

Table 2 shows descriptive statistics and correlations between variables. Franchisees take on the roles of business partners ($\bar{\mathrm{x}}$ = 6.55), customers ($\bar{\mathrm{x}}$ = 5.17), investors ($\bar{\mathrm{x}}$ = 3.56), and employees ($\bar{\mathrm{x}}$ = 1.88). Franchisees are mostly perceived as customers and business partners.

Table 2. Descriptive statistics

Variables	Mean	CustomerPercep	EmployeePercep	InvestorPercep	PartnerPercep	Support	Conflict	SIZE	AGE
CustomerPercep^a	5.17	1
EmployeePercep	1.87	−.093	1
InvestorPercep	3.26	.053	.290**	1
PartnerPercep	6.55	.243**	−.284**	−.127	1
Support	5.93	.046	−.017	.131	.320**	1
Conflict	2.54	−.056	−.012	.070	−.288**	−.325**	1
SIZE	47.36	.006	.079	.102	.086	.109	.022	1
AGE	15.45	.093	−.130	.106	.040	.024	.170*	.322**	1

^aPecept = Perception.

**Correlation is significant at the 0.01 level (2-tailed).

*Correlation is significant at the 0.05 level (2-tailed).

However, our SEM analysis indicates mixed results in regard to the influence of franchisor perceptions on support and conflict. Although franchisees are strongly perceived as customers (Table 2), this perception has no significant effect on the level of provided support or level of conflict (Table 3).

Table 3. Structural model results

Path	Beta coefficient (standardized)	t-value	Sig*
Direct Effects
Perceived as customers→Support	−0.04	−0.52	No
Perceived as employees→Support	0.06	0.73	No
Perceived as investors→Support	0.16	1.97	Yes
Perceived as partners→Support	0.40	4.66	Yes
Support→Conflict	−0.40	−4.47	Yes
Mediation Effects
Perceived as customers→Support→Conflict (H1a)	0.02		Not supported
Perceived as employees→Support→Conflict (H1b)	−0.02		Not supported
Perceived as investors→Support→Conflict (H2a)	−0.06		Supported
Perceived as partners→Support→Conflict (H2b)	−0.16		Supported

Fit of model: Chi-Square = 75.96, df = 61, p-value = 0.09; RMSEA = 0.03; NFI = 0.94; GFI = 0.94; CFI = 0.98; SRMR = 0.05.

*Sig = significant at 5%.

The overall goodness of fit of the structural model indicates that the data fits to the hypothesized model reasonably well (Chi-Square = 75.96, df = 61, p-value = 0.09; RMSEA = 0.03; NFI = 0.94; GFI = 0.94; CFI = 0.98; SRMR = 0.05). Figure 1 illustrates the path analysis of the measurement and structural models. Table 3 shows direct effects and indirect mediation effects. Surprisingly, H1a and H1b are not supported. However, the results provide support to H2a and H2b, inferring that when the franchisor views the role of its franchisees as those of investors and business partners, it provides higher levels of support, which in turn lead to lower levels of conflict. Further, we controlled for the effect of franchise systems age ($\bar{\mathrm{x}}$ = 15.45) and size ($\bar{\mathrm{x}}$ = 47.36) on the level of conflict. The results show that older franchisors are more likely to engage in conflicts with their franchisees than younger ones due to their inflexibility to cope with market dynamics (Sorenson & Sørensen, 2001). However, the size of franchise systems showed no significant influence on the level of conflict.

To cross check the robustness of our estimation results, we conducted two-stage regression analysis using STATA version 14.1. In line with our model specification, we first regressed the four perceived franchisee roles (customers, employees, investors, and partners) on support. We retained the calculated fitted values of support. In the next step, we regressed support and control variables of age and size on conflict. We used the robust standard estimation technique to mitigate possible heteroscedasticity from the data obtained from the four different European countries.

We find that the results are consistent with the reported SEM results, indicating that perceived stakeholder roles of franchisees as customers and employees have no significant influence on support or conflict. The other two perceived franchisee roles as investors and partners have significant positive impact on the level of provided support to franchisees and reduce the level of conflict. The VIF test for multicollinearity shows that multicollinearity is unlikely to bias our estimation results (VIF is between 1.06 and 1.17).

Discussion

This study shows that the amount of attention and support franchisees receive from franchisors depends on franchisor perceptions of the stakeholder roles that franchisees play. In response to the first research question (i.e. does the franchisor view its franchisees as taking on the multiple stakeholder roles of customers, investors, employees, or business partners?), we show that, in practice, franchisees are multifaceted stakeholders with multiple roles as customers, employees, investors, and business partners. Empirical results show that franchisees are perceived mostly as customers and business partners and, to a lesser extent, as investors and employees.

The second and third research questions (i.e. is the level of the franchisor’s provided support adjusted according to its perceptions of the respective stakeholder roles that the franchisees might take on? And, how does the adjustment to the level of support provided influence the level of conflict?) draw from agency and stakeholder theories and investigate the influence of franchisees’ perceived roles on the level of provided support and conflict. First, we find that franchisor perceptions of franchisees’ stakeholder roles as that of customers and employees have no significant influence on the level of conflict, because the mediating influence of the provided support to franchisees does not significantly differ. One explanation for this finding is that, when franchisees are perceived as customers or employees, the franchisor is still aware of their crucial role in the overall performance of the franchise system, and does not change the level of support provided. Maintaining support at a certain level, even if franchisees are perceived as customers or employees, can imply that the franchisor views the franchising network as a collaborative enterprise (Halal, 2001). From the franchisor’s point of view, value can be created jointly by providing support to franchisees, irrespective of their specific stakeholder role (Tantalo & Priem, 2016).

The empirical results, however, confirm that when franchisees’ roles are perceived to be as those of investors or business partners, the franchisor can successfully mitigate the level of conflict by increasing the level of support to franchisees. Increased support can encourage cooperation and commitment from franchisees to contribute more to overall performance of the franchise network by, for instance, encouraging current and prospective franchisees to make more specific investments (Grace et al., 2013). Perceiving franchisees as investors, the franchisor provides higher support to signal protection of franchisees’ specific investments (Solis‐Rodriguez & Gonzalez‐Diaz, 2012). Similarly, franchisor perception of franchisees as business partners is positively associated with higher levels of franchisor-provided support and lessened conflict. The expansion of the franchising network into new markets by means of issuing additional licensees to increased numbers of franchisees is a strategic goal for every franchisor. In new markets, the franchisor has little knowledge of local market conditions. This obliges the franchisor to rely on crucial local market know-how that local franchisees possess (Mumdžiev & Windsperger, 2011). As a result, the perceived business partnering role of franchisees is very important for achieving expansion goals and justifies the increased level of support and reduced levels of conflict.

Theoretical and managerial implications

Our results support prior research findings that companies’ performance is influenced by their response to environmental conditions on the basis of their executive managerial perceptions rather than on the objective characteristics of the environment (Hambrick & Mason, 1984; Miles, Snow, & Pfeffer, 1974). However, prior franchising and alliance literature has ignored the role of perceptions in determining the quality of relationships (Combs et al., 2011; Falbe & Welsh, 1998). The extant literature in franchise relationships has explored franchising as a form of agency relationship (Barthélemy, 2008); however, fewer studies have drawn on stakeholder theory (Combs et al., 2011). Agency theory emphasizes the existence of horizontal and vertical agency costs, while stakeholder theory highlights the existence of more salient stakeholders (Barthélemy, 2008; Mitchell et al., 1997); however, neither theory explains the influence of role perceptions on conflict with multifaceted agents (Agle et al., 1999). Studies informed by these theories highlight the importance of stakeholder demands and supportive mechanisms in promoting a more productive and trustful environment (Dada, Watson, & Kirby, 2012; Frazer, Merrilees, & Bodey, 2007; Pizanti & Lerner, 2003).

This study adds to the literature on marketing channels and franchise relationships by applying a combined stakeholder and agency perspective to show that conflict is mitigated when the franchisor adjusts its managerial support in accordance with the competing claims of franchisees with multiple stakeholder roles (Combs et al., 2011; Dant et al., 2011). In other words, this study tackles an overlooked aspect of how franchisor’s perceptions contingent on the nature of franchisees’ characteristics are followed by adjusted managerial support to mitigate conflict.

On the managerial front, the findings suggest that franchisee practitioners may invest resources, time, and effort in activities that are more associated with the roles of investors or business partners if they aim to receive higher support and experience lower levels of conflicts during the course of the franchise agreement. For instance, by acquiring from franchisor’s appointed suppliers, investing in franchisor’s stock, or becoming multi-unit franchisees, franchisees may be perceived as investors or business partners and, accordingly, viewed as more salient and important for the success of the franchisor’s chain.

The results also suggest how franchisors can provide support to franchisees in a more purposeful manner. The franchisor can therefore mitigate conflict by designing purposeful support, which encourages franchisees to make specific investments and cooperate as they take on perceived roles as investors or business partners.

Limitations and future research

This study has several limitations. First, because the data was collected from multiple countries, the unique cultural backgrounds of franchisors may have affected their perceptions of franchisee stakeholder roles. An analysis based on cross-cultural comparison in future studies would enrich our findings. Our study may also encourage future research to consider other cognitive aspects of the franchisor that affects their perceptions of franchisees’ multiple roles.

Second, we could not control for the effect of franchising governance mode (single vs multi-unit franchisees) on franchisor perceptions and level of conflict. Future research could shed light on how single and multi-unit franchisees differ in terms of perceived stakeholder roles and levels of received support.

Third, our conceptual model does not explain the performance implications of franchisees with multiple stakeholder roles. Future work could examine the influence of simultaneous multiple stakeholders’ roles on franchisor attention, network relationship quality, and system performance.

Fourth, future research could examine the importance of stakeholders with multiple roles in attracting managerial attention and support in different industry settings and alliance relationships, such as joint ventures or licensing arrangements. Certain stakeholder roles can have amplifying or even moderating effects in warranting managerial attention or relationship cultivation in conjunction with other stakeholder roles.

Finally, future empirical studies may address the limitation of single-item measures for multiple perceived franchisee roles by developing new multi–item measures.

In sum, adopting a stakeholder-agency theoretical approach might represent a fruitful avenue of research to explore the role of agents with multiple stakeholder roles, while accounting for the influence of all other agent-stakeholders in relationship cultivation and joint value co-creation.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Austrian National Bank under Grant number [18056].