Vectors of Influence on the Contractual Mix: Geographical Dispersion vs. Automation in Brazilian Franchised Chains

14 Pages Posted: 29 Apr 2010 Last revised: 15 Aug 2010

See all articles by Eugenio J. S. Bitti

Eugenio J. S. Bitti

University of Sao Paulo - School of Polytechnics

Andre C. B. Aquino

School of Arts, Sciences and Humanities - University of Sao Paulo; School of Arts, Sciences and Humanities - University of Sao Paulo

João Amato Neto

University of São Paulo (USP)

Date Written: April 21, 2010

Abstract

This paper aims the influence of coordination costs on the proportion of company-owned units in Brazilian franchised chains. This influence was split into two competing vectors: the geographical dispersion of outlets on the one hand and the automation/standardization level of processes in the outlets on the other. Greater geographic dispersion increases monitoring costs, which requires performance incentives mechanisms. This view is convergent to the Agency Theory approach for franchising contracts, which proposes that powerful performance incentives are obtained when the local manager is shifted to residual claimant of the outlet (a franchisee). Reciprocally, automated manufacturing processes can increase the chain capability to monitor (even from a distance) its units, reducing the need for more powerful incentives. These statements are tested in this study. The tests are performed based on information from 191 franchised chains in Brazil listed in the yearbook of the Brazilian Franchising Association (ABF-2007). A cross-sectional analysis was performed, in which the proportion of both company-owned and franchised units (the contractual mix) is faced with proxies related to the monitoring capabilities of the chains. The study’s results support the propositions tested: both vectors act in the expected direction on the contractual mix. These results may be useful both for deciding to expand the chain as well as for choosing distinct technology bundles of production processes.

Keywords: franchising, monitoring costs, automation

JEL Classification: L14, L8, M41

Suggested Citation

Bitti, Eugenio J. S. and Aquino, Andre C. B. and Amato Neto, João, Vectors of Influence on the Contractual Mix: Geographical Dispersion vs. Automation in Brazilian Franchised Chains (April 21, 2010). Available at SSRN: https://ssrn.com/abstract=1593665 or http://dx.doi.org/10.2139/ssrn.1593665

Eugenio J. S. Bitti (Contact Author)

University of Sao Paulo - School of Polytechnics ( email )

Av.Prof. Almeida Prado, n.128
Cidade Universitaria
Sao Paulo, SC 05508-900
Brazil
55 11 30815363 (Phone)

Andre C. B. Aquino

School of Arts, Sciences and Humanities - University of Sao Paulo ( email )

São Paulo
Brazil
55 16 992770889 (Phone)

HOME PAGE: http://www.usp.br

School of Arts, Sciences and Humanities - University of Sao Paulo ( email )

João Amato Neto

University of São Paulo (USP) ( email )

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

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