Factors influencing franchisee’s intention to maintain participation in the franchise system in Ho Chi Minh city

The results of the confirmatory factor analysis show that the

reaffirmed scales all achieve the reliability scale, convergent validity

and discriminant validity.

In addition, the results of the structural equation modeling test

showed that the scale for the concepts in the research model was

theoretical and that the five hypotheses in the model were accepted.

As follows:

- Hypothesis H1 - Individual characteristics have the positive

effect on quality of Franchisor - Franchisee relationship, accepted

with p = 0.012. The results of this study are in line with Dant et al.

(2013) 's finding, namely choosing the right partner with appropriate

individual characteristics creates a better relationship.

- Hypothesis H2 - Individual characteristics have the positive

effect on the Franchisee’s intention to maintain participation in the

franchise system, accepted with p = 0.039. Chen (2011), McDonnell

et al. (2011), Morrison (1997) argue that when the franchisor selects

the right partner, the franchisee is more likely to its long-term

participation in the franchise system. And the results of this study

provide additional evidence to support the findings of the former

authors.

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retical framework of factors influencing the franchisee's intention to maintain participation in the franchise system. - Determine the significance of the influences of the factors on the franchisee's intention to participation in the franchise system. - Propose managerial implications to improve the intention to maintain participation in the franchise system and policy implications of franchise operations for the government. 1.4. Research object and scope 1.4.1. Research object Factors influencing Franchisee’s intention to maintain participation in the franchise system. 1.4.2. Research scope 5 - Research problem: Factors affecting the intention to maintain Franchisee’s intention to maintain participation in the franchise system. - Time dimension: Actual practice of franchising from 2007 up to now. - Space dimension: + Overview of the current status of franchise operations in Vietnam in general and HCMC in particular + Survey and test the framework of factors affecting the intention to maintain participation in the franchise system in HCMC. - Research sample: Franchisee – management team or manager of the franchise store who manages and proposes decisions for franchise business operations of the organization. 1.5. Research methodology The thesis employed both research methods: qualitative research with individual in-depth interview technique in the qualitative research phase and quantitative research was then conducted within two phases: preliminary qualitative research with 95 franchisees in Ho Chi Minh City and subsequentlyy formal quantitative research with survey techniques with 187 enterprises and franchisees, selected by snowball sampling method and simple random method. 6 CHAPTER 2: LITERATURE REVIEW – THEORETICAL FRAMEWORK Intention to maintain participation in the franchise system is viewed as the franchisee's behavior in planning or making decisions to re-sign the franchise contract or expand cooperation with the Franchisor in the franchise system which they are participating in. When the franchisee acts this way, the franchisee intends to maintain its participation in the franchise system. 2.1. Factors influencing Franchisee’s intention to maintain participation in the franchise system Table 2.4: Factors influencing Franchisee’s intention to maintain participation in the franchise system No Factor Author and Year of publication 1 Quality of relationship between Franchisor and Franchisee Adeiza et al., (2017), Chen (2011), McDonnell et al., (2011), Ulaga et al., (2006) 2 Trust Erlinda et al., (2016), Victoria Bordanaba-Juste et al., (2008), Chiou et al., (2004), Morrison (1997) 3 Satisfaction Chen (2011), Huang et al., (2009), Lee et al., (2008), Chiou et al., (2004), Hing (1999), Morrison (1997), Justis et al., (1991) 7 Source: synthetized by the author 2.2. Theoretical framework development 2.2.1. Literature review 4 Commitment Victoria Bordanaba-Juste et al., (2008) 5 Quality of service, training, and training program Venetis et al., (2004), Justis et al., (1991) 6 Competitive advantage, Franchisor’s brand image Erlinda et al., (2016), Huang et al., (2009), Chiou et al., (2004) 7 Franchisee’s individual characteristics (personality, age, education) Chen (2011), Morrison (1997) 8 Communication, information exchange and cooperation Huang et al., (2009), Victoria Bordanaba-Juste et al., (2008), Chiou et al., (2004) 9 Business environment Huang et al., (2009) 10 Long-term direction Ono et al., (2009) 11 Opportunism Ono et al., (2009) 12 Perceptual independence Hanafiah et al., (2009) 13 Family care Hanafiah et al., (2009) 8 2.2.1.1. Motivation theory Intention to perform a behavior is a major factor of future behavior (Ajzen et al., 2005) and it contains three stages: (i) Formation of the motor; (ii) act to select or make decisions; (iii) Implementation of intentions (Thomas Waweru Gakobo et al., 2016). Thus, forming the motivation is the first step in shaping intentions or planning or making a decision to take an action. Motivation is a theoretical concept used to explain why people conduct specific actions at a particular time (Beck, 2004). According to Petri et al. (2004), motivation is considered as a concept that describes the direct impacts of external and internal environments of an organization on behavior so as to explain the difference in the level of behavior. and indicate its existence. Motivation theories based on need satisfaction: motivation encourages people to act out of desire for need satisfaction. Process of need execution, which is complex, is defined as a process in which an individual has a need for something and find a way to satisfy it. In business, motivation is proven to have a strong impact on behavior (Herron et al., 1993; Renko et al., 2011). Bird (1998) argues that the intention of the founder is to determine the form and direction of an organization. In franchising, two theories of motivation which can be used to understand the motivation of Franchisee’s participation in the franchise system encompass content theory and process theory of motivation. In particular, motivation theories play an crucial role since they help to understand influences on the formation process of Franchisee’s intention. 2.2.1.2. Theory of planned behavior 9 Theory of planned behavior is the theory of the relationship between attitudes and behaviors, behavioral control behavior, and subjective factors influencing individual’s planned behavior (Ajzen, 1991). Researchers in various fields such as social psychology (Ajzen, 2002), tourism (Hsu, 2012), festivals and events (Horng et al., 2013; Shen, 2014), have successfully applied theory of planned behavior to clarify the impact of motivation on planned behavior and behavior. Theory of planned behavior is an extension of the theory of reasoned action (TRA) when adding perceived behavior control (Ajzen, 2002). In addition, this theory also examines the relationship between trust and ownership of the necessary resources as well as the opportunity to perform a particular behavior. A number of previous studies have demonstrated the impact of behavioral control factors on individual’s planned behavior. It means that planned behavior is expected to be higher when an individual holds control of a particular behavior (Buttle et al., 1996; Horng et al., 2013; Shen, 2014). According to Ajzen (1991), theory of planned behavior recognizes three key components that formulate the notion of intention related to attitudes toward behavior, subjective factors and behavioral control. In franchising, theory of planned behavior contributes to predict the attitudes and behaviors of franchisees in the intention to maintain participation in the franchise system. 2.2.1.3. Agency theory Agency theory was introduced by Jensen and Meckling in 1976. This theory refers to an agreement between a principal to another agent on behalf of them to implement some services and also empower agents some authority and self-determination within the agreed scope. Agency theory indicates that the purpose of contracts 10 with an agent is to allow transactions to be completed in an integrated manner. In the franchise operation, the nature of agency relationships is undoubtedly clear: Franchisors rely on Franchisees to represent them in order to perform certain services on their behalf, and simultaneously give franchisees certain rights and make their own decisions in the agreed scope. Agency theory also assumes that the problems arising in relationship between Franchisee - Franchisee is considered from the difference in purpose, information and risks of the parties (Bergen et al., 1992). Utilizing agency theory is seen as a tool to help franchisers to control the operations of the franchisee. 2.2.1.4. Relationship quality Dwyer et al. (1987) conducted the first study on relationship quality. By 1990, Crosby and Epsom had developed a system of the relationship quality theory. According to them, relationship quality is defined as the assessment of relationship strength and the expansion of relationships to meet the expectations and needs of the stakeholders. Quality of relationship between customers and companies is a measure of whether or not customers want to maintain a relationship with the service provider (Roberts et al., 2003). Relationship quality is considered in three main aspects: satisfaction, trust, and commitment (Hennig et al., 1997; Smith, 1998; Liang et al., 2005). In many industries today, relationship quality is a tool to maintain long-term relationships between sellers and buyers (Dwyer et al., 1987). This is similar to quality of relationship between Franchisor - Franchisee in the franchise business. Franchisee is the customer and the franchise contractor with Franchisor. Franchise 11 relationship is the type of long-term cooperation relationship. The timing of the relationship between the two parties reflects the quality of relationship between them (Ernández Monroy et al 2005). 2.2.1.5. Big Five personality traits This theory refers to the fundamental differences of the individual through five characteristics: extraversion, consensus, conscientiousness, emotional stability, and imagination (Costa et al., 1992). In franchising, Peterson et al (1990) state that Franchisee’s personality is one of the relationships that affect their perception of franchising. Studying the individual characteristics of Franchisees helps to understand the motivation for joining the franchise system (Lee, 1999). Previous research has shown that based on individual characteristics, it is possible to predict interoperability (Morrison, 1997), the Franchisee’s desire to maintain and develop the franchise system (Weaven et al., 2009). Additionally, according to Nguyen Dong Phong et al. (2009), franchising is a method of business that is legally symbiotic and different. Therefore, using this theory helps the franchisor to predict and decide which franchisees can join cooperation in building and developing the franchise system. 2.2.2. Hypothesis development Based on the literature review and research related to the intention to maintain participation in the franchise system, the author advocates the previous views and results of research conducted by Chen (2011) and Morrison (1997). Once franchisees have individual characteristics that are consistent with the franchisor's business practices and personal characteristics, both parties will create a good 12 relationship and tend to continue to cooperate in the future. Therefore, two hypotheses are proposed as follows: Hypothesis H1: Individual characteristics have the positive effect on the quality of relationship between Franchisor and Franchisee. Hypothesis H2: Individual characteristics have the positive effect on the intention to maintain the Franchisee’s participation in the franchise system. The level of understanding, trust and enforcement of franchise law, and the implementation of the franchise contract of Franchisee affect their relationship quality with the franchisor. In addition, when the franchisees have the belief that franchise law will protect their legal rights, they will be assured and tend to continue to participate in the franchise system. However, in many studies on domestic and foreign franchise activities, research has not yet considered how the implementation of franchise law affects the intention to maintain participation in the franchise system as well as the quality of relationship between the two parties. For the above reasons, the author suggested the following two hypotheses: Hypothesis H3: Franchise law enforcement has the positive effect on the quality of relationship between Franchisor and Franchisee. Hypothesis H4: Franchise law enforcement has the positive effect on the intention to maintain the Franchisee’s participation in the franchise system. The remarkable point in franchise operations is the symbiotic relationship between franchisor and franchisee. A franchise system is only considered successful when more and more franchisees are joining and maintaining the franchise system. Meanwhile, the intention to maintain the Franchisee’s participation in the franchise 13 system depends highly on their perception of the current relationship with the franchisor. The two parties often have different views and motives, but they all share one goal and the common interests in achieving business efficiency. Therefore, the two parties must have a certain binding and it is obviously necessary to maintain the long- term relationship quality to grow firmly in the market. As a result, relationship quality is becoming an important element for successful long-term cooperation in the franchise business (Ernández Monroy, 2005). The better quality of Franchisor – Franchisee relationship is the more possibilities Franchisee continues to cooperate and maintain participation in the franchise system. Thus, it can be hypothesized as follows: Hypothesis H5: Quality of Franchisee – Franchisee Relationship has the positive impact on the intention to maintain participation in the franchise system. H4 (+) H3 (+) H2 (+) H1 (+) Quality of Franchisor- Franchisee Relationship - Trust - Satisfaction - Commitment Individual characteristics Extraversion, consensus, conscientiousness, emotional stability, and imagination. Franchise Law Enforcement H5 (+) Franchisee’s Intention to Maintain Participation in the Franchise System Figure 2.1: Theoretical Framework 14 CHAPTER 3: RESEARCH METHODOLOGY 3.1. Research methods and sampling methods 3.1.1. Research methods - The qualitative research method was conducted by individual in- depth interviews with experts in the field of franchising to confirm the scientific nature of the theoretical framework and with 10 representative survey subjects to ensure the questionnaire was clear and easy to understand for the respondents. - Quantitative research methods were conducted at the stage of preliminary quantitative research aimed at preliminarily evaluating scales and subsequently formal quantitative research helps to test the theoretical framework and hypotheses. 3.1.2. Sampling methods - For franchise operations from foreign-owned companies entering Vietnam: Using a simple random sampling method. - For domestic franchise operations: Using a snowball sampling method. 3.2. Qualitative research - Qualitative research techniques: Qualitative research was conducted through individual in-depth interview techniques. - Data collection subjects for qualitative research are experts participating in individual in-depth interviews. To adjust the measurement scales to suit the surveyed subjects, the author discussed with 10 franchisees in Ho Chi Minh City and then the observed variables were last modified and designed into the preliminary questionnaire. 15 - The results of the study after the interviews with experts helped confirm the theoretical framework proposed in Chapter 2 and add five observed variables for the Four Scales of Trust, Satisfaction, Franchise Law Enforcement, and Intention to Maintain Franchisee’s Participation in the Franchise System. Thus, the theoretical framework has 10 measurement scales with a total of 49 observed variables. 3.3. Quantitative research 3.3.1. Preliminary quantitative research - Methods for conducting preliminary quantitative research: Measurement scales are adjusted through its reliability and validity (Exploratory Factor Analysis - EFA). - Results of preliminary qualitative research: The results of the reliability evaluation of the measurement scales show that from the first 49 observed variables, there were 14 rejected observed variables, of which “imagination” was rejected. Thus, the formal theoretical framework will consist of nine measurement scales with 35 observed variables. 3.3.2. Formal quantitative research - Questionnaire design: The formal questionnaire consisted of 35 questions appropriate with 35 observed variables of 9 measurement scales in the theoretical framework. Besides that, two filter questions and some related information were also included in the questionnaire. - On the survey method, direct interview method is considered as the method with the highest response rate. As described in section 3.1.2, this study uses a simple random sampling method (for franchise brands from foreign-owned companies entering 16 Vietnam) and snowball sampling method (for domestic franchise brands). - Sample size: The data analysis method used for this study is an analysis on Structural Equation Modeling (SEM). Bollen (1989) suggests that a sample size has at least 5 samples for an estimated parameter (Nguyen Dinh Tho et al., 2011). In this study, there were 35 estimated parameters and thus the sample size has at least 175. - Formal quantitative research: Measurement scales are further verified by Cronbach Alpha's reliability coefficient and Exploratory Factor Analysis (EFA). These measurement scales are then further validated by means of Confirmatory Factor Analysis (CFA). When using the CFA method, the study will measure the validity of the model with market information, evaluate scale reliability, convergent and discriminant validity. After validating the convergent validity, unidimensionality and discriminant validity, observed variables that satisfy conditions will be used to test the theoretical framework. 17 CHAPTER 4: RESEARCH RESULTS OF FACTORS INFLUENCING FRANCHISEE’S INTENTION TO MAINTAIN PARTICIPATION IN THE FRANCHISE SYSTEM 4.1. Descriptive analysis The quantitative research conducted a survey of 200 franchisees in Ho Chi Minh City, resulting in the collection of 178 valid samples. 4.2. Scale reliability According to the preliminary quantitative research in section 3.5.1, nine measurement scales should be evaluated for the reliability of the scale for the theoretical framework. Factors influencing the intention to maintain particpation in the franchise system. Results of the scale reliability test showed that two observed variables were rejected after the scale reliability was measured: PL5 (Franchise Law Enforcement) and Y3 (Intention to Maintain Participation in the Franchise System). Thus, 33 remaining observed variables met the scale reliability and will be used in the Exploratory Factor Analysis (EFA). 4.3. Exploratory Factor Analysis - Exploratory factor analysis is used for individual characteristics, relationship quality, franchise law enforcement: At the first EFA, three observed variables which did not achieve the discriminant validity were HL4, DT3 and TA5. The results of the fourth EFA showed that eight factors were extracted. Obviously, the observed variables of measurement scales such as extraversion, consensus, conscientiousness, emotional stability measured the individual characteristics; observed variables of measurement 18 scales including commitment, satisfaction and trust measured the relationship quality. - Exploratory factor analysis helps explore the intention to maintain participation in the franchise system: The results of the EFA for the intention to maintain participation in the franchise system indicated that there was a extracted factor. 4.4. Confirmatory Factor Analysis - CFA results for multidimensional concepts: After CFA for each concept, with 95% reliability, the correlation coefficient between the concepts was different from 1 (p <0.05). Thus, the scales have discriminant validity. - CFA results for the critical measurement model: To test the discriminant validity of all research concepts in the theoretical framework, research concepts are freely interrelated in the critical model. The results showed that all of the measurement scales have unidimensionality, composite reliability, cipheral variance, Cronbach's alpha reliability, content value, convergent validity, and discriminant value. Thus, these concepts gain discriminant validity. 4.5. Structural Equation Modeling (SEM) 4.5.1. Theoretical framework testing The SEM results show that the theoretical framework is consistent with market data: Chi-square / df = 1,275 (<2), TLI = 0.957 (> 0.9), CFI = 0.961 (> 0.9), RMSEA = 0.039 (<0.08). The results also show that both the theoretical framework and the linear model have the same degree of freedom. The Heywood phenomenon does not appear in the estimation of the SEM model and the standard error <| 2,58 |. 19 The non-standardized results of the major parameters in the model show that, with a 95% confidence interval, these causal relationships are statistically significant as p <0.05. Accreditation of theoretical framework used the Bootstrap method with a repeated sample size of N = 350. The results from the 350 samples were averaged, with very small deviations, which were not statistically significant at 95% confidence intervals. Therefore, it can be concluded that the estimates in the model can be reliably verified. 4.5.2. Hypothesis testing Based on the results in Table 4.13, it is possible to conclude that the scale of measurement of concepts in the theoretical is of theoretical relevance. So, the hypotheses about the relationship of concepts in the theoretical framework are all accepted. Specifically: - Hypothesis “Individual characteristics have the positive effect on the quality of Franchisee – Franchisee relationship (H1)” is accepted with p = 0.012. - Hypothesis “Individual characteristics have the positive effect on the Franchisee’s intention to maintain participation in the franchise system (H2)” is acceptable with p = 0.039. - Hypothesis “Franchise law enforcement has the positive effect on Franchisee’s intention to maintain participation in the franchise system (H3)” is accepted with p = 0.004. - Hypothesis “Franchise law enforcement has the positive effect on the quality of Franchisee – Franchisee relationship (H4) is acceptable with p = 0.044. - Hypothesis “The quality of Franchisee – Franchisee relationship has the positive impact on Franchisee’s intention to maintain 20 participation in the franchise system (H5)” is acceptable with p = 0.008. 4.5.3. Multivariate analysis - Multivariate analysis by number of years of operations: The Chi- squared difference between the two models is 2.835 and the difference of degrees of freedom is 5. Thus, this difference is not significant between the two models. (p-value = 0.725> 0.05). So the invariant model is chosen. This means that there is no difference in the interplay between concepts in the model over time. - Multivariate analysis by brand origin: Chi-squared difference value of the two invariant and variable models is 11.080 and the difference in degrees of freedom is 5. This difference is statistically significant between the two model (p-value = 0.016 <0.05). Thus, the variable model is chosen. This means that there is a difference in the relationship between concepts in the model between domestic and foreign franchise brand. 21 CHAPTER 5: CONCLUSION, MANAGERIAL IMPLICATIONS AND POLICY IMPLICATIONS 5.1. Conclusion The thesis on the factors influencing the Franchisee’s participation in the franchise system in Ho Chi Minh City was conducted to study, explore and build a framework of the factors affecting the intention to maintain Franchisee’s participation in the franchise system. The research employed a mixed-method approach, combining qualitative research and quantitative research. Qualitative research was conducted in the early stages of the research process, through interviews with 15 experts working in the franchise business and discussions with 10 franchisees. Thereby, the experts proposed the addition of five observed variables on four measurement scales: Imagination (one observed variable), Satisfaction (one observed variable), Franchise Law Enforcement (two observed variables) and the intention to maintain Franchisee’s participation in the franchise system (one observed variable). At the same time, it also helps make the questionnaire clearer and easier to understand. Quantitative research

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