The Determinants of Franchisee Performance: An Empirical Investigation

Abstract

DR. GRAHAM FENWICK IS A RESEARCH associate in the Department of Management, University of Canterbury, New Zealand. Marnie Strombom graduated from Canterbury and is now a business associate with EDS (New Zealand) Ltd. This paper seeks to understand the importance of ownermanager background characteristics and outlet location as determinants of franchisee performance within a wellestablished New Zealand retail sports goods franchise. In particular, it addresses debate over whether franchisees should be regarded as entrepreneurs or more as employees of the franchisee, as well as the effect of entrepreneurial behaviour on franchisee performance. The findings point to important lessons for franchisors in selecting franchisees and locations for outlets. Background characteristics are not good indicators of performance by franchisees. Franchisees showing strong entrepreneurial tendencies and those with prior experience in managerial roles that were similar in terms of required knowledge, skills and abilities, and in terms of managerial duties and tasks performed, tend to perform poorly. Managerial competence is not necessarily a useful indicator of future performance. Thus, applicants with little or no managerial background may be better suited to franchising and cause less conflict. Finally, location is a very important influence on outlet performance and must be considered on at least two scales, size of the market and location in a mall.