Franchise Fee Structure And Its Influencing Factors In China

Franchising, regarded as the most prevalent business pattern in 21st, has beenlaunched in our country for only a few years, and now it touches a lot of manufactureand service industries and is developing more and more quickly. Related researches inthis area can not keep up with the practice so that useful advice has seldom been putforward from the academic in China. The two franchise fees especially play animportant role in contracts as well as the business success for both the franchisors andfranchisees and hence the growth of the franchise system. So the fee structure and itsinfluencing factors are comprehensively studied in this dissertation.First the basic principles of franchising which consists of resource scarcitytheory, agency theory, transaction cost theory and property theory are reviewed ingreat detail. Then according to the franchising status in our country, upper-agencytheory and property theory are employed as the theoretical basis and the data offranchise system level are analyzed by ordinary least squares regression. In this way,the fee structure and its influencing factors are investigated in depth.The empirical results indicate that the hypotheses based on upper-agency theoryand property theory are well supported. The initial fee is used to recoup the cost ofhelping the franchisee building a new outlet with the intangible investment and theinitial services, and the royalty is used to maintain the brand strength and supportservices in the system level. These two fees show significantly positive relationshipbetween each other.For the franchise enterprises, this research proposes a reasonable criterion for feestructure design. The initial fee positively related to the total investment required forthe outlet should be imposed as a means of franchisee's self-selection. And the royaltyshould be designed according to the sales per outlet in order to provide properincentive to the franchisees.