The Motivations of an Emerging Company to Employ Franchising as an Expansion Strategy: A Case Study of Mecasa

Gaia Garrone

Student thesis: Master thesis

Abstract

This study aims to shed some light on the contradictory findings derived from the literature in regard to the decision to choose franchising as an expansion strategy. Given that franchising is a proven business strategy for both domestic and international expansion. The research is motivated by the lack of studies that are free from retrospective bias, meaning that they are based on the experience of entrepreneurs which have already opted for franchising, and are thus biased by ex post facto justifications. A case study of Mecasa, a German start-up on the verge of expansion, serves as a model for this study. Based on existing literature, seven primary reasons for franchising, derived from the main two theories of franchising – Resource Scarcity and Agency Theory – have been identified. Subsequently, these variables have been tested and evaluated through semi-structured interviews with the founders of Mecasa. The results indicate that Resource Scarcity motivations play a more important role in the initial stage of expansion, whereas Agency Theory plays a role just after the minimum economies of scale have been reached. In particular, franchising is considered to be a more affordable option for fast market penetration and as an effective approach to gain managerial talent and local market knowledge. Conversely, the main drawbacks associated with franchising were loss of control over the newly established unit and potential quality issues. The research findings contribute to the existing body of knowledge by reconciling the two main theories at the core of franchising, clarifying some of the existing issues, and confirming most of the variables at the foundation of these theories. Moreover, future research should further develop and confirm the new propositions found in this study.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages99
SupervisorsAndrea Baldin