DETERMINANTS OF THE GOVERNANCE STRUCTURE...

International Marketing Review

DETERMINANTS OF THE GOVERNANCE STRUCTURE OF THE

INTERNATIONAL FRANCHISE FIRM A Case Study Analysis in

the Automotive Rental Industry

Journal: International Marketing Review

Manuscript ID IMR-10-2015-0208.R3

Manuscript Type: Original Article

Keywords: International franchising, Governance modes, Integrative model, Theory-testing case study, Automotive rental industry


Accepted for publication!

Maria Jell-Ojobor, Josef WindspergerUniversity of Vienna, Department of Management


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DETERMINANTS OF THE GOVERNANCE STRUCTURE OF THE

INTERNATIONAL FRANCHISE FIRM

A Case Study Analysis in the Automotive Rental Industry

ABSTRACT

Purpose. The governance structure of international franchise firms varies from higher control modes, such as wholly-owned subsidiaries and joint venture franchising, to lower control modes, such as area develop-ment and master franchising. Based on organizational economics, strategic management and international business perspectives, this research uses the case study analysis to empirically evaluate an integrative mod-el on the franchisor’s choice of international governance modes.

Methodology. The study applies qualitative methods, such as in-depth case analysis, to investigate a large set of variables that influence the governance structure decision of the international franchise firm. Specifi-cally, it applies a theory-testing case study with two major competitors in the European automotive rental industry, i.e. Europcar and Sixt. Theory-testing case research is justified by the lack of explanatory re-search due to the complexity of the franchisor-franchisee relationship phenomena, such as the factors that influence the franchisor’s choice of international governance modes. The investigation of the complex governance structure phenomenon requires a holistic analysis.

Findings. The case study shows that environmental, behavioral, transaction-specific, resource-based (sys-tem-specific, market-specific, financial resources) and international strategy considerations are important determinants of the governance mode decision of the international franchise firm.

Research implications. The study responds to the recent call in organizational economics, marketing, strategic management and international business literature to develop and test a multi-theoretical frame-work to explain the governance structure of inter-organizational networks, such as franchise networks.

Originality/value. Few previous studies in international franchising have used more than one theoretical perspective to explain the governance structure of the international franchise firm. This study contributes to the theory-testing case study literature by applying a rigorous method of conducting case research. This includes developing a theoretical framework and a systematic research design. A systematic research de-sign requires a holistic analysis by investigating the international franchise governance modes from a va-riety of theoretical perspectives which are the organizational economics, strategic management and the strategy-structure perspective.

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INTRODUCTION

The international expansion of franchise firms is a dynamic process that is subject to constantly changing

environment conditions. By responding to the specific requirements of host markets the franchisor can

choose between a variety of governance modes to operate the franchise network abroad. The major gov-

ernance modes of international franchise firms are wholly-owned subsidiaries, joint venture franchising,

area development franchising and master franchising (Konigsberg, 2008). These governance modes are

characterized by a certain level of control, referring to ownership, decision and residual income rights the

franchisor allocates between the headquarters and the foreign operations (Jell-Ojobor and Windsperger,

2014). For instance, in joint venture franchising the franchisor and the foreign joint venture partners share

asset ownership, decision rights and residual income rights, while in case of master franchising the master

franchisors have only decision and residual income rights (Mumdziev, 2011). While the franchise govern-

ance structure analysis attracts growing research attention, little is known about the decision-making con-

text of franchisors to choose one governance mode over the other (e.g. Walker and Etzel, 1973; Hackett,

1976; Chan and Justis, 1990, 1992; Zietlow, 1995; Ryans et al., 1999; Burton et al., 2000; Baena, 2013).

Moreover, existent studies hardly apply multi-theoretical perspectives, based on transaction cost and agen-

cy-based perspectives (Fladmoe-Lindquist and Jacque, 1995; Contractor and Kundu, 1998a,b; Burton et

al., 2000; Sashi and Karuppur, 2002; Castrogiovanni et al., 2006; Garg and Rasheed, 2006; Chen, 2010;

Baena, 2013) and on resource- and organizational capabilities-based concepts (Contractor and Kundu,

1998a,b; Erramilli et al., 2002). Therefore, the research deficit in the franchise and market entry literature

relates to the scarcity of theoretical and empirical studies that integrate different theoretical views to ex-

plain the governance modes of the international franchise firm. In response to this deficit, this paper tests

an integrative model based on organizational economics (i.e. agency theory, transaction cost theory and

property rights theory) and strategic management perspectives (i.e. resource-based and organizational ca-

pability theory) by conducting a case study analysis.

We use a confirmatory research method by applying a rigorous method of conducting case research that

includes developing a theoretical framework and a systematic research design (Barratt et al., 2011).

“Through the development of more rigorous methods of conducting case research, the case study…can be

effectively used to test theory in complex environments” (Johnston et al., 2011: 211). Why do we choose

theory-testing case research? Theory-testing case research is mainly justified by the lack of explanatory

research due to the complexity of the business-to-business relationship phenomena in franchising (Bono-

ma, 1985), particularly the influencing factors on the franchisor’s choice of international governance

modes. A systematic research design requires a holistic analysis of the complex phenomenon (i.e. the in-

ternational franchise governance structure) from a variety of theoretical viewpoints (Ghauri, 2004; Ghauri

et al., 2009).

What is the contribution of this study? First, since few previous studies in international franchising have

applied more than one theoretical perspective to explain the international franchise governance modes, this

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study is a first step to close the empirical gap by applying Jell-Ojobor and Windsperger’s (2014) integra-

tive framework to the automotive rental industry. We conduct an in-depth, theory-testing case study analy-

sis by collecting data from two leading international car rental systems, i.e. Sixt and Europcar. In our case

study analysis, we extend this governance model by including the international strategy variable (i.e.

standardization and adaptation strategy) as antecedent of the international governance mode choice. Based

on the strategy-structure view of Chandler (1962), we argue that the franchisor’s strategy influences his

choice of the international governance modes. Second, the results of this study also contribute to the recent

literature on foreign operations as mode combinations and modifications (Petersen and Welch, 2002; Beni-

to et al., 2009, 2011). The findings indicate that franchisors combine franchise modes according to the

desired level of control over foreign operations as ‘mode packages’ (Benito et al., 2012). Third, we re-

spond to the recent calls for the use of more qualitative methods when explaining complex governance

structures in international business (e.g. Hurmerinta-Peltomäki and Nummela, 2006; Sinkovics and Ghauri,

2008; Welch et al., 2011; Benito et al., 2012). Although several case studies have been conducted in inter-

national franchising (e.g. Preble et al., 2000; Petersen and Welch, 2000; Jones, 2003; Frazer, 2003; Pizanti

and Lerner, 2003; Doherty and Alexander, 2004; Choo, 2005; Szulanski and Jensen, 2006; Picot-Coupey,

2006; Altinay and Miles, 2006; Doherty, 2007, 2009; Paik and Choi, 2007; Choo et al., 2007; Chen, 2010;

Brookes and Roper, 2011; Forte and Carvalho, 2013), none of those applied a theory-testing case approach

(Tsang, 2013). As Tsang (2013) and others (Bitektine, 2008; Doz, 2011; Birkinshaw et al., 2011) point out,

particularly the case study methodology has a great potential to test theory-based frameworks on govern-

ance structures that result in a large set of complex, interconnected variables. Hence, our study adds to the

theory-testing case study literature by applying a rigorous method of conducting case research (Bitektine,

2008; Gerring, 2017). In contrast to many qualitative case studies that miss sufficient details in research

design, data collection, and data analysis (Barratt et al. 2011), we address this deficit in our theory-testing

case study.

The paper proceeds as follows: In section two, we present the research model and the hypotheses on the

governance structure of international franchise firms. In section three, we give an overview of the method-

ology used and a description of the sample cases. In section four, we discuss the case study findings. Final-

ly, we conclude with discussion and implications.

OVERVIEW OF THE RESEARCH MODEL AND HYPOTHESES

Based on Jell-Ojobor and Windsperger (2014), this model distinguishes the following governance modes

of international franchise firms: Wholly-owned subsidiary (WOS), joint venture franchising (JVF), area

development franchising (ADF) and master franchising (MF). The franchisor’s level of control increases

from master franchising, area development franchising, joint venture franchising to the wholly-owned sub-

sidiary because more ownership and decision rights are allocated to the franchisor. Compared to WOS,

JVF and ADF, MF agreements do not assign ownership rights but only decision and residual income rights


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between the franchisor and the master franchisor (Mumdžiev, 2011).

The model derives several hypotheses from transaction cost theory (TCT), agency theory (AT), resource-

based theory (RBT) and organizational capabilities theory (OCT). The following factors influence the gov-

ernance structure of the international franchise firm: System-specific assets, local market assets, financial

assets, environmental and behavioral uncertainty, and transaction-specific investments. In addition, we

respond to Jell-Ojobor and Windsperger’s recommendations also to include the international strategy theo-

ry perspective into the analysis. Therefore, we complement Jell-Ojobor and Windsperger’s (2014) pro-

posed set of hypotheses by the international strategy hypothesis. Furthermore, we fine-tune the traditional

transaction cost predictions by distinguishing environmental uncertainty according to three dimensions:

cultural, economic and institutional uncertainty. Figure 1 illustrates the research model which will be ex-

plained in the following.

--- INSERT FIGURE 1 HERE ---

International Strategy

Based on the structure-follows-strategy view of Chandler (e.g. Chandler, 1962; Leitmannslehner and

Windsperger, 2012), the international strategy theory (e.g. Bartlett and Ghoshal, 1989) argues that a firm’s

foreign operation mode must be aligned with its international strategy (Grøgaard, 2012). The international

strategy theory distinguishes between two major strategies: global and multi-domestic (multinational)

strategy (e.g. Harzing, 2002; Brouthers and Hennart, 2007; Cui and Jiang, 2008; Pehrsson, 2008; Grøgaard,

2012). A global strategy is chosen in highly competitive industries with interconnected product markets,

which enables the exploitation of scale and scope advantages and the diffusion of standardized products.

For instance, Huszagh et al. (1992) showed that globalization and technology advancements lead to a con-

vergence of consumer tastes, therefore diminishing product differentiation barriers for international fran-

chisors. In comparison, multi-domestic strategies are applied in less competitive industries with

predominately domestic competition, whereby the focus lies on product adaptation to local peculiarities

and requirements (Harzing, 2000).

If we apply this reasoning to international franchising, it can be argued that firms that face global pressure

will pursue a standardization strategy in markets that demand interconnected products (Harzing, 2002) of a

homogenized, high-quality standard. By contrast, firms that face pressure for local responsiveness, where

the focus is on gaining competitive advantage through first mover advantages as opposed to cost savings

through standardization (Kaufmann and Eroglu, 1999), will pursue an adaptation strategy. These strategies

have to be aligned with the governance structures (Grøgaard, 2012). Respectively, Pak (2002) and Dunning

et al. (2007) confirmed that UK and US international franchisors applied equity modes of entry to gain

global competitiveness with the accumulation of new knowledge and organizational competences in com-

petitive foreign markets. Similarly, they showed that US and UK international franchisors recognized the

significant role of foreign franchisees in the efficient and quick penetration of host markets. Consequently,


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if the international franchise firms pursue a standardization strategy, they are more likely to use higher

control modes, and if they pursue an adaptation strategy they are more likely to use lower control modes.

H1a: Standardization strategy is positively related to the franchisor’s tendency to use of higher

control modes.

H1b: Adaptation strategy is positively related to the franchisor’s tendency to use of lower control

modes.

System-specific Assets

The franchisor’s system-specific assets refer to knowhow and capabilities, such as brand management, site

location, store layout, product development and procurement management. System-specific assets are con-

verted into final products and services, which comprise all features of the franchise business format, such

as technological or proprietary knowhow, communication systems, accounting systems, software, store

layout, customer competence, sales and marketing strategies, R&D, advertising and promotion and moni-

toring techniques. The franchise system-specific assets have a high rent-yielding potential for the franchise

firm, because they are difficult to transfer across firm boundaries and thus cannot be easily imitated (Sarkar

and Cavusgil, 1996; Luo, 2000). Accordingly, based on the resource-based and organizational capabilities

theory, the franchisors will choose higher control modes (such as joint venture or wholly-owned subsidi-

ary) as international governance form when high monitoring and knowledge transfer capabilities are re-

quired to ensure efficient implementation and deployment of the system-specific assets in the host

countries:

H2: The more important the franchisor’s system-specific assets for value creation, the higher the

franchisor’s tendency to use higher control modes.

Local Market Assets

In cross-border franchising, a franchise package may only be successfully implemented if it is adapted to

the requirements of the foreign market. Due to the firm specificity (i.e. heterogeneity and non-

transferability) of local partners’ market assets, they are difficult to acquire by the franchisor. According to

the resource-based and organizational capabilities theory, the greater the rent-yielding potential of the local

market assets of the foreign partners, the higher the franchisor’s propensity to use lower control modes,

such as area development and master franchising (Chan and Justis, 1990; Preble et al., 2000; Pak, 2002;

Jones, 2003; Dunning et al., 2007; Choo et al., 2007):

H3: The more important the franchise partners’ local market assets for the value creation of the

network, the higher the franchisor’s tendency to use lower control modes.


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Financial Assets

International franchise firms can finance system growth more easily and less costly when they have access

to the local partners’ financial resources (e.g. Oxenfeldt and Thompson, 1969; Caves and Murphy, 1976;

Gonzalez Diaz and Solis-Rodriguez, 2012). In this situation, the foreign partners’ financial assets support

the internationalization and successful implementation of the franchise business format in the host country.

Therefore, from a resource-based perspective, franchisors constrained in expanding their businesses in the

foreign market by limited financial resources will favor lower control modes, such as joint venture fran-

chising, area development and master franchising:

H4: The higher the financial resources required for implementation of the franchise concept in the

foreign market, the higher the franchisor’s tendency to use lower control modes.

Environmental Uncertainty

According to the transaction cost theory, higher environmental uncertainty, due to the franchisor’s inability

to evaluate the cultural, economic and institutional peculiarities of host countries accurately, results in high

transaction costs. Depending on the specific dimensions of environmental uncertainty, i.e. cultural, eco-

nomic and institutional dimension, franchisors choose different governance modes to effectively reduce the

challenges of environmental uncertainty in host countries.

Cultural uncertainty results from a lack of knowledge of the local customs and culture (Miller, 1992,

1993). It reflects differences in language, business practices, social structure such as income, education and

gender role, ideology, religion, work ethic and consumer preferences (Hennart et al., 1998). It affects man-

agerial and operational business practices, communication and performance evaluation, as well as the pro-

vision of attractive products and services to local customers (e.g. Eroglu, 1992). Franchise partners who are

located geographically close to customers and are familiar with the local culture will be better able to mod-

ify products, services, and promotional strategies to suit the local expectations and requirements (Sashi and

Karuppur, 2002) as well as adapt administrative procedures, such as management techniques and monitor-

ing, in order to function in the foreign business environment. For instance, Chan and Justis (1990, 1992)

observed that due to the unfamiliarity with the local market and the need for business format adaptation to

culturally sensitive local demands, US franchisors chose master franchising as an entry strategy into the

markets of East Asia and the European Community.

H5a: The higher the transaction costs due to cultural uncertainty, the higher the franchisor’s ten-

dency to use lower control modes.

Economic uncertainty refers to the volatility of the economy and comprises the instability of the demand

and competition in host countries. In situations of competitive uncertainty, the franchisor is unable to pre-

dict the number of new competitors that will be entering the host market and to reply with competitive

action-taking in due time, such as aggressive pricing, advertising and distribution strategies. Demand fluc-

tuations, resulting from frequent technological and/or economic changes, involve instability in the overall


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industry and make the forecast of future sales difficult. An uncertain, changing demand and/or competitive

situation create the need for strategic change, technological innovation and product adaptation (Sanchez-

Peinado and Pla-Barber, 2006; Kor et al., 2008). This requires more local information processing capacity

by delegating coordination tasks to local partners (Williamson, 1975; Gulati et al. 2005). Hence franchisors

can effectively reduce the challenges of environmental uncertainty in host countries by making use of the

partners’ higher local information processing capacity for dealing with human capital, suppliers, customers

and competitors (e.g. Fladmoe-Lindquist, 1995; Contractor and Kundu, 1998a, 1998b; Burton et al., 2000;

Sashi and Karuppur, 2002; Grewal et al., 2011). In order to cope with these unforeseen contingencies in the

host market, franchisors will adopt lower levels of control, which allow them to flexibly adapt to the

changing environment by avoiding high switching and adaptation costs.

H5b: The higher the transaction costs due to economic uncertainty, the higher the franchisor’s ten-


Institutional uncertainty refers to differences and changes in the legal, regulatory and political environ-

ment. In international franchising, institutional uncertainty is frequently associated with a high degree of

government interference, high corruption and weak legal protection. High regulatory risk due to missing

legal enforcement and protection mechanisms in case of disputes and copyright violation can result in high

litigation costs and have a severely negative impact on a firm’s brand name and reputation. Especially in

international service franchising, the core elements of the standardized business format, such as advertis-

ing, marketing and sales techniques, are well-documented in the franchise manual, and are therefore easily

imitable. Since franchising requires trust (Dant and Nasr, 1998; Doherty and Alexander, 2004), honesty

and respect for the law (Alon, 2006), international franchisors will choose higher levels of control, such as

wholly-owned subsidiary and joint venture franchising, when institutional uncertainty is high in host coun-

tries.

H5c: The higher the transaction costs due to institutional uncertainty, the higher the franchisor’s

tendency to use higher control modes.

Transaction-specific Investments

Based on transaction cost theory, the partnership between the franchisor and franchisees requires bilateral

investments in transaction-specific assets to realize the rent-yielding potential of firm-specific assets

(Madhok and Tallman, 1998; Ghosh and John, 1999). These bilateral transaction-specific investments lock

the local franchise partners into a relationship with the franchisor in the host market (Anderson and Gat-

ignon, 1986), thereby creating mutual dependency that results in more cooperative behavior to realize the

relationship-specific rents (e.g. Brown et al., 2000; Rokkan et al., 2003). Depending on the symmetry or

asymmetry of transaction-specific investments between the franchisor and her/his local partners, the fran-

chisor will choose either lower or higher control modes (see Figure 1):


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H6a: The higher the franchisor’s transaction-specific investments relative to the franchise partners,

the higher the franchisor’s tendency to use higher control modes.

H6b: The higher the franchise partners’ transaction-specific investments relative to the franchisor,

the higher the franchisor’s tendency to use lower control modes.

Behavioral Uncertainty

According to the agency theory, agency problems arise from behavioral uncertainty, especially when mar-

ket conditions are not easily predictable and information asymmetry and/or geographic distance are high

(e.g. Rubin, 1978; Brickley et al., 1991; Lafontaine, 1992; Alon and McKee, 1999; Fladmoe-Lindquist and

Jacque, 1995; Castrogiovanni et al., 2006). With franchise contracts, the local partners are residual claim-

ants and face high-powered incentives to maximize effort in maintaining high service and product quality

thereby reducing agency costs (e.g. Rubin, 1978; Eisenhardt, 1988, 1989; Minkler, 1990; Fladmoe-

Lindquist, 1991). Particularly, lower control modes, such as international multi-unit (area development)

franchising and master franchising, may mitigate agency problems, e.g. adverse selection, free-riding or

inefficient information sharing, through long-term goal alignment between the franchisor and local partners

(e.g. Shane, 1996; Garg and Rasheed, 2006; Chen, 2010; Gillis and Castrogiovanni, 2012). Consequently,

the monitoring cost-increasing effect of behavioral uncertainty increases the franchisor’s propensity to

choose lower control modes, such as area development and master franchising:

H7: The higher the monitoring costs due to behavioral uncertainty, the higher the franchisor’s ten-


Table 1 summarizes the hypotheses.

--- INSERT TABLE 1 HERE ---

RESEARCH METHODOLOGY

Our case study analysis applies an explanatory, theory-testing and theory-refining research design (Yin,

2008; Dul and Hak, 2008) to examine whether the theoretical patterns, derived from the integrative fran-

chise governance model (see figure 1 and table 1), are compatible with the empirical patterns. The theory-

testing case study can provide insight into the yet little-understood causal relations of strategic, environ-

mental, behavioral and asset-specific factors influencing the governance structure of the international fran-

chise firm.

Operationalization of the Theoretical Constructs

Based on the integrative framework, we operationalize the determinants of the governance mode choice

which guides our data collection and analysis by using the pattern matching approach. In order to move


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from the theoretical concept to a systematized concept for scoring and classifying cases, measures are de-

veloped which capture the meaning of the theoretical constructs. Indicators represent systematic scoring

procedures which can range from simple measures to complex aggregated index (Adcock and Collier,

2001:530). The operationalization task is crucial to preserve a chain of evidence when the investigator

“shifts from data collection to within-case analysis, to cross-case analysis and to overall findings and con-

clusions” (Yin, 1981: p.63). Maintaining a chain of evidence enlightens the conclusion-finding process. It

contributes to the construct validity of the case study.

This case study’s chain of evidence started with the definition of research questions and the adoption of

Jell-Ojobor and Windsperger’s (2014) research model and hypotheses (see figure 1 and table 1). Now we

proceed with the operationalization of indicators by taking into consideration research results of previous

works in international franchising. The developed indicators refer to the dependent and independent varia-

bles of the international franchisor’s governance structure model which are the franchisor’s level of con-

trol under the various governance modes (as dependent variable) as well as the international strategy,

system-specific assets, local market assets, financial assets, environmental uncertainty, transaction-specific

investments and behavioral uncertainty (as independent variables). Table 2 (columns four and five) sum-

marizes the indicators for the dependent and independent variables.


Data Collection and Analysis

The operationalization of the theoretical concept is an important task for ensuring data collection, coding

and analysis. Based on the operationalized indicators of the theoretical concept (theoretical patterns) inter-

view questions were developed for data collection. The collected data was coded on the basis of operation-

alized indicators (empirical patterns) and then compared with the theoretical patterns in the process of

hypotheses-testing (pattern matching). In the following, we describe the processes of data collection and

analysis.

Our research design is built on Yin’s (2008) recommendations and chooses the international franchise firm

as the unit of analysis. In this context, cases are selected on basis of providing sufficient evidence to sup-

port the integrative framework (Johnston et al., 1999). The domain of this case study is applied to the au-

tomotive rental industry. This industry is represented by well-established international franchise systems

applying different franchise modes for organizing foreign franchise operations. Competition in the capital-

intensive automotive rental industry is fierce, restricting the market to a few dominant global players that

sustain their market leader position through consolidation with rival companies (Jacobsen, 2004) and ag-

gressive diffusion of the franchise network. Table 3 provides descriptive information on the candidate

firms of the case study sample domain.



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Our case study design follows theoretical sampling and hence literal replication logic where cases are pur-

posely selected to provide compelling support for the hypotheses developed from the prior research

framework (Miles and Huberman, 1994; Perry, 1998; Johnston et al., 1999; Voss et al., 2002; Altinay and

Wang, 2006). The goal is to replicate and extend the emergent theory (Eisenhardt, 1989; Parkhe, 1993;

Johnston et al., 1999; Yin, 2008) and hence strengthen the external validity and generalizability of the re-

sults (Yin, 2008). Therefore, in order to avoid cultural distortion of results, we limit case selection to one

geographic domain (Dul and Hak, 2008) and only include European-rooted franchise systems in the final

sample. Consequently, Avis Europe, due to their strong ties with American cooperation partner Avis US,1

American Hertz and Enterprise do not qualify as candidate cases. German-headquartered Sixt who are

holding over 70% of the European automotive rental market share, together with Europcar, the global lead-

er that were acquired from German Volkswagen AG by the French investment company Eurazeo in 20062,

comprise the final ‘information rich’ (Patton, 1990) sample cases.

Data was collected between April 2009 and January 2010, primarily through a series of focused, open-

ended, face-to-face interviews with the international franchise expansion directors at Sixt and Europcar

headquarters in Germany and France, following a semi-structured interview guide which is included in

appendix 1. Recording the interviews with a tape recorder provides an accurate rendition of the infor-

mation. This and the interview guide as part of the research protocol contribute to the reduction of observer

bias and greater reliability of results (Voss et al., 2002; Yin, 2008). Based on Brislin’s (1970) recommen-

dations, translation from German and French into English and back-translation to exclude eventual transla-

tion errors is conducted by native speakers with scientific expertise in organization management.

The collected data is transcribed and reviewed to identify gaps and areas requiring further clarification.

Specific information received by one case raises the need to observe those areas also in the other case.

Subsequently, the investigator arranged for follow-up telephone interviews with the franchise directors to

clarify information gaps and discrepancies. Overall, the interview lengths were between 45 minutes to two

hours and accumulated in seven hours and 40 minutes of interview data. In addition, following the process

of data triangulation (Eisenhardt, 1989; Johnston et al., 1999; Yin, 2008), the data is corroborated with

secondary sources of evidence such as firm-internal documents, annual audit reports, scientific papers,

newspaper articles and web-based information.

We apply the pattern matching logic to examine whether the findings of the case study (empirical patterns)

are consistent with the hypotheses of the research model in table 1 (theoretical patterns). The advantage of

pattern matching lies in its potential to use complex hypotheses and concepts and to analyze data from a

multivariate perspective (Trochim, 1989). This supports the internal validity of the case study (e.g. Gibbert

et al., 2008; Dul and Hak, 2008), which is relevant during the process of data analysis and refers to the

causal relationships between variables and results.

1 http://www.avis-europe.com/our-company/avis-europe-at-a-glance.aspx 15.03.2011. 2 http://www.europcar.com/EBE/module/render/Our-history 15.03.2011.


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Supported by the application of Atlas.ti software, data analysis starts with an in-depth, within-case analysis

“to become intimately familiar with each franchise system as a stand-alone entity” (Eisenhardt, 1989,

p.540). Following Miles and Huberman’s (1984, 1994) recommendations on case study data analysis, in-

terim data reduction is obtained by relating the corroborated data to the beforehand operationalized indica-

tors, thus generating (empirical) explanatory pattern codes. This is followed by analytical data

fragmentation with the open coding technique. Thereby, events, ideas, observations and sentences were

extracted from the multiple data sources and given conceptual (codes) and similar labels, which were

grouped together to form categories and sub-categories. Categorizing the transcribed data eventually re-

sulted in new or different concepts, thus leading to a constant refinement of the initial explanatory pattern

codes. The constant questioning and comparisons while reducing the data with open coding technique de-

crease the investigator’s risk of subjectivity and research bias. This first level analysis resulted in 40 codes

and 120 sub-codes within Atlas.ti software. By applying axial coding, data is organized by relating catego-

ries to sub-categories in a rational manner. During the coding process, several initial categories were elimi-

nated from the coding scheme, while some concepts turned out to fit better with other categories (Strauss

and Corbin, 1990). In this second level of analytical coding, codes and sub-codes were categorized into 19

code families within Atlas.ti to represent their combined relevance in explaining respective dependent and

independent concepts.

In a second step, with cross-case analysis, those factors are identified that influenced the international fran-

chise systems’ applied governance structures with the goal “to assemble the theory-supporting evidence

from each case” (Johnston et al., 1999, p.209). The individual cases are analyzed to search for within-

group similarities and/or differences (patterns) (Eisenhardt, 1989; Voss et al., 2002) and data are used in an

aggregated cross-case analysis (Yin, 1981, p.64; Yin, 1994, p.135) by being organized around the research

questions and hypotheses. If individual cases reveal contrasting ‘stand-alone’ results, appropriate examples

are provided separately. However, no attempt is made to present the single franchise systems as individual

case studies (Yin, 1994, p.137).

The final coding scheme is summarized in Table 2. The first five columns refer to the predicted patterns

including the hypotheses, theories, theoretical constructs, operationalized indicators and evidence from the

literature. Columns six, seven and eight capture the observations of the empirical analysis as empirical

patterns, summarized in code families, main codes and sub-codes. In case the empirical patterns match

with the theoretical ones, we may assume that the theory-based hypotheses are supported by the empirical

data.

CASE STUDY FINDINGS

In the following, first we discuss the major international franchise modes that we observed in the automo-

tive rental industry, and thereafter, we analyze the determinants of the governance modes of Sixt and Eu-


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12

ropcar. Appendix 2 includes selected quotations (empirical patterns) that specify the specific franchise

modes as well as the determinants influencing Sixt and Europcar’s international governance mode choice.

Major International Franchise Modes

The case study analysis of Sixt and Europcar’s franchise internationalization strategies focuses on three

foreign governance modes which can be differentiated according to the franchisors’ degree of control (see

figure 2). Both franchise systems started international expansion via the establishment of wholly-owned

subsidiaries (WOS) through organic growth or takeovers in the ‘big’ European markets where franchisors

contribute all necessary financial and human resources and bear full financial risk over the foreign fran-

chise operations. WOS organize local franchise network expansion through company-owned and fran-

chised outlets (plural form). In France, for example, Sixt own stations located in heavy traffic areas and, in

addition, grant licenses to more than 30 franchisees, some of them own even more than one station (domes-

tic multi-unit franchising). Europcar use the plural form in France whereas in UK and Spain they applied a

buy-back strategy to convert franchise stations into company-owned ones. Apart from their system head-

quarters in Germany, Sixt established WOS in France, UK, Spain, Austria, Switzerland, the Netherlands,

Belgium and Luxembourg, thereby possessing over 1.000 corporate stations. Europcar with their corporate

headquarters in France own WOS in UK, Spain, Italy, Portugal, Germany and Belgium with roughly 1.800

corporate stations. Furthermore, in 2008, they took over their Australian master developer to establish di-

rect presence outside of Europe in the Asia Pacific region.3


In the remaining countries of Europe, Africa, Middle East, Asia-Pacific and South and Central America,

Sixt and Europcar expand their franchise networks via master development franchise agreements (MDF).

Consistent with Konigsberg’s definition (2008: p.127ff), MDF is a special form of multi-unit franchising4,

such as area development franchising, established directly between the franchisor and the local partners,

i.e. master developers. Under area development franchising, the area developer is granted the right to es-

tablish and operate a certain number of outlets within a particular territory, but is not allowed to sub-

franchise. The scope and responsibilities of MDF go beyond those of area development franchising, as

MDF covers a much greater geographic region, usually the entire country. MDF is therefore used in the

same circumstances as master franchising, with the exception that the master developer’s right (under

MDF) to sub-franchise is restricted to specific conditions. The empirical evidence of MDF confirms the

recent trend toward higher control, which, under master franchising, is indirect and divided between fran-

chisor and master franchisee on the one hand, and master franchisee and sub-franchisees on the other hand

(Konigsberg, 2008: p.131). Consequently, relating to the recent literature on ‘mode combinations’ (Pe-

3 Europcar Activity Report 2009: p.28.

4 Multi-unit franchising is analyzed, for example, in Kaufmann and Dant (1996), Grünhagen and Mittelstaedt (2002, 2005), Garg and Rasheed (2006), and Grewal et al. (2011).


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13

tersen and Welch 2002; Benito et al. 2009, 2011), our findings modify Jell-Ojobor and Windsperger’s

(2014) original governance structure model by adding MDF, which combines features of both area devel-

opment franchising and master franchising agreements, i.e. the need to own and operate franchise car rental

stations by the master developer (area development franchising-feature) in the entire country without any

presence and significant intervention of the franchisor, coupled with the right to adapt the franchise system

to the local institutional, economic and cultural environment (master franchising feature). In total, Sixt’s

master developers own and operate around 1.000 franchise outlets while Europcar’s master developers

possess around 3.500 franchise outlets around the world.

Finally, both franchise systems apply full or shared control modes in the Asia Pacific region where Europ-

car strategically bought back the Australian master developer to establish direct presence in 20085, fol-

lowed by the allocation of expatriate personnel in Bangkok, and Sixt entered into a joint venture (JV)

partnership in Singapore. These higher control modes outside Europe provide international franchisors

with the geographic proximity to penetrate the neighboring Asian countries with MDF agreements.

Traditionally, in JV agreements control in terms of ownership and decision rights is shared between the

franchisor and local JV partner (Windsperger et al., 2009). Sixt and Europcar both have objections toward

entering into JV agreements and allocating own financial resources and know-how. However, Europcar

advise that due to high institutional and behavioral uncertainty in specific regions, such as China, joint

venture franchising (JVF) is the only efficient way to bypass market entry barriers and safeguard against

trademark violation. Whereas, Sixt’s JV company in Singapore possesses restricted control rights to only

provide operational support with the development of the Asia Pacific region while the local MDF agree-

ments are established directly by the franchise system headquarters. Therefore, these organizational modes

may not be considered as franchise modes in the traditional sense where, according to Konigsberg, “the JV

company in its capacity as [area] developer…or…in its capacity as sub-franchisor [‘master franchi-

sor’]…establishes the franchise business in the foreign country” (Konigsberg, 2008: p.237). Rather, they

relate to the literature on ‘mode modifications’ (e.g. Benito et al., 2009). They can be considered as ‘devel-

opment organizations’ to assist the franchisor in developing specific regions with local MDF partnerships,

e.g. for screening and monitoring of potential franchise candidates, but not entering into franchise agree-

ments directly with the local master developers which remains in the responsibility of the system headquar-

ters.

After a period of local learning and familiarization with the host market characteristics, local operations

and routines become less specific and heterogeneous to the franchisors, who hence become less dependent

on the region-specific knowledge of the JV partners. Many previous studies show a positive relation be-

tween international experience in managing foreign operations and an increase in equity commitment and

control of the franchise firm (Fladmoe-Lindquist and Jacque, 1995; Contractor and Kundu, 1998a, b; Er-

ramilli et al., 2002). For Sixt, the JV partner’s local competence and financial assets are of particular rele-

5 Europcar Activity Report 2009: p.28.


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14

vance in the initial stage of market access and development. Subsequently, over time, Sixt increased the

equity share in the Singaporean JV company from 65% to 88%.

In sum, our case study findings regarding the international franchise governance structure contribute to the

existing literature on mode combinations, mode modifications and mode changes (Benito et al., 2012).

Thereby, we replace area development franchising and master franchising by MDF, which combines fea-

tures of both area development franchising and master franchising agreements. Furthermore, with the mod-

ification of JVF, the local JV company supports the franchisor’s regional franchise development but is

restricted in its rights of entering into direct regional MDF relationships. The international franchisor’s

path-dependent increase of foreign JV equity participation contributes to recently discussed ‘mode chang-

es’ as a dynamic process in the international market entry literature. Therefore, as illustrated in figure 3,

our findings modify Jell-Ojobor and Windsperger’s (2014) original model by positioning MDF between

area development franchising and master franchising while characterizing JVF as a pure development or-

ganization.


Determinants of the Governance Modes of the International Franchise Firm: The Case of Sixt and

Europcar

In the following, the observed determinants of Sixt and Europcar’s foreign franchise governance modes,

i.e. the establishment of WOS, MDF and JVF, are analyzed by comparing the theoretical patterns, based on

international strategy theory, resource-based and organizational capabilities theory, and transaction cost

and agency theory, with the empirical patterns.

International Expansion through Wholly-Owned Subsidiaries

The results of the pattern matching analysis of Sixt and Europcar’s choice of WOS are summarized in table

4.


International strategy (H1a - confirmed)

Pak (2002), Alon (2006b) and Dunning et al. (2007) argue that the more franchisors seek to gain competi-

tive advantage by engaging in international operations, the more likely they are to enter host markets via

equity modes. The case study results are compatible with this view by showing that the franchise firm’s

international strategic orientation (based on international strategy theory) has an important influence on the

choice of governance modes.

With the established international franchise departments staffed with skilled and well-trained key person-


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15

nel at headquarters around ten years ago, Sixt and Europcar pursue a global strategy to provide homogene-

ous, sophisticated product standard with WOS in key Western European markets (‘corporate countries’,

such as Germany, France, UK, Italy, Spain, Portugal, Austria, Switzerland, the Netherlands, Belgium and

Luxembourg). Whereas outside of ‘corporate’ Europe and complemented by local modifications, they li-

cense a standardized franchise business format through renewing existing MDF contracts, granting new

ones and entering into alliances with strategic partners. In this respect, similar strategic decisions are made

by the automotive industry, differentiating between high control modes to guarantee market communica-

tions of premium brands consistency, necessary to satisfy well-informed and demanding customers, and

lower control modes to provide cost-efficiency and local adaptation with the distribution of volume brands

(Parment, 2008).

According to Sixt, “the question is where are the customers coming from? Where does it make sense to

franchise and where to be corporate?” The answer according to Europcar is “countries that generate the

most ‘outbound’ business, i.e. business that takes place somewhere else [outside the country of origin]. It

is always good to serve the [big] business customers out of a structure which one controls”. “It is well

known that the German, French, English and Italians travel a lot. These are the big outbound markets that

generate demand, not just for business customer accounts but also for tourism [Sixt]”6.

In 2008 the worldwide vehicle rental market generated 75 billion Euro turnover of which around 43% ap-

pertained to the USA and Canada, 28% to Europe, 14% to Asia Pacific, 7% to Latin America and 6% to

the Middle East and Africa. The size of the European vehicle rental market is estimated to be around eight

billion Euros with Germany being Europe’s most significant single market, accounting for almost one third

of revenue, followed by France, UK and Spain. Apart from one strategic buy-back decision of Europcar’s

master developer in Australia in 2008, Sixt and Europcar establish WOS exclusively in homogeneous

Western European countries where maintenance of brand homogeneity and high system standard is of ut-

most importance in order to exploit the large market shares of business and private customers. This, in

return, is a viable condition to entering into long-term strategic partnerships with the tourism and mobility

industry, such as airlines, hotel chains, hotel reservation and marketing associations and also car manufac-

turers and dealers, through which joint customers benefit from comprehensive, integrated, exclusive mobil-

ity services and competitive prices, thus further contributing to the competitive position of the global car

rental firm. For example, being a partner of global distribution systems (GDS), which are worldwide pro-

grams targeting travel agents, online reservation sites, tour operators and consolidators, can significantly

accelerate reservations and sales.

Therefore, the Sixt and Europcar ‘corporate countries’ are characterized by a mature economy with a

strong business sector and high levels of private consumption, accumulating a strong demand for car rental

services inside and outside the countries of origin (outbound countries).

Resources and organizational capabilities (H2 - confirmed)

6 In the following, citations by Sixt and Europcar are quoted with “[S]” and “[E]”.


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The competitiveness of global car rental brands and systems primarily depends on five factors: Price, vehi-

cle availability, service quality, distribution locations and product innovation7. Table 5 summarizes how

these ‘competitive edge’ characteristics, anchored in Sixt and Europcar’s franchise systems, have a high

potential to attract global customers.


In order to establish a leadership position in the outbound markets, the provision of high levels of product

and service standards, brand homogeneity (system-wide standardization) and constant innovations are im-

portant. “Innovations give customers a uniformly high standard of quality plus single-source support [S].

Most of the time, innovations originate from the big ‘corporate countries’. Some things [innovations] have

to be tested first, which is done in corporate test markets [E]. A product innovation is always launched

first in the market which generates the highest demand and biggest volume, so that one can successively

‘sweep the market’ according to market potential, feasibility and cost-benefit ratio [S]”.

Sixt and Europcar confirm that the provision of high levels of service standard and brand homogeneity is

very critical to them in homogeneous ‘corporate countries’ in order “to position the brand to reflect the

Company’s strategic orientation and above all to increase brand awareness abroad [S]”. In this respect,

Sixt and Europcar lay particular focus on enhancing ‘state-of-the-art’ technologies in vehicle rental, such

as e-marketing and e-commerce booking channels. The constant enhancement of the IT-system, a major

asset and success factor of car rental transactions, is of utmost importance to them. Fleet management con-

sists of conflicting concerns of assuring adequate vehicle availability to satisfy customer demand while

maintaining a high degree of utilization for each car in the fleet. IT-tools, such as yield management and

revenue management, are indispensable for strategic decisions in planning fleet size, deployment and

product design and also reservations control and pricing, hence ensuring brand loyalty and customer satis-

faction and achieving high yields.

In order to guarantee high levels of system innovation and system-wide standardization, Sixt and Europcar

invest in incentive systems, training and professional development to increase staff performance and at the

same time reduce personnel turnover and with it a loss of know-how which is related to the risk of service

quality deterioration. Case study findings therefore confirm the transferability challenge of value-creating

system-specific assets and resources grounded in resource-based and organizational capabilities theory

which positively influences franchise firms to use higher control modes. Implementing a highly standard-

ized franchise business format, which is needed to exploit the rent-generating system-specific know-how,

results in synergistic advantages for the franchisor with the establishment of WOS. Franchisors can further

benefit from favorable financial terms and conditions offered to them by external suppliers of capital, such

as banking institutes, car dealers and manufacturers and insurance companies, due to their high market

shares, business volumes and brand name value.

7 Hertz Annual Report, 2009: p.16.


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The ‘corporate countries’ are represented by the leading European economies of Germany, France, UK and

Italy and by the matured economies of Spain, Portugal, Austria, Switzerland, the Netherlands, Belgium and

Luxembourg which are characterized by homogeneous cultural, economic and institutional conditions,

such as a positive consumer attitude toward travelling and vacationing, a matured business sector, a high

education and qualification level of human capital, an attractive infrastructure, high income levels and de-

mand potentials, political stability and developed legal and institutional systems. These are important con-

ditions for the investment in R&D and human resources to exploit and develop system-specific know-how

and assets. Furthermore, in homogeneous, developed countries, exploration and internalization of location-

specific assets and know-how with the establishment of WOS have positive spill-over effects on the entire

franchise system, thus market evaluation and learning costs can be reduced.

Transaction and agency costs (H6a - confirmed)

In ‘corporate countries’, franchisors do not rely on the external partners’ transaction-specific assets and

bear full investment costs to guarantee high levels of brand homogeneity with system-wide standardiza-

tion. Europcar and Sixt claim that it is important to exercise higher control in the markets that create the

most demand and outbound business among business and private customers. “Markets are constantly

changing. There may be product innovations by competitors, own innovations or economic changes. And

therefore, one has to evaluate every year how to become better and constantly adapt” [S]. Even if invest-

ments in financial and human resources are much higher under WOS than under lower control modes, the

high profits generated with the provision of a highly standardized franchise business format in economical-

ly strong markets with minor need for local adaptations and decreased market risk, due to cultural, eco-

nomic, political and institutional differences, offset those costs and positively impact the franchise firms’

tendency to use higher control modes. The case study results therefore are consistent with the transaction

cost perspective, which favors higher control modes to economize on transaction costs in homogeneous

host countries.

In addition and consistent with agency-theoretical arguments, while “maintaining 100% brand homogenei-

ty is important in markets with high growth potential” [S], moral hazard risk can be reduced by the fran-

chisor’s use of standardized monitoring devices in geographically and culturally close ‘corporate

countries’. Sixt and Europcar affirm that while monitoring effort increases with geographic distance, it is

not considered a challenge for European countries.

International Expansion through Master Development Franchising

Table 6 gives an overview of the results of the pattern matching analysis of Sixt and Europcar’s choice of

master development franchising.

---INSERT TABLE 6 HERE---

International strategy (H1b - confirmed)


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“Competition among car rental industry participants is intense and, among other things, based on distribu-

tion locations” (Hertz, 2009). “If you are only a regional player, you cannot service the big contracts with,

for example, IBM, Siemens and Daimler. Winning these contracts is one of the main reasons to build up

and expand a franchise network [S]. The goal is to increase international presence, in order to secure the

franchise system’s leading market position. Franchising offers a clear time-to-market advantage. The fran-

chise strategy is by far the fastest way to enter a country and gain a relevant market position [E]”. There-

fore, in order to sustain a globally competitive market leadership position and hence win contracts with the

big corporate companies and strategic partnerships with the tourism and mobility industry, car rental com-

panies must provide a dense network of strategic car rental locations being represented on a global scale,

such as in all major city centers and airports.

Consistent with international strategy reasoning regarding realizing first mover advantages with lower con-

trol modes, Sixt and Europcar stress that the partner’s synergy effects for the local franchise network ena-

ble the franchisor to enter markets rapidly. “It is the master developer’s know-how that is supporting

franchisors in quickly entering the host market. It depends on how much experience one has. If the master

developer has already worked in the car rental industry before, then he knows the basics. Perhaps one has

to raise the local business to an international standard. In principle however, the basic things are in place

[E]”.

Accordingly, besides offering highly standardized products and services with the establishment of WOS in

homogeneous host countries, Sixt and Europcar provide car rental services to customers in heterogeneous

host countries via standardized franchise package to exclusive master developers. The local partners are

responsible for the location-specific implementation, adaptation and operation of the franchise network.

Similarly, the automotive industry applies lower control modes with the distribution of volume brands

where the emphasis of communicating a global (premium) brand content shifts in favor of local adaptation

(Parment, 2008).

Resources and organizational capabilities (H3 & H4 - confirmed)

In line with resource-based and organizational capabilities reasoning regarding the importance of local

market assets for value generation in host countries, the exploitation of rent-generating system-specific

assets to provide highly sophisticated and standardized products and services is not feasible in the case of

expansion to heterogeneous host countries. On the contrary, the local franchise business format must ac-

count for country-specific peculiarities such as different customer tastes, economic conditions and regula-

tions. For example, the implementation of all features of the reservations system, which is a vital asset in

the car rental industry, is only worthwhile in a few developed European countries as “in similar markets,

new things spread fast. But it makes no sense to ‘break a butterfly on a wheel’ by implementing e-invoicing

and e-vouchers in Zimbabwe [E]. For more heterogeneous regions, it is not so easy to implement Europe-

an software just like that [S]”. Thus in (less developed) heterogeneous countries outside of ‘corporate’

Europe new product features are introduced based on the market potential.


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In doing so, Sixt and Europcar possess the necessary ‘transfer’ capabilities to standardize and transfer

those rent-generating system-specific assets and know-how of the franchise business format that are critical

for successful franchise operations at the local network level by external partners. Previous studies show

that large international franchise systems develop efficient system-specific routines in monitoring to assure

uniformity in product and service quality (Huszagh et al., 1992). Sixt and Europcar confirm that master

developers receive all operational and strategic know-how and headquarters support needed to conduct a

successful local car rental business. Becoming part of the franchise network, master developers benefit

from a competitive brand with high awareness and reputation among a global customer base diffused

through a worldwide franchise network and comprising strategic assets such as being connected to the

global reservations, communication and distribution systems via sophisticated IT tools. The franchisors’

capabilities of entering into new strategic partnerships to invent cooperative product offerings, global ad-

vertising to strengthen the brand’s awareness and constantly expanding network growth further increase

the franchise system value to master developers.

However, “it does not make sense to use the same advertising in Kuwait as in Spain” [E]. Due to hetero-

geneous host country conditions, local innovation of existent product and service features and operational

and strategic processes is vital to provide a better market fit and prevent market failure with the provision

of the standardized franchise business format. Sixt emphasize that market analysis is a very time-

consuming process and only of interest to them in the developed ‘corporate countries’ where new

knowledge is applicable system-wide and results in large synergies. On the other hand, due to their geo-

graphic positioning, master developers more easily acquire the local market assets which are important for

the success of the local business but in most cases do not contribute to system-wide value addition. Conse-

quently, Sixt and Europcar’s partner selection criteria refer to local car rental companies which already

possess operational and strategic car rental know-how and experience and are able to contribute an existing

fleet, customer base, location infrastructure, strategic ties and partnerships to gain competitive advantage at

the local market.

Consistent with this reasoning, previous studies show that international franchisors enter into local partner-

ships via different forms of franchising to take advantage of local franchisee skills and resources, such as

market knowledge of local tastes, labor market and recruitment, site selection and financial resources

(Chan and Justis, 1990; Preble et al., 2000; Jones, 2003; Hoffman and Preble, 2003; Doherty and Alexan-

der 2004; Dunning et al., 2007).

Summarizing, “the car rental industry is a very capital-intensive business, with fleet financing covering

about 50% of the investment costs, and the risk of possible incorrect assessments of market conditions is

high in host countries [S]”. Therefore, the master developer’s local market and financial assets are im-

portant when it comes to negotiating favorable financial terms and conditions with external suppliers of

capital. Due to antitrust laws, car dealer and insurance rates are not homogeneously transferable across

countries. Master developers possess critical know-how and organizational capabilities to establish strate-

gic ties with car dealers, insurance companies and banks which grant them favorable local finance condi-


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20

tions. As a result, “the more financial resources a partner has, the better it is. The franchisee must be able

to set up the car rental business. He must have money and possibilities to finance it [E]. In the first two

years of business the master developer will definitely not achieve a break-even point [S]”.

Transaction and agency costs (H5a, H5b, H6b & H7 - confirmed)

Based on transaction cost and agency reasoning, the establishment of WOS in all countries is not efficient

due to high set-up costs of the coordination and control structure. Expanding to heterogeneous host coun-

tries in terms of cultural, economic and institutional distance increases the franchisors market failure risk

such as “possible incorrect assessments of market conditions in the countries in question, changes to na-

tional legal frameworks, the costs associated with the establishment of an effective infrastructure and the

need to find qualified management personnel and suitable employees. Acquiring the local market assets in

most cases would mean a tremendous investment of time and money [S]”. Europcar claim that “the more

distant countries are from Europe, the more difficult their management becomes” and that they “do not

have enough personnel to travel every month to Zimbabwe”.

The transaction costs of doing business in heterogeneous host countries increase substantially due to the

need for exploration and evaluation of local market requirements, predicting changes, adaptation of the

standardized franchise business format and monitoring of geographically distant outlets on the one hand,

and the often decreased market potential to provide for economic scale operations on the other hand.

Therefore, Sixt and Europcar outsource the increased transaction risks by expanding with lower control

modes, i.e. MDF, to countries characterized by volatile or heterogeneous environments.

Through the effective standardization of the franchise business format, the franchisors’ transaction-specific

investments to transfer the franchise package to master developers are of moderate intensity and result in

economies of scale to apply the same procedures, routines and standards in many different host countries.

For example, the provision of an ‘online marketing agency’ includes ‘best practice campaigns’ for master

developers to download and copy the relevant corporate identity and marketing tools and adapt them to

local needs to create tailor-made advertising with flyers, posters and campaigns [E].

Sixt claim that they “equip the master developer’s first outlet in Sixt corporate design by supplying all

materials directly from Germany, which guarantees that at least with the first outlet, everything is accord-

ing to system standards and that franchise launch is as smooth and professional as possible. By having

established the system head office, contracting with one or two additional countries does not necessarily

result in higher headquarters manpower requirements. Instead, some synergy effects are achieved, insofar

that the centralized system head office becomes more efficient by accelerating profitability with each sign-

ing of a new contract. By contrast, the establishment of a foreign subsidiary requires high investments

initially. With franchising, the risk is minimal.”

Sixt and Europcar’s franchise network size of around 80 (Sixt) and respectively 150 (Europcar) MDF con-

tracts (data collection took place from May 2009 till September 2010) promotes outsourcing the adminis-

trative and logistic tasks with monitoring foreign franchise activities. Thereby they offer exclusive


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21

franchise licenses for the whole country where the franchisors only deal with one exclusive partner instead

of contracting with many different ones per country. In return for granting the exclusive franchise license

to master developers complemented by the franchisors’ transaction-specific support services, such as prod-

uct innovations, public relations, standardization and global advertising, master developers compensate the

franchisors by paying franchise fees in the form of entrance (initial) fee, royalty and marketing fees based

on sales, and reservation fees. With the granted territorial exclusivity rights under MDF agreements, the

master developers take over the responsibility to operate the franchise network in the entire host country

and provide high transaction-specific investments in the local establishment of the brand such as trade-

marked outlets in highly frequented areas, fleet, market analysis and location-specific adaptations of the

standardized franchise business concept, staff training and local marketing and advertising.

In this context, the franchisor support services, standardization of the business format and hence the fran-

chisor’s increased power to enforce franchise contract terms also decreases the ex post hold-up potential as

argued by transaction cost theory. Due to the master developers’ higher transaction-specific investments

relative to the franchisor, the master developers’ high dependency may result in less opportunistic behavior

such as hold-up and free-riding. While franchisors mainly suffer from moderate sunk costs of initial set-up

investments, master developers are not able to use the investments in transaction-specific assets outside the

Sixt and Europcar network. In addition, it is unlikely that they could realize a sustainable competitive ad-

vantage in the host market without being part of a global reservations system and franchise brand. “The

question is whether the franchisee after contract termination can continue business without the former

brand and if he will have enough business to operate the network at full capacity? The franchise stores in

the corporate design are 100% system-oriented assets. Whatever the franchisee invested into brand

awareness creation during expansion of the local network in order to gain market presence, he will lose,

such as 3% of turnover spent on local advertising [E]”.

On the other hand, by transferring the standardized franchise business format to master developers, fran-

chisors are confronted with an increased safeguarding risk to protect intellectual property and prevent op-

portunistic behavior due to free-riding or other hold-up risks. “Know-how transfer is provided via training

schemes, meetings, workshops and consultations once a year, as well as on a need-to-know basis [S]. The

initial training leads master developers through all disciplines of car rental business from A to Z [E]”.

Especially under conditions of environmental instability, master developers may abuse their strong market

positions and withhold critical local market knowledge unless more favorable contract terms are offered to

them. Nevertheless, according to Sixt and Europcar, the most important incentive effect for the master

franchisor results from its entrepreneurial role at the local market. Particularly, high-powered incentives

lead to the local implementation and adaptation of the standardized franchise business format and the up-

holding of a high level of homogenous product and service quality standard. Sixt and Europcar say “the

franchisee as an independent entrepreneur” [S] and “own master” [E] is motivated “to make a profitable

business at the end of the day. It makes no sustainable sense for the master developer to provide badly

maintained vehicles which break down on half road, thus reducing daily fleet availability and consequently


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22

his turnover [S]”.

Therefore, Sixt and Europcar dedicate moderate effort to supervise master developers in host countries

such as yearly audits, occasional surprise visits and the provision of regular reports. This network control is

consistent with Dant and Nasr’s (1998) survey results on US franchise activities in Africa and Middle East.

They reveal that tight control mechanisms restrict autonomy and independence in doing franchise business

and can be counterproductive on franchisee performance. Similarly, Sixt and Europcar grant master devel-

opers the flexibility and decision rights to fully exploit intangible market-specific know-how and capabili-

ties in innovating, adapting, implementing and operating a successful local car rental franchise network.

Through the franchisors’ knowledge management strategy all system-specific know-how and procedures

are documented and become an integral part of the franchise contract. This is relevant to provide a homo-

geneous brand name and franchise product and service standard at the local network level. Consequently,

performance and quality standards, benchmarks and homogeneous monitoring tools became applicable.

Furthermore, the incorporation of the master developers’ local market knowledge in a ‘two-year’ business

plan decreases the opportunistic risk of franchise partners. Based on the master developer’s ex ante market

evaluation, a location-specific business plan, development plan and finance plan are established and inte-

grated in the standardized franchise business format.

The franchise contract terms specify the duties of both parties and precisely state the location of outlets and

pace of network expansion, franchise fee structure, training modalities, financial capital requirements, ad-

vertising intensity, corporate identity compliance and service level agreements. “All relevant working steps

of the car rental workflow can be described, the system’s criteria of operating the franchise business are

summarized and documented [E]. The standardization of the franchise business enables performance mon-

itoring. In case of franchisee behavior that is not system-compatible, the franchisor may quit the contract

at any time [S]”. Then termination clauses become applicable. Those entail compensation payments and

non-competition clauses and result in high sunk costs and the loss of quasi-rents for the local partners.

International Expansion through Joint Venture Franchising

Table 7 gives an overview of the results of the pattern matching analysis of Sixt and Europcar’s choice of

joint venture franchising.

---INSERT TABLE 7 HERE---

International strategy (H1a & H1b - confirmed)

Apart from the establishment of a WOS providing a highly sophisticated franchise product and service in

homogenous, developed Western European countries with large market potentials, and the outsourcing of

the challenges of higher administrative effort, transaction risk and local franchise business format adapta-

tion by benefiting from the master developers’ knowledge and financial resources in heterogeneous host

countries, there may be particular environmental conditions which require a different organizational strate-


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23

gy to enable successful expansion to particular host countries. This is the case with the regions of South

America and Asia Pacific, which are characterized by high institutional uncertainty but at the same time, as

confirmed by Alon and Banai (2000), Alon (2006a) and Aliouche and Schlentrich (2011), consist of the

largest growing economies for service franchising, i.e. China, India, Russia, Brazil and Mexico. Also re-

garding the car rental industry, “in the emerging economies of Asia Pacific and South America, the mobili-

ty demand is set to increase significantly over the coming years [S]”.

For these dynamic regions with increasing market growth potential, the implementation of a highly sophis-

ticated franchise business format and the provision of a homogenous product and service quality are im-

portant to win an accelerating (outbound) market share. Pak (2002) argues that the more a franchisor is

alert to rival firms' activities, the more likely he enters host markets via higher control modes. Similarly,

Paik and Choi (2007) observe that US franchisors grant less autonomy over local operations to their inter-

national franchisees, the higher the level of host market competition is. Consistent with the international

strategy perspective, Sixt and Europcar confirm that the maintenance of homogeneous product and service

standards and the implementation of sophisticated product innovations are more important in markets with

increasing demand potentials and increased competition, such as in Asia Pacific and South America. How-

ever, simultaneously, franchisors need to adapt specific features of the highly sophisticated and standard-

ized franchise business format to the heterogeneous conditions of these emerging growth markets.

Consequently, they need to assure the provision of a franchise business format with both a high level of

system-wide standardization combined with a high level of local adaptation. This is provided through the

establishment of higher control modes, i.e. joint venture franchising, which closely supervise the regional

network expansion by local master developers.

Resources and organizational capabilities (H2, H3 & H4 - confirmed)

Compatible with resource-based and organizational capabilities theory, Erramilli et al. (2002) show that

higher control modes are more effective in culturally distant markets with less developed business envi-

ronments because differences in partner capabilities and routines result in difficulties with the transfer of

highly intangible system-specific assets and know-how across firm boundaries. Also studies by Chan and

Justis (1990, 1992), Contractor and Kundu (1998a, 1998b), Jones (2003), Frazer (2003) and Dunning et al.

(2007) present the same view of the franchise firm’s preference of higher control modes in economically

less developed countries characterized by high growth and demand potential but lower absorptive capacity.

However, consistent with the view of Contractor and Kundu (1998a, 1998b) and Frazer (2003), due to

cultural, economic and institutional differences, the lower absorptive capacity of the local labor force and

the still immature franchise sector restrict the franchisors’ efficient transfer of highly system-specific assets

to provide high levels of system-wide standardization.

Furthermore, relating to the concepts of local market and financial assets relevant for the governance mode

choice in the resource-based and organizational capabilities theory, huge investments in fleet and infra-

structure are required in Asia Pacific and South America regions with large market size and accelerating


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24

demand potential. For example, “in South Korea, market leaders possess a fleet of over 40,000 cars [E]”.

The need for a large fleet also increases the importance for strategic partnerships with local car manufac-

turers and dealers. In addition, strategic location assets, such as in all major airports, are crucial to establish

a competitive leadership position on a rapid pace in the respective countries. Local master developers pos-

sess effective incentives, critical local market assets, financial assets, and location-specific knowhow to

overcome the franchisors’ financial and human capital constraints and guarantee first mover advantages

with a rapidly and successfully adapted and implemented standardized franchise business format in host

countries. Therefore, in the dynamic but still less developed emerging markets, higher control through joint

ventures guarantees the implementation of a high product and service standard while also benefitting from

quick network expansion and local adaptation by master developers.

Transaction and agency costs (H5a, H5c, H6a & H7 - confirmed)

Norton (1988b) confirms that due to the trade-off between the demand and supply of capable managers,

especially firms that need to expand rapidly with larger-sized operations, as is the case in the dynamic

growth regions of Asia Pacific and South America, face an entrepreneurial capacity problem in screening,

recruiting and training numerous qualified company-owned staff. Sixt admit that the risk of adverse selec-

tion with the recruitment of company-owned staff in the culturally very distant Asia Pacific region is very

high and can result in high sunk costs.

Therefore, Sixt’s and Europcar’s intensity of transaction-specific investments in recruiting, training and

monitoring increases in host countries with prospective market growth rate, still facing economic under-

development. For example, Europcar’s “‘man in Bangkok’ invested more than a year to establish contact

and relationship to a potential partner in South Korea.” Also Sixt quote that “the country’s development

and growth pace justify additional training need.”

According to Sixt and Europcar, the cultural distance is a very important factor for international govern-

ance mode decision in Asian markets. Having found a capable partner, possessing the cultural affinities,

who undertakes the specific investments needed to adapt the franchise products and services to the local

customer preferences, and providing him with franchise market exclusivity rights, exposes franchisors to

another potential risk (Lafontaine, 2014). Relating to the hold-up problem argued by transaction cost theo-

ry, in combination with high institutional uncertainty in terms of weak franchise and property rights protec-

tion laws, the franchisor’s higher transaction-specific investments guaranteeing an efficient transfer of

system-specific know-how and franchise concepts and thereby securing a high level of brand homogeneity

and customer shares, result in higher dissemination and trademark violation risks in those emerging growth

regions. “It is commonly known that in China there is a high risk of trademark violation [E]”. As ex-

plained by Choo (2005), the so-called risk of ‘brand hijacking’ due to an eventual in-balance between sys-

tem-wide standardization and local adaptation of the franchise business format is particularly high in the

Asia Pacific region characterized by different cultural values, such as missing code of ethics and claim for

quality, and hostile franchise business environments, such as missing franchise laws.


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25

As pointed out by Alon (2006a) and Welsh et al. (2006), adverse institutional and political situations, such

as corruption and poor legal frameworks, make licensing particularly hazardous because of the increased

risks with repatriation of royalties, policing quality standards or protection of copyright and intellectual

property and termination of contracts. Due to the weak legal enforcement mechanisms in the Asia Pacific

and South America regions, local master developers possess an increased hold-up potential to appropriate

the franchisors’ quasi-rents with high transaction-specific investments. Franchise contract terms have lim-

ited coercive enforcement power and contract termination due to franchisee moral hazard results in tedious

and costly legal battles. Due to the high sunk costs and weak institutional systems, franchisors have rela-

tively more to lose with early contract termination than master developers.

Summarizing, the high moral hazard risk of service quality dilution, brand name degradation and/or trade-

mark violation by master developers in emerging but still immature economies requires close monitoring

over the maintenance of a homogeneous quality standard. Due to the high degree of market heterogeneity,

franchisors do not possess the institutional and cultural sensitivity and requisite internationalization and

transfer capabilities to evaluate, recruit and supervise foreign master developers and assure the provision of

a local franchise business format with both, a high level of system-wide standardization combined with a

high level of local adaptation. Therefore, they develop the high-potential growth markets with MDF

agreements from their distant European headquarters. In addition, regional assistance with the development

of local MDF agreements is provided by Sixt’s establishment of a JV company in Singapore and Europ-

car’s company-owned operations in Australia, Bangkok and Florida. These higher control modes protect

franchisors against property rights violation, circumvent entry barriers and provide network stability in

geographically and environmentally very distant regions characterized by dynamic market growth.

Summary of the Case Study Results

To summarize the case study findings, we can conclude that the empirical patterns based on Sixt and Eu-

ropcar’s analysis of the international franchise modes are largely compatible with the theoretical patterns

based on international strategy theory, resource-based and organizational capabilities theory, transaction

cost theory and agency theory. Table 8 illustrates the hypotheses that are supported in our case study anal-

ysis.


First, international franchise firms expand via the establishment of wholly-owned subsidiaries (WOS) to

host countries, characterized by a homogeneous environment, such as cultural and geographic proximity,

economic development and institutional stability. This high control mode provides franchisors with full

ownership, residual income and decision rights, which are needed to exploit and implement rent-generating

system-specific assets to satisfy the demand of global customers in high-potential markets. Furthermore,

the positive synergy effects gained with the provision of highly standardized products and services can

compensate the higher set-up costs of the company-owned operations.


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26

Second, in heterogeneous host countries characterized by cultural and economic distance, international

franchise firms sustain their global position by expanding the franchise network with lower control modes,

i.e. master development franchising (MDF). In order to gain competitive advantage in heterogeneous host

countries, the franchisor’s orientation for system-wide standardization and innovation shifts in favor of

local franchise business format adaptation. A decreased level of system innovation makes system-specific

assets more transferable via the standardized franchise business format to master developers. A higher

proportion of residual income and decision rights is transferred to master developers in order to mitigate

opportunistic risk and increase investment incentives. In particular, the master franchisors receive incen-

tives to maintain high service quality, explore local market assets and adapt the standardized franchise

business format, such as established procedures and product and service features, to the host country re-

quirements.

Third, for heterogeneous host countries which are characterized by an increasing market potential with an

under-developed business infrastructure (e.g. the case in the emerging economies of the Asia Pacific and

South America regions), the master developers’ local market assets guarantee the local adaptation of the

standardized franchise business format. Likewise, the franchisor’s system innovation capabilities needed

for capturing a high market share by challenging competitors with the provision of sophisticated products

and services are vital. However, due to the very high institutional distance in those emerging markets char-

acterized by missing franchise laws and protection of intellectual property rights, adverse regulatory sys-

tems and corruption, the franchise network expansion via MDF requires a higher level of formal control by

the franchisor. This is ensured through joint venture franchising (JVF).

DISCUSSION AND IMPLICATIONS

The case study analysis examines the determinants of the international governance modes of two major

franchise companies in the European car rental industry (i.e. Sixt and Europcar), which are the wholly-

owned subsidiary, master development franchising and joint venture franchising. Matching the empirical

patterns of the case study results with the predicted patterns based on organizational economics, strategic

management and international business perspectives shows that multiple factors influence the choice of

governance modes of the international franchise firm. The research model predicts a high level of control,

i.e. through wholly-owned subsidiaries, if the economic, cultural and behavioral uncertainty are low and

the franchisor’s transaction-specific investments are high to capture synergistic advantages with the im-

plementation of rent-generating system-specific assets in homogenous host countries. On the other hand,

the research model predicts lower levels of control, i.e. by using master development franchise agreements,

if the economic, cultural and behavioral uncertainty are high and the franchise partners’ transaction-

specific investments, local market assets and financial assets are critical to capture first mover advantages

with the local adaptation of the franchise business format to heterogeneous host countries. However, under

conditions of very high institutional uncertainty in the host countries, such as the absence of franchise laws


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27

and protection of intellectual property rights, adverse regulatory systems and corruption, the franchise net-

work expansion requires a higher level of control, i.e. joint venture franchising, by providing the franchisor

with more formal control over local master development franchise agreements in foreign markets with high

institutional uncertainty. Overall, the case study findings show that the empirical patterns based on Sixt and

Europcar’s analysis of the international franchise modes are largely compatible with the hypotheses formu-

lated in the research model (see figure 1).

What are the implications of this study for theory and practice? First, within the international franchise

literature, few studies use more than one theoretical perspective to explain the international governance

mode of franchise firms. Previous research is mainly dominated by applying transaction cost and agency

theory (e.g. Fladmoe-Lindquist and Jacque, 1995; Dant and Nasr, 1998; Burton et al., 2000; Sashi and

Karuppur, 2002; Lafontaine and Oxley, 2004; Perrigot, 2006; Castrogiovanni et al., 2006; Baena, 2015)

and resource- and organizational capabilities theory (e.g. Erramilli et al., 2002; Hoffman and Preble, 2003;

Mariz-Pérez and García-Álvarez, 2009), while multi-theoretical approaches are rare (e.g. Contractor and

Kundu, 1998a, 1998b; Grewal et al., 2011). This study addresses this gap and tests a new integrative model

of the governance mode choice of the international franchise firm (based on Jell-Ojobor and Windsperger,

2014) by conducting a case study analysis. Our case study analysis shows that the governance structure

decision of international franchisors is determined by both cost efficiency considerations rooted in organi-

zational economics literature (i.e. transaction cost and agency theory) as well as value-creation considera-

tions rooted in strategic management literature (i.e. resource-based and organizational capabilities theory).

By doing this, we also respond to the recent call in organizational economics, strategic management, mar-

keting and international business literature (e.g. Brouthers and Hennart, 2007; Rindfleisch et al., 2010;

Combs et al., 2011; Gillis and Castrogiovanni, 2012; Grewal et al., 2012; Windsperger, 2013) to develop

and test multi-theoretical frameworks to explain the governance structure of inter-organizational networks.

Second, we extend the integrative model of Jell-Ojobor and Windsperger (2014) by including the interna-

tional strategy as major determinant of the franchise firm’s governance mode choice in host countries.

Starting from the strategy-structure view of Chandler (1962), international strategy theory (Harzing, 2002;

Cui and Jiang, 2008; Pehrsson, 2008) examines the impact of the international strategy (global vs. multi-

domestic strategy) on the international firm’s governance structure. Applying this reasoning to franchising,

international franchise firms can pursue a standardization or adaptation strategy. A standardization strategy

is related to offer a homogenous product standard with higher control modes, such as wholly-owned sub-

sidiaries or joint venture franchising, in global markets, resulting in synergistic efficiency advantages to

compete against global competitors. Our case study findings show that in the automotive rental industry,

the franchisor’s global positioning can only be sustained with the provision of both, synergistic efficiency

advantages and first mover advantages. This is achieved with choosing higher control modes in those mar-

kets where the provision of innovative, highly standardized products and services is important to capture

large market shares. By contrast, an adaptation strategy focuses on local product and service adaptations

with lower control modes, such as master development franchising, in order to benefit from the local part-


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28

ners’ market assets and capabilities to adapt the franchise products and services and capture first mover

advantages in heterogeneous markets.

In addition, our findings show that the international strategy theory interrelates with the resource-based and

organizational capabilities arguments on the franchise governance structure decision. According to the

resource-based and organizational capabilities theory, due to the specificity of rent-generating assets and

resources, they are difficult to transfer across firm boundaries. The specific market characteristics, that are

homogeneity or heterogeneity of the host markets in relation to the franchisor’s home country, determine

the relevance of the specific assets in the pursuit of standardization versus adaptation strategy and conse-

quently the choice of governance mode in the host countries. In homogeneous markets, the franchisor

chooses a wholly-owned subsidiary to guarantee the implementation and constant innovation of highly

standardized system-specific assets and procedures which are needed to exploit the high demand of global

customers. In addition, the franchisor enters into exclusive partnerships with local entrepreneurs (that are

the master developers in the case of Sixt and Europcar) to benefit from the local partners’ assets and com-

petencies in efficiently implementing and adapting the franchise business format to the local peculiarities.

Furthermore, in emerging countries characterized by a global demand for franchise products of homogene-

ous standard which at the same time should consider local preferences, franchisors use higher levels of

control with the establishment of a joint venture company. The joint venture company coordinates the

transfer and implementation of the highly standardized franchise business format as well as its adaptation

to local requirements, thereby exploiting the dynamic market potentials in emerging economies.

Third, our findings add to the recent literature on foreign operations as mode combinations, mode modifi-

cations and mode changes (Petersen and Welch, 2002; Benito et al., 2009, 2011). The results indicate that

franchisors combine franchise modes according to the desired level of control over foreign operations as

‘mode packages’ (Benito et al., 2012). Specifically, through the use of master development franchising as

‘mode combination’, European automotive rental systems modify traditional master franchising by restrict-

ing the local partner’s higher control rights of unconditional sub-franchising. In addition, the local JV part-

ner’s shared control rights are decreased by assigning direct control over local master development

franchise agreements to the franchisor only, increasing the franchisor’s decision rights and residual income

rights (‘mode modification’). Furthermore, the international franchisor’s path-dependent increase of for-

eign JV equity participation contributes to recently discussed ‘mode changes’ as a dynamic process in the

international market entry literature (Benito et al., 2012).

Forth, consistent with the view of Hurmerinta-Peltomäki and Nummela, (2006), Sinkovics and Ghauri

(2008), Benito et al. (2009, 2011) and Welch et al. (2011), this study shows that qualitative methods, such

as in-depth case analysis, represent an effective strategy of investigating a large set of variables that influ-

ence the governance structure decision of the international franchise firm. Theory-testing case research is

justified by the complexity of the franchisor-franchisee relationship phenomena, such as the factors influ-

encing the franchisor’s choice of international franchise governance modes. Our study adds to the theory-


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29

testing case study literature by applying a rigorous method of conducting case research. The application of

a systematic case study approach that is based on an integrative framework can solve the problem of the

inconsistent findings of inferential statistical tests in international franchising. For example, our case study

shows that in general, moral hazard by franchise partners is not considered a challenge by international

franchisors due to the effective unilateral power and bonding mechanism exercised through the car rental

brand name and global reservation system. This observation corresponds with Contractor and Kundu’s

(1998a, 1998b) regression results on the global hotel firms’ tendency towards lower levels of equity in-

vestment and control due to the bonding effect of intangible assets, such as a global reservation system and

strong brand name. However, our case study further reveals that under conditions of high regulatory uncer-

tainty in the Asian countries, international franchisors use higher control modes, i.e. joint venture franchis-

ing and wholly-owned subsidiary, to safeguard against property rights violation and brand hijacking. In

this respect, our results are consistent with Fladmoe-Lindquist and Jacque (1995) who confirm a negative

impact on the firm’s propensity to franchise internationally when high reputation assets are involved, due

to the risk of brand name free-riding.

Finally, our case study findings also contribute to the upcoming research stream on ‘franchising in emerg-

ing and developing markets’ (Dant and Grünhagen, 2014). Increased domestic market saturation and global

competition drive companies to adopt a pro-active approach towards internationalization of their business

operations. Because franchising is a highly flexible entrepreneurial growth strategy, it can facilitate market

entry into high-risk, high-growth markets, such as the five major emerging economies of Brazil, Russia,

India, China and South Africa (BRICS) (Alon, 2006; Aliouche and Schlentrich, 2011; Dant et al., 2016).

The results of our study offer some practical recommendations for the franchisor’s international govern-

ance mode decision: First, the franchisor should choose a wholly-owned subsidiary, when host country

environments are characterized by homogeneous socio-cultural conditions, such as similar consumer tastes

and preferences and a high education level, and economic stability, such as a high market potential, a de-

veloped business sector, high levels of private consumption and advanced technological standards. This

enables the exploitation of scale economies with the implementation of a highly standardized franchise

business format. Second, the franchisor should choose master development franchising, when host coun-

tries are located distant from the system headquarters, and are perceived as heterogeneous in terms of dif-

ferent cultures and unstable economic environment. This generates first mover advantages as well as

mitigates financial scarcity problems for the franchisor by benefitting from the master developer’s assets

and capabilities needed to adapt the franchise business format to local market conditions. Finally, under

adverse institutional conditions, such as a hostile franchise environment (e.g. missing property rights pro-

tection laws, high corruption), a higher level of control is advised, i.e. joint venture franchising, providing

the franchisor local support to overcome market access barriers in regions with high institutional uncertain-

ty. The joint venture company exercises a higher level of control over the implementation and operation of

the local franchise network according to system standard, while at the same time protects the franchise

system against the abuse of its intellectual property due to the higher behavioral hazards in markets with


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30

high institutional uncertainty.

This study faces some important limitations. First, the criticism that case study results lack generalizability

is also applicable to this study (Simon et al., 1996). The multiple case study design is based on data primar-

ily provided by two international franchise systems in the automotive rental industry, and amplified with

documentary data sources, to account for construct validity through data triangulation. The interviews are

conducted with the key decision-makers responsible for the franchise system’s internationalization deci-

sions. This substantially limits the number of possible key informants. According to Voss et al. (2002:

p.205) there is a „trade-off between efficiency and richness of data”, and the optimum number of respond-

ents. Second, compared to quantitative studies, the results of the small case sample cannot explain the

choice of international governance mode of the franchisors in the whole automotive rental industry. Con-

sequently, an important future challenge will be to test the research model by conducting large-scale sur-

veys (Parkhe, 1993; Gillis and Castrogiovanni, 2012; Gerring, 2017) in different markets and industries

(Lafontaine, 2014). Finally, while our case study analysis uses organizational economics, strategic man-

agement and international business perspectives as the major approaches explaining the governance struc-

ture of international franchise firms, the inclusion of further theories may increase the explanatory power

of the governance structure model. For instance, predictions derived from the cultural theory (Freeman et

al., 2012), institutional theory (Combs et al., 2009; Doherty et al., 2014; Aliouche et al., 2015) as well as

the stakeholder theory (Altinay and Miles, 2006) may account for critical aspects influencing the interna-

tional franchisor’s choice of governance mode when expanding into foreign markets.

CONCLUSION

This research applies case study analysis to test a new integrative model of the franchisor’s international

governance mode choice based on Jell-Ojobor and Windsperger (2014). Specifically, it examines the de-

terminants of the governance structure of the international franchise firm by deriving hypotheses from an

integrative model based on international strategy theory, resource-based and organizational capability theo-

ry, transaction cost theory and agency theory. We conducted a theory-testing case study based on data from

two leading international car rental systems, i.e. Sixt and Europcar. The findings show that international

strategy, resource-based factors, such as system-specific, market-specific and financial resources, and envi-

ronmental uncertainty, behavioral uncertainty and transaction-specific investments are important determi-

nants of the governance modes of the international franchise firm. Consequently, international franchisors

have to consider both organizational economics and strategic management factors for taking the right gov-

ernance structure decision when expanding abroad.


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31

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Dear Reviewers,

We thank you very much for your time and effort dedicated to the revision of our manuscript.

With our current revision, we paid thorough attention to address your critics which we summarized in the following:

1.) We have addressed your comment to “persuade [the] audience - through this paper - that this [theory-

testing case study] is a legitimate approach”. Specifically, we included the following new paragraphs in

our paper:

“…Theory-testing case research is justified by the lack of explanatory research due to the complexity of the fran-

chisor-franchisee relationship phenomena, such as the factors that influence the franchisor’s choice of internation-

al governance modes. The investigation of the complex governance structure phenomenon requires a holistic

analysis.” [compare Abstract, under Methodology, p.1]

“Few previous studies in international franchising have used more than one theoretical perspective to explain the

governance structure of the international franchise firm. This study contributes to the theory-testing case study

literature by applying a rigorous method of conducting case research. This includes developing a theoretical

framework and a systematic research design. A systematic research design requires a holistic analysis by investi-

gating the international franchise governance modes from a variety of theoretical perspectives which are the organ-

izational economics, strategic management and the strategy-structure perspective.” [compare Abstract, under

Originality/value, p.1]

“We use a confirmatory research method by applying a rigorous method of conducting case research that includes

developing a theoretical framework and a systematic research design (Barratt et al., 2011). “Through the devel-

opment of more rigorous methods of conducting case research, the case study…can be effectively used to test theory

in complex environments” (Johnston et al., 2011: 211). Why do we choose theory-testing case research? Theory-

testing case research is mainly justified by the lack of explanatory research due to the complexity of the business-to-

business relationship phenomena in franchising (Bonoma, 1985), particularly the influencing factors on the fran-

chisor’s choice of international governance modes. A systematic research design requires a holistic analysis of the

complex phenomenon (i.e. the international franchise governance structure) from a variety of theoretical viewpoints

(Ghauri, 2004; Ghauri et al., 2009).” [compare Introduction, p.2]

“…Hence, our study adds to the theory-testing case study literature by applying a rigorous method of conducting

case research (Bitektine, 2008; Gerring, 2017). In contrast to many qualitative case studies that miss sufficient

details in research design, data collection, and data analysis (Barratt et al. 2011), we address this deficit in our

theory-testing case study.” [compare Introduction, p.3]

“Theory-testing case research is justified by the complexity of the franchisor-franchisee relationship phenomena,

such as the factors influencing the franchisor’s choice of international franchise governance modes. Our study adds

to the theory-testing case study literature by applying a rigorous method of conducting case research. The applica-

tion of a systematic case study approach that is based on an integrative framework can solve the problem of the

inconsistent findings of inferential statistical tests in international franchising…” [compare Discussion and Impli-

cations, p.28]

Literature sources:


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42

Barratt, M., Choi, T.Y., & Li, M. (2011). Qualitative case studies in operations management: Trends, research out-

comes and future research implications. Journal of Operations Management, 29, 329 – 342.

Bitektine, A. (2008). Prospective case study design qualitative method for deductive theory testing. Organizational

Research Methods, 11(1), 160-180.

Bonoma, T.V. (1985). Case research in marketing: Opportunities, problems, and a process. Journal of Marketing

Research, 22, 199 - 208.

Gerring, J. (2017). Case study research: Principles and Practices. Cambridge University Press.

Ghauri, P. N. (2004). Conducting and analyzing case studies in international business. In: Piekkari, R., & Welch, C.

(eds) Handbook of qualitative research methods for international business. Edward Elgar, Cheltenham.

Ghauri, P. N., & Firth, R. (2009). The formalization of case study research in international business. der markt (In-

ternational Journal of Marketing), 48, 29 – 40.

Johnston, W.J., Leach, M.P., Liu, A.H. (1999). Theory testing using case studies in business-to-business research.

Industrial Marketing Management, 28(3), 201-213.

2.) The quotation of Jell-Ojobor and Windsperger’s (2014) research model on p.3 continues with a detailed

explanation of it in the “Overview of the Research Model and Hypotheses” section on p.3ff.

Dear Reviewers,

We wish to thank you very much for your valued support with the revision of our paper. In the course of the

review process, we have addressed your valid comments thoroughly and believe that our work has benefitted

very much from your guidance. We hope that you are satisfied with our work and our revised manuscript

meets your expectations. We are looking forward to your positive reply and approval for publication in Inter-

national Marketing Review.

Should there be need for further questions, please contact us anytime.


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Figure 1: Integrative model on the governance mode choice of the international franchise firm (adopted from Jell-Ojobor and Windsperger, 2014)

International

strategy

System-specific

assets

Local market

assets

Financial

assets

Environmental

uncertainty

Transaction-specific

investments

Behavioral

uncertainty

+/-

+

+/-

+/-

_

_

_H 3

H 2

H 4

H 5

H 6

H 7

H 1

IST

RBT & OCT

TCT & AT

Level of Control

Wholly-owned subsidiary

Joint venturefranchising

Area developmentfranchising

Masterfranchising


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Figure 2: International Governance Modes of Sixt and Europcar


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Figure 3: Control and mode combinations of the international franchise firm

Wholly-owned subsidiary

Joint venturefranchising

Area developmentfranchising

Masterfranchising

Master developmentfranchising

Level of Control


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1

Table 1: Research hypotheses on the governance modes of the international franchise firm (adopted from

Jell-Ojobor and Windsperger, 2014)

H1a

H1b

System- specific

assetsH2

Local market

assetsH3

Financial

assetsH4

H5a

H5b

H5c

H6a

H6b

Behavioral

uncertainty H7

The higher the financial resources required for implementation of the franchise

concept in the foreign market, the higher the franchisor’s tendency to use lower

control modes.

The higher the transaction costs due to cultural uncertainty, the higher the franchisor’s

tendency to use lower control modes.

The higher the monitoring costs due to behavioural uncertainty, the higher the

franchisor’s tendency to use lower control modes.


investments

The higher the franchisor’s transaction-specific investments relative to the franchise

partners, the higher the franchisor’s tendency to use higher control modes.

The higher the franchise partners’ transaction-specific investments relative to the

franchisor, the higher the franchisor’s tendency to use lower control modes.

The higher the transaction costs due to economic uncertainty, the higher the


The higher the transaction costs due to institutional uncertainty, the higher the

franchisor’s tendency to use higher control modes.

Environmental

uncertainty

International

strategy

Standardization strategy is positively related to the franchisor’s tendency to use of

higher control modes.

Adaptation strategy is positively related to the franchisor’s tendency to use of lower

control modes.

The more important the franchisor’s system-specific assets for value creation, the

higher the franchisor’s tendency to use higher control modes.

The more important the franchise partners’ local market assets for the value creation

of the network, the higher the franchisor’s tendency to use lower control modes.


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2

Hypo-

thesesTheory

Theoretical

constructOperationalization

Indicators applied in the

international franchise literature Code Family Main Codes Sub-codes

Organic growth

Takeovers

Plural form

JVFRegional support with local MDF network

expansion

Exclusive MDF licence of franchise outlets

Restricted right to sub-franchise

Franchise package for sub-franchisees

Selection of sub-franchisees

Management of sub-franchisees

Granting of sub-franchise licences

Sub-franchise fees

Termination of sub-franchise licences

Strategic alliancing Trans-atlantic alliance

Market share

Market potential

Number of outlets per country (scale)

Number of franchise countries (scope)

Brand name, reputation

Corporate identity, marketing

Various reservation channels

Webpage

Call centre

Yield management, fleet management

Supplier network

Tourism and mobility industry, GDS

Global franchise

networkGeographic presence and locations

Corporate customers accounts

Private customers accounts

Customer-segmented products

Vehicle selection

R&D, system innovation

Product and service quality

Human capital Career development and training

Growth and expansion

Cultural affinity, distance management,

international contract management

Standardization and adaptation

Global advertising, marketing, networking,

customer relations

Operational 'car rental'

know-how

Operational procedures, e.g. car damage,

purchase, monitoring, service quality, logistics

Strategic procedures, e.g. sales, marketing,

advertising, pricing

Business plan, finance plan, development plan

Fleet policy

Cost management

Brand name capital, corporate identity

IT and communication systems

Partnerships and cooperation

Global franchise network

Global customer base

Products

Operational and strategic 'car rental' know-how

EMPIRICAL PATTERNS

Level of Control

International

franchise

governance

modes

WOS

Standardization

strategy

Adaptation

strategy

Partnerships and

cooperation


Products

Transferable

system-specific

assets and know-

how

System-specific

know-how and

capabilities

System-specific

assets and

resources

MDF

Sub-franchising

Brand name capital,

corporate identity

Synergistic scale

advantages through

system-specific assets

exploitation

First mover

advantages through

local market assets

exploration

IT and communication

systems

Franchise package

Internationalization and

'transfer' capabilities

Strategic 'car rental'

know-how

H2


RBT & OCT

n.a.

(dependent variable)

▪ Control increases from

MF,

ADF,

JVF to

WOS

▪ Global customers versus local

demand

▪ Franchisor 'local learning'

▪ Market potential and economies

of scale advantages through

standardization strategy

▪ Global scale and scope and first

mover advantages through

adaptation strategy

THEORETICAL PATTERNSn.a.

(dependent variable)

H1a & H1b

IST

International

Strategy

DEPENDENT VARIABLE

INDEPENDENT VARIABLES

▪ e.g. Konigsberg, 1991; Contractor

and Kundu, 1998b; Jell-Ojobor and

Windsperger, 2014

▪ System-specific capabilities, such as

organizational competence, quality

competence, customer competence,

entry competence and physical

competence (Erramilli et al., 2002)

▪ Firm size and firm age as indicators

for monitoring capabilities (Shane,

1996; Elango, 2007)

▪ Monitoring capabilities (Petersen

and Welch, 2000; Hoffman and

Preble, 2001);

▪ Capabilities of business format

adaptation to local market

requirements (Choo, 2005);

▪ Franchsie package and centralized

services and support functions

(Quinn, 1999; Petersen and Welch,

2000)

▪ Documentation of the franchise

business format (Quinn and Doherty,

2000; Pizanti and Lerner, 2003)

▪ Foreign locations as a source of

learning (Petersen and Welch, 2000;

Pak, 2002; Dunning et al., 2007).

▪ Control over quality and system

standard maintenance (Contractor

and Kundu, 1998a, 1998b; Petersen

and Welch, 2000; Pak, 2002)

▪ Strategic importance of foreign

market potential, quick market

penetration, gaining global

competitiveness and monitoring rival

firms (Pak, 2002; Dunning et al.,

2007)

▪ System-specific assets, such as

brand name capital, software,

communication systems, strategic

partnerships, propriatory

knowhow, operational and

strategic industry-related

knowhow

▪ Innovation through system-

specific knowledge exploitation

▪ Complexity and standardization

of franchise business format


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3

Local human resources

Local industry-related partnerships

Local customer base

Local infrastructure, outlet locations

Cultural affinity, e.g. on business practice,

customer tastes, public relations, advertising

Economic affinity, e.g. on demand, competition,

market structure and mechanisms

Institutional affinity, e.g. on laws, regulations,

taxation

Product/service innovations or adaptations

Operational innovations or adaptations

Strategic innovations or adaptations

Fleet

Physical assets, i.e. outlets, workshops,

inventories

Human resources development

Advertising

Public relations and networking

Taste, lifestyle, preferences

Business practices and work ethics

Language barriers

General economic conditions and business

infrastructure

Availability of suppliers and industry-related

services, such as automotive industry, insurance

sector

Industry-specific competition

Industry-specific demand

Capital market regulations

Insurance market regulations

Taxation

Political systems, unrests, conflicts, corruption

Labor laws

Environmental laws

Franchise regulations

Legal safeguards, trademark protection

Proof of liquidity

Local reputation checking and partner investigation

Conceptualization of

the franchise business

format

System manuals, franchise brochures, support

materials

Initial set-up support

Initial training

Implementation into global reservation system,

internal communication systems, local webpage

Corporate identity, outlet design and site evaluation

Monitoring and auditing, customer complaint

management

Regular training and updates

Meetings and consultation

Headquarters support services

Trademarked store layout / signs, logo,

infrastructure

Training materials for employees and sub-

franchisees

Staff training

Brand awareness creation

Safeguarding risk, brand name damage &

reputation degradation

Property rights dissemination risk

Disappearance of local network

Loss of customer base

Sunk costs of the franchisor

Brand-loyal private and business customers

Supplier contracts and finance conditions

Specialized investments (loss of quasi-rent)

Sunk costs of the local partner

Capital-intensive

investments of

local network

expansion

Local innovation

and adaptation

Market-specific

assets and

resources

Market-specific

know-how and

capabilities

Institutional uncertainty

Cultural uncertainty

Local market assets

and know-how

exploration

Capital-intensive

intangible investments

Capital-intensive

tangible investments

Economic uncertainty

Transaction-

specific

investments of

the local partner

Tangible transaction-

specific assets of the

local partner

Intangible transaction-


local partner

Recruitment

Initial set-up

Financial loss of the

local partner

Switching costs

Standardized

centralized support

services

Local market assets

and resources

Local operational and

strategic 'car rental'

know-how and

capabilities

Transaction

costs due to

environmental

uncertainty

H4

H3


H5a, H5b & H5c

RBT & OCT

Local Market Assets

Financial Assets

RBT & OCT

TCT & AT

Transaction-specific Investm

ents (TSI)

Transaction-

specific

investments of

the franchisor

Hold-up risk of

the local partner

Hold-up risk of

the franchisor

▪ TSI of the franchisor, such as

documentation of the franchise

business format, initial set-up,

recruitment and training,

monitoring systems and support

services

▪ TSI of the partner, such as

trademarked equipment,

furnishing/design of the building,

signs, staff training and local

brand awareness creation

▪ Economies of scale (transaction

cost savings) through the

franchisor's standardized TSI

▪ Knowhow transfer risk due to

conceptualized franchise

business format, manuals,

trainings

▪ Ex post adaptation costs and

switching costs

▪ Sunk costs of early contract

termination

H6a & H6b

TCT & AT

▪ Brand name asset specificity and

intangible assets such as a global

reservations systems as well as high

initial start-up costs and outlet-

specific investments support

screening and reduce adverse

selection (Contractor and Kundu,

1998a, 1998b; Quinn and Doherty,

2000; Pizanti and Lerner, 2003;

Castrogiovanni et al., 2006; Elango,

2007)

▪ Franchisor support services (Quinn,

1999; Doherty and Alexander, 2004)

▪ Recruitment effort, and the

availability of qualified franchisees

(Erramilli et al., 2002; Hoffman and

Preble, 2003)

▪ Local market knowhow and strategic

assets of partners, such as access to

prime real-estate sites, financial

assets, existing customer base, local

consumer preferences, cultural

values, location-specific marketing

methods, local competitors and

distribution channels (Chan and

Justis, 1990; Jones, 2003; Hoffman

and Preble, 2003; Pizanti and Lerner,

2003; Choo et al., 2007; Dunning et

al., 2007)

▪ Adaptation of operational

procedures and business format due

to location-specific differences (Chan

and Justis, 1990, 1992; Contractor

and Kundu, 1998a, 1998b; Erramilli et

al., 2002; Frazer, 2003)

▪ Firm size and age as indicators for

tangible resource base of the firm

▪ Financial strength for launching and

developing the foreign brand (Choo et

al., 2007).

▪ Reduction of investment risk and

financial information risk through

franchising (Chan and Justis, 1990,

1992; Petersen and Welch, 2000),

capital market globalization and

advancements in information

technology (Huszagh et al., 1992)

▪ Adaptation costs due to cultural

distance (Chan and Justis, 1990,

1992; Fladmoe-Lindquist and Jacque

1995; Contractor and Kundu, 1998a,

1998b; Quinn, 1999; Quinn and

Doherty, 2000; Erramilli et al., 2002;

Frazer, 2003; Chen, 2010)

▪ Political and institutional distance, as

well as exchange rate fluctuations

(Chan and Justis, 1990, 1992;

Fladmoe-Lindquist and Jacque, 1995;

Contractor and Kundu, 1998a, 1998b;

Jones, 2003; Chen, 2010)

▪ Host economy development, such

as competition and business

infrastructure (Contractor and Kundu,

1998a, 1998b; Dant and Nasr, 1998;

Erramilli et al., 2002; Frazer, 2003; )

▪ Market-specific assets, such as

local industry-related knowhow

and infrastructure, institutional

ties, cultural affinity and supplier

networks

▪ Local innovations in

heterogeneous environment

▪ Franchise concept adaptation

due to environmental uncertainty

▪ Franchise partner seelction

criteria

▪ Capital-intensive factors of the

local franchise business, such as

fleet, outlets, infrastructure,

human resources, public relations

and advertising

▪ Heterogeneity of host markets in

terms of culture, economic

conditions and institutional

regulations

▪ Transaction costs of operations

in heterogeneous countries


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4

Table 2: Operationalization of constructs (theoretical patterns) and empirical pattern codes

Table 3: Case study candidate franchise systems of the global car rental industry

Logistic, adminstrative effort

Absorptive capacity of human resources

Free-riding Service and product standard maintenance

Sales

Corporate Identity

Market development

Cheating, withholding of information

Adverse selection

Residual claimancy on outlet profit

Financial risk

Benchmarks and standards

Standardized monitoring tools

Fee structure i.e. initial fee and territory fee,

royalties, advertising fee

Contract period, length

Exclusive territory

Termination clauses, such as lack of financial

capital, compensation payments and non-

competition clauses

Franchise manuals containing standardized

operational and strategic procedures, business

plan, finance plan, development plan

Geographic and

cultural distance

Under-investment

Moral hazard

Non-coercive

control

Entrepreneurship

Coercive control Standardized franchise

terms and conditions

TCT & AT

H7


Monitoring effort /

Agency costs

Opportunistic

behavior

IST (International strategy theory), RBT (Resource-based theory), OCT (Organizational capabilities theory), TCT (Transaction cost theory), AT (Agency theory)

▪ Geographic distance and

dispersion

▪ Opportunistic (partner) behavior

▪ Franchise entrepreneurship

▪ Standardized franchise contract

terms and applicable monitoring

devices

▪ Firm experience as an indicator for

power to negotiate franchise fees,

bonding partners and preventing

opportunism (Choo, 2005)

▪ Initial fee as an indicator for ex ante

bonding (Shane, 1996);

▪ Scale and scope operations as

indicators for monitoring effort (Burton

et al., 2000; Castrogiovanni et al.,

2006)

▪ Geographic distance (Fladmoe-

Lindquist and Jacque, 1995; Burton et

al., 2000)

▪ Simple business formats and

standardization lead to higher control

(Pizanti and Lerner, 2003)

▪ Restrictive contract terms/

performance schedule (Choo, 2005)

Automotive rental

franchise systems

Headquarters

location

Year of

founding

Year

franchise

international-

ization began Relational ties Countries*

Consolid-

ated rental

revenue*

Avis Budget Group, Inc. New Jersey,

USA1946 1953 2 200

6 500 70 350 320 3,9 billion

Budget Rent A Car System, Inc.New Jersey,

USA1958

Avis Europe Plc Great Britain 1965 2 9003 900 165

100 0001,2 billion

Hertz Global Holdings, Inc. Illinois, USA 1918 1950 145 444 100 6 billion

Enterprise Holdings, Inc. Missouri, USA 1957 19937 600 1,1 million 12,1 billion

National Car Rental and

Alamo Rent A CarMissouri, USA

1947/

197413 000 150

Europcar Groupe France 1949 19695 300 191 000 1,85 billion

Sixt Aktiengesellschaft Germany 1912 1991 100 67 700 0,96 billion

* in 2009

1 923

Stations

worldwide

(company-owned

& franchise)*

Fleet

(exclusive of

licensees’

fleet)*

2001: Avis U.S. becomes a wholly-owned

subsidiary of Cendant Corporation.

2003: Budget sells its shares to Avis

U.S./Cendant and their European activities to

Avis Europe.

Avis Europe is an independent company,

though it is working in a partnership with Avis

U.S.

8 100

2007: Acquisition of National & Alamo by

Enterprise Rent-A-Car, which are named

Enterprise Holdings in 2009. Europcar take

over for National & Alamo business in

Europe.

2008: Strategic alliance between Europcar

and Enterprise.


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5

Table 4: Pattern matching results of wholly-owned subsidiary

EMPIRICAL PATTERNS

Theory Theoretical Construct Observed conditions with the Establishment of a Wholly-owned Subsidiary

IST International strategy H1a Standardization strategy is positively related to the franchisor’s

tendency to use of higher control modes.

H1b Adaptation strategy is positively related to the franchisor’s tendency to

use of lower control modes.

RBT

&

OCT

Value creation through


H2 The more important the franchisor’s system-specific assets for

value creation, the higher the franchisor’s tendency to use higher

control modes.

- Implementation of a highly standardized franchise business format with state-of-the-art features in

homogeneous host countries.

- Investments in human resources training and career development, R&D and innovation of highly

standardized procedures, routines, assets, products and services in homogeneous (test) markets.


Local Market Assets

H3 The more important the franchise partners’ local market assets for the

value creation of the network, the higher the franchisor’s tendency to

use lower control modes.

- Maintenance of high levels of systemwide standardization and reduced importance of local market

assets.

- Minor adaptations of highly standardized franchise business format by the franchisor in homogeneous

host countries.

- Local learning of location-specific conditions by the franchisor, resulting in positive systemwide spill-over

effects in homogeneous host countries.


Financial Assets

H4 The higher the financial resources required for implementation of the

franchise concept in the foreign market, the higher the franchisor’s


- High investments needed to capture big market shares and outrival competitors, i.e. advertising, public

relations and strategic partnerships, R&D, systemwide standardization, vehicle brands.

- Compensated by favorable finance conditions at the external capital market due to the franchisor's

strategic assets, i.e. partnerships, scale activities, brand name value and reputation.

H5a The higher the transaction costs due to cultural uncertainty, the higher

the franchisor’s tendency to use lower control modes.

H5b The higher the transaction costs due to economic uncertainty, the

higher the franchisor’s tendency to use lower control modes.

H5c The higher the transaction costs due to institutional uncertainty, the


H6a The higher the franchisor’s transaction-specific investments

relative to the franchise partners, the higher the franchisor’s


H6b The higher the franchise partners’ transaction-specific investments

relative to the franchisor, the higher the franchisor’s tendency to use

lower control modes.

Monitoring costs due to


H7 The higher the monitoring costs due to behavioural uncertainty, the


Scale advantages in monitoring due to:

- geographic proximity of host countries, and

- homogenous host country conditions such as similar work ethics, transparent labor laws and

qualification level and absorptive capacity of local staff.

* Hypotheses in BOLD LETTERS are confirmed

TCT (Transaction cost theory), AT (Agency theory), RBT (Resource-based theory),

OCT (Organizational capabilities theory), PRT (Property rights theory), IST (International strategy theory)


Investments of the Franchisor

and/or Franchise Partners

Hypotheses *

THEORETICAL PATTERNS

TCT

&

AT

- Gaining a competitive market position in strategic (outbound) markets, which generate business and

private customers demand inside and outside the country.

- Provision of systemwide standardization, brand homogeneity & test markets, resulting in competitive,

homogeneous, state-of-the-art products, technologies & services.

Transaction costs due to


- Reduced investment risk and transaction costs in countries with cultural similarities, economic

development and political and institutional stability.

- Economies of scale with the provision of highly standardized franchise products and services.

- Favorable supplier conditions, e.g. repurchase and sales conditions.

- Efficient adaptation to changed environmental conditions.

- High transaction-specific investments of the franchisor to transfer a highly standardized franchise

business format to homogeneous host countries.

- High switching costs and safeguarding costs due to the franchisor's transaction-specific investments in

implementing a highly standardized franchise business format.

- Reduced hold-up risk due to reduced environmental uncertainty in homogeneous countries.


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6

Table 5: Competitive advantage of the car rental franchise business format

Competitive edge

characteristics of

global car rental

brands

Definition

SYSTEM-SPECIFIC ASSETS*

of Sixt and Europcar

franchise business formats

Explanation

Partnerships and cooperationFleet is a substantial and one of the main cost factors of car rental companies.

Preferential vehicle sales, repurchase and insurance conditions determine fix costs

and in turn affect cost management and pricing policy. Furthermore, strategic

partnerships in the travel industry offer competitive 'car rental' rates with cooperative

products.

Brand name /


The franchise system's global brand awareness and customer base reflect in demand

and business potential for the whole network which positively impact on a lower price

level. Franchise systems with big market shares have the potential to dump prices

and outrival competitors.


know-how

The franchisor has strategic knowhow on the complex pricing system which

considers different customer segments, booking channels, seasonalities or week

days.

IT and communication systems

The franchise system's highly sophisticated IT-systems contribute to the key factors

of successful car rental operations to maximise profit by balancing supply and

demand of car rental services. Among others, it provides fast and easy booking

channels, and monitoring and forecasting of fleet availability.

Partnerships and cooperationFlexible release orders with car manufacturers and dealers enable prompt replies in

adjusting fleet capacities to changes in demand.

Operational 'car rental'

know-howProduct and service quality are standardised, trained and supervised.

Partnerships and cooperationFranchise systems hold preferential agreements with car manufacturers and dealers

to provide different vehicle types.

Strategic partnerships constantly innovate different product offerings.

Products /

Human capital

Constant innovations by company expert teams offer new products tailored to

different customer segments (i.e. business, private, holiday customers).

Global franchise networkThe franchise networks are constantly expanded to provide global coverage in scale

and scope.


know-how

The country-specific development plan covers key locations such as all major airports

and city centers for each country.

* Observed empirical pattern codes regarding system-specific assets and capabilities (H2)

Distribution

locations

Especially business

customers request rental

offices in key locations and

global coverage.

Price Price in relation to the brand

and service value.

Vehicle availability

& Service quality

Fast and uncomplicated

rental process.

The goal is to maintain high

customer satisfaction and

brand loyalty by ensuring

vehicle availability to all

customers holding a

reservation.

Product innovations Selection among different

vehicle types and product

categories.


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7

Table 6: Pattern matching results of master development franchising

EMPIRICAL PATTERNS

Theory Theoretical Construct Observed conditions with Master Development Franchising



H1b Adaptation strategy is positively related to the franchisor’s

tendency to use of lower control modes.

RBT

&

OCT



H2 The more important the franchisor’s system-specific assets for value

creation, the higher the franchisor’s tendency to use higher control

modes.

- Standardization of system-specific, rent-generating assets and transfer of a competitive franchise package to local partners.

- Market failure risk with high systemwide standardization due to increased need for local adaptation.

- Rent-generating 'transfer' capabilities of the franchisor by expanding the global franchise network, such as international

contract and distance management, global advertising, marketing, networking and lobbying, standardization and adaptation.


Local Market Assets

H3 The more important the franchise partners’ local market assets for

the value creation of the network, the higher the franchisor’s


- High importance of the partners' local market assets for value creation of local franchise network, i.e. strategic location

assets, partnerships, supplier network, fleet, industry-specific know-how, customer base.

- Adaptation of standardized franchise business format to heterogeneous conditions, i.e. local pricing, fleet, rental process,

marketing and advertising, conditions for sub-franchisees.

- Time- and cost-intensive exploration and evaluation of heterogeneous market conditions by the local partner, i.e. demand,

tastes, competition, insurance conditions.

- Provision of local business plan by the local partner.


Financial Assets

H4 The higher the financial resources required for implementation of

the franchise concept in the foreign market, the higher the


- Overcoming of the franchisor's financial constraints by benefiting from the local partner's financial assets and conditions.

H5a The higher the transaction costs due to cultural uncertainty, the






H6a The higher the franchisor’s transaction-specific investments relative to

the franchise partners, the higher the franchisor’s tendency to use

higher control modes.

H6b The higher the franchise partners’ transaction-specific

investments relative to the franchisor, the higher the franchisor’s




H7 The higher the monitoring costs due to behavioural uncertainty,


- High franchisor monitoring costs in geographically and culturally distant and dispersed host countries.

- Self-enforcing goal alignment with the local partner being an independent entrepreneur of multi-unit chain in an exclusive

territory, bearing the costs of shirking and adverse selection.

- Reduced opportunistic behavior due to the application of standardized franchise terms, benchmarks, development plan,

business plan and finance plan.

- Local franchise partners are affine with local business practices, labor laws and cultures to manage local staff and operate a

successful business.







Hypotheses *


TCT

&

AT

- Provision of first mover advantages with the local partners' quick adaptation of the standardized franchise business format to

heterogeneous conditions.

- Global network coverage (inbound and outbound markets) with strategic car rental locations as in all major city centres,

airports, highly trafficked areas, to win the contracts with big corporations and tourism and mobility industry.



- High transaction costs, such as information processing and adaptation costs, and business failure risk in heterogeneous

countries in terms of cultural and economic distance.

- Scale economies due to moderate and standardized transaction-specific investments of the franchisor, i.e. system manuals,

recruitment, set-up, monitoring and training.

- High transaction-specific investments of the local partner to create local brand awareness, such as outlet design, advertising,

corporate identity, staff training.

- Reduced switching costs of the franchisor due to moderate transaction-specific investments.

- Reduced hold-up and re-negotiation potential of the franchise partners due to high transaction-specific investments (loss of

quasi-rent).


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8

Table 7: Pattern matching results of joint venture franchising

EMPIRICAL PATTERNS

Theory Theoretical Construct Observed conditions with Joint Venture Franchising



H1b Adaptation strategy is positively related to the franchisor’s

tendency to use of lower control modes.

RBT

&

OCT



H2 The more important the franchisor’s system-specific assets for

value creation, the higher the franchisor’s tendency to use higher

control modes.

- Implementation of a highly standardized franchise business format with state-of-the-art features in heterogeneous host

countries characterized by a dynamic, accelerating market growth potential, but still under-developed business sector.

- Increased transfer capabilities of the franchisor, needed for the implementation of a highly standardized franchise

business format in a heterogeneous environment.


Local Market Assets

H3 The more important the franchise partners’ local market assets for

the value creation of the network, the higher the franchisor’s


- High importance of local market assets for value creation of local franchise network, i.e. strategic location assets,

partnerships, supplier network, fleet, industry-specific know-how, customer base.

- Adaptation of standardized franchise business format to heterogeneous conditions, i.e. local pricing, fleet, rental

process, marketing and advertising, conditions for sub-franchisees.

- Time- and cost-intensive exploration and evaluation of heterogeneous market conditions by the local partner, i.e.

demand, tastes, competition, insurance conditions.

- Provision of local business plan by the local partner.


Financial Assets

H4 The higher the financial resources required for implementation of

the franchise concept in the foreign market, the higher the


- High investments needed to capture big market shares and outrival competitors in dynamic, accelerating growth

markets.

- Overcoming of the franchisor's financial constraints by benefiting from the local partner's financial assets, i.e. joint

venture partner and master developers.

H5a The higher the transaction costs due to cultural uncertainty, the






H6a The higher the franchisor’s transaction-specific investments

relative to the franchise partners, the higher the franchisor’s


H6b The higher the franchise partners’ transaction-specific investments

relative to the franchisor, the higher the franchisor’s tendency to use

lower control modes.



H7 The higher the monitoring costs due to behavioural uncertainty,


- Diseconomies of scale in monitoring due to high geographic and cultural distance of host countries, such as different

business attitudes and ethic values of local work force.

- Reduced enforcement power of franchise terms due to adverse instiutional systems.







Hypotheses *


TCT

&

AT

- Gaining a competitive market position among competitors and customers and winning strategic partnerships with the

provision of a highly standardized franchise business format coupled with the local adaptation to heterogeneous

conditions.



- High transaction costs, such as information processing and adaptation costs, and business failure risk in very

heterogeneous countries in terms of cultural and institutional distance.

- High litigation costs and property rights protection costs, due to adverse institutional systems, i.e. missing franchise

and property rights protection laws and corruption.

- High transaction-specific investments of the franchisor to transfer a highly standardized franchise business format to

heterogeneous host countries characterized by a dynamic, accelerating market growth rate with a still immature

economy.

- High transaction-specific investments of the local partner, i.e. master developers, to create local brand awareness,

such as outlet design, advertising, corporate identity, staff training, in countries characterized by big market size.

- High risk of 'brand hijacking' due to high levels of local adaptation.

- High hold-up risk and switching costs due to increased environmental uncertainty in heterogeneous countries and the

franchisor's transaction-specific investments in implementing a highly standardized franchise business format.


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9

Table 8: Confirmed hypotheses of the governance model of international franchise firms

Theory Hypothesis Variable WOS JVF MDF

H1a Standardization strategy x x

H1b Adaptation strategy x x

H2 System-specific assets x x

H3 Local market assets x x

H4 Financial assets x x

H5a Cultural uncertainty x x

H5b Economic uncertainty x

H5c Institutional uncertainty x

H6aHigh transaction-specific investments

of the franchisorx x

H6bHigh transaction-specific investments

of the franchise partnerx

H7 Behavioral uncertainty x x

IST

RBT & OCT

TCT & AT

IST (International strategy theory), RBT (Resource-based theory), OCT (Organizational capabilities theory),

TCT (Transaction cost theory), AT (Agency theory), WOS (Wholly-owned subsidiary), JVF (Joint venture franchising),

MDF (Master development franchising)


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APPENDIX 1: Interview guide

Theoretical

constructNo.

Questions representing operationalized indicators

(including explanation and examples)

1Which governance modes does the franchise firm use with the operation of the network in the foreign

countries?

- Wholly-owned subsidiary, joint venture franchising, single-unit franchising, multi-unit franchising, area development

franchising, master franchising, sub-franchising

2 Which strategy does the franchisor pursue?

- Standardization strategy versus adaptation strategy

- Market conditions, e.g. global versus multi-domestic demand, intensity of competition, market potential, market

homogeneity versus heterogeneity

- Systemwide application of local learning advantages

- Scale advantages versus first-mover advantages

3Which rent-generating assets, knowhow and capabilities does the franchisor possess regarding the

internationalization of the franchise business format?

System-specific assets and knowhow, such as

- Franchise product & service with a strong brand name

- R&D, innovations of product portfolio

- Marketing, sales, advertising

- Networking capabilities

- Cultural adaptability, distance management, internationalization competences

- Quality competence, standardization and adaptation/modification of product/services

4 How are innovations/new product features implemented in the franchise system?

- Transferability challenge of rent-generating system-specific assets

- Innovation through system-specific knowledge and assets exploitation

5 How complex is the car rental business/service?

- Transferability/non-transferability of system-specific assets

6 Which topics does the initial training cover? What makes part of the regular training?

- Transferability/non-transferability of system-specific assets

7 What does the franchise package/business format contain?

- Standardization of the franchise business format (transferable system-specific assets and knowhow)

8Which market-specific assets, resources, knowhow and capabilities do the franchise partners

possess/contribute to the local franchise network?

For example,

- Operational techniques, such as monitoring, training, sales and marketing, advertising and promotion

- Site specificity, access to prime real-estate sites, local infrastructure, human resources, supplier network, existing

customer base

- Market analysis regarding demand, competition, customer preferences

- Industry-specific business knowhow

- Access to finance and investment capital

- Institutional affinity

9 Which features of the franchise business format are adapted to the peculiarities of host countries?

- Product/service adaptation, such as product offerings

- Operational procedures, such as monitoring and training, internal communication, accounting, reporting, procurement

- Strategic procedures, such as pricing, marketing and sales, advertising, promotion

10 Which selection criteria for franchise partners does the franchisor apply?

For example,

- Prior franchising experience, management knowhow, entrepreneurial affinity

- Prior industry-related experience

- Financial assets

11 What are the capital-intensive factors of implementing and operating the franchise network in the host country?

For example, financing of physical assets, such as fleet, real estate and store layout, as well as human capital assets

12 Does the franchisor participate in some form of equity investment or provide finance to the franchise partners?

For example, support with the financing of site location/real-estate, fleet, buy-back of depreciated/old fleet, cheap loans,

favorable fleet purchase conditions, insurance conditions

Level of control/

governance

structure

International

strategy

System-specific

assets

Local market

assets

Financial assets


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11

13Which financial challenges does the franchisor face with the franchise network expansion in general and to

risky countries in particular?

- Indicator for the importance of the franchise partner's financial resources with the implementation of the foreign

franchise network

14 Which cultural, economic and instiutional differences exist with the expansion into host countries?

- Cultural differences of ethics, tastes, habits, preferences, income, media habits, values, languages, business attitudes

- Economic differences, such as level of demand and competition, business infrastructure

- Institutional differences and hazards, such as regulations, legal system, politics, corruption, property rights protection

15 How time- and resource-consuming is the knowledge exploration and adaptation process?

- Transaction costs due to environment uncertainty

16 Which location-specific adaptations has the franchisor performed in corporate countries?

- Transaction costs due to environment uncertainty

17 Are the processes of the franchise business format well-documented?

- Standardization of the franchise business format, such as franchise manual, operations manual, marketing manual

18 What makes part of the network set-up services?

- Indicator for standardization of the initial set-up support

- For example, training, corporate identity design

19 How does the franchisor search for and screen new partners? How much effort does he dedicate into it?

- Indicator for standardization of the recruitment process

20 Which other support functions does the franchisor provide to the local partners?

- Standardized support services of the franchisor, such as meetings, trainings, consultations, centralized franchise

department

21 Which scale advantages can be achieved through the standardization of the franchise business format?

For example, scale advantages in recruitment, set-up, monitoring, quality control, purchasing, marketing, advertising

22 Which costs do arise for the franchisor if he terminates the franchise agreement with the local partner?

- Indicator for the franchisor's hold-up risk

- Switching costs, such as disappearance of local franchise network, property rights dissemination risk

23 Which are the franchise partners' investments with the implementation and operation of the local network?

- Tangible and intangible transaction-specific investments of the franchise partner

24 Can the franchise partner use these investments after contract termination?

- Indicator for hold-up risk of the franchise partner

25 Which costs do franchise partners incur in case of contract termination?

- Indicator for holdup risk of the franchise partner

- Loss of quasi-rent, such as initial fee, brand awareness creation

26How do geographic distance and dispersion of franchise outlets affect the franchise product and service

quality standard in host countries?

- Opportunistic behavior such as free-riding, under investment, adverse selection

27 How do cultural and geographic distance of franchise outlets affect the franchisor's monitoring effort?

- For example, travelling intensity, frequency of site visits

- Indicator for autonomy versus hierarchical governance

28 Whichmonitoring devices does the franchisor apply?

- Indicator for coercive versus non-coercive control mechanisms

- For example, random vs. frequent site visits, audit system and reporting, customer complaint management

29 Which terms and duties does the franchise contract cover?

- Coercive control, such as performance schedule, territories, fees, market research, reporting, local advertising, service

quality, non-competition clause, termination clauses, contract length

30 How does the fee structure of franchise agreements look like?

- Fee structure, such as initial fee, territory fee, royalties and advertising fee, as well as price bonding

31 What are the reasons for contract termination?

- For example, bankruptcy of franchise partner, breach of contract, such as under-investment

32 Which terms and conditions apply to sub-franchising?

- For example, fee structure and profit distribution, control and monitoring.

Transaction-

specific

investments of

the franchise

partner

Behavioural

uncertainty

Environmental

uncertainty

Transaction-

specific

investments of

the franchisor


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Appendix 2: Selected quotations (empirical pattern codes) regarding the franchise governance modes and their determinants

WOS JVF MDFSynergistic scale

advantages

First mover

advantages

EUROPCAR

In the United States of America, we

have formed a global Alliance with

Vanguard that is National / Alamo,

which were then bought by

Enterprise. We now have a global

alliance with Enterprise / National /

Alamo. So we have practically

covered the North-American market

through such a partnership, global

alliance. They send us their business

for Europe, we send them our

business for USA. That is a

partnership. And that was important

to us. Because many of our

customers also want a service in this

market [USA], and vice versa, if they

[Enterprise] have customers that are

travelling to Europe and the Middle

East, then we are the right network

for them.

MAIN CODES

SIXT

The two criteria

for subsidiaries

are market

potential in

Europe and

proximity to the

German

headquarters. The

larger the

geographic

distance between

our headquarters

and the foreign

country is, the less

control we have.

That is very clear.

We establish

corporate

operations in the

markets in which

we have an

incredibly strong

presence, to

provide a 100%

brand

performance, as in

markets which are

not yet developed

or less mature.

EUROPCAR

Our strategic

objective is to

build our network

around the world.

We want to really

be a global player.

A global car rental

provider. This is

happening since

10 years. To

ensure this, we

developed a

strategy of

establishing

almost exclusively

a European

network of

corporate

countries.

SIXT

Do the products

that I offer in

Germany also

make sense in

India or in China?

In this respect, I

may offer other

products, adopt a

different approach

and a different

organizational

structure, simply

spoken, because

also the

qualification of

the staff in India

or China are very

different.

EUROPCAR

If you want to

enter into a

market and

establish your

brand there, the

franchise model

has been proved

to be the quickest

way to achieve a

reasonably

relevant market

position.

To grow fast and

efficiently without

investing own

resources in the

countries outside

of corporate

Europe, we are

looking for

partners and

providing them

exclusive franchise

licenses for the

whole country

territory.

SIXT

The master developer basically has the

option to also acquire sub-franchisees, but

in the contract, of course, we secure that

master developers operate the most

important territories by themselves. That

depends on the territory. Some territories

are so small so that sub-franchising is

neither possible, nor desired by us. But if

the market develops, then we modify the

contract accordingly.

EUROPCAR

Sub-franchising is the exception and the

partners need to get approval from us. In

Russia, we have already approved one or

two of these sub-franchisees.

In exceptional cases where the countries are

very large, like in Russia and Brazil, it makes

no sense for the master developer to

operate own stations everywhere. For

example, the distance between Moscow

and Vladivostok is 8000 km. In situations of

large distances within countries, the master

developers would naturally work with sub-

franchisees. Take the Greek islands as

another example. The sub-franchisees on

the islands own their own fleet. The cars are

used on the islands and the master

developer does not always have to carry

them back and forth by ferry.

'STANDARDIZATION AND

ADAPTATION STRATEGY' 'INTERNATIONAL FRANCHISE GOVERNANCE MODES' (dependent variable)

SIXT

We have grown incredibly in the last 10

years. In addition to strengthening business

in our European core markets, our strategy

is to expand presence in the other regions of

the world by partnering with highly efficient

franchise partners…Generally we have one

master developer per country. We never

have two partners in one country.

EUROPCAR

Since 10 years, our strategic goal is to build

our network around the world. We do this

usually with individual franchising, meaning

we go to the respective country and look for

a partner, and if we succeed, the partner

will be given the franchise license for the

whole country. Most franchise countries

operate their own outlets and stations.

MAIN CODES

SIXT

Basically, we started with a

corporate expansion in

Europe, which means

expanding outside Germany

by establishing our own

foreign subsidiaries. Besides

Germany, we own rental

offices in the core European

countries like Belgium,

France, Luxembourg, UK, the

Netherlands, Austria,

Switzerland and Spain.

In Germany, France and UK,

we use a hybrid form [plural

form], that is we own the

most important stations

ourselves and in addition,

we are looking for individual

franchisees who receive

territorial exclusivity for

cities, ZIP codes , territories,

etc. in these countries.

EUROPCAR

We have a European

network of almost

exclusively corporate

countries. We call them

corporate countries [these

are countries where wholly-

owned subsidiaries are

established]. These are our

own countries, where our

own national companies

operate. This takes place in

the major markets in

Western Europe, that is

Germany, France, UK, Spain,

Italy etc. the seven major

countries in total ... Last year

we acquired the master

franchisee in Australia and

New Zealand.

In France, Spain and

Australia we also have

domestic franchising, that

means franchising in the

corporate countries [plural

form]. In the UK we had

domestic franchisees, but

we converted all of them

SIXT

Due to the distance of the markets in

Asia, we have established a joint

venture with a local partner in

Singapore. Only for the reasons to

reduce the costs and risks caused by

such an expansion. The joint venture

in Singapore is not an operational

unit. This is a development unit,

which is responsible for searching

new franchisees throughout Asia,

training and supervising them.

EUROPCAR

Usually we do not enter into joint

ventures. There is one exception and

that is China where joint venture

franchising makes sense. Market

access is very difficult, the legislation,

foreign investment issues, etc.

Strategic alliance Sub-franchising


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13

Brand name IT Partnerships Global network Global customers Products Human capital

'SYSTEM-SPECIFIC ASSETS'

SIXT

Flexible agreements

with vehicle

manufacturers enable

the Company to a

certain extent to

stagger vehicle orders

over a period of time

to meet concrete

demand.

Usually, almost all our

vehicles purchases are

covered by fixed buy-

back agreements with

the manufacturers or

dealers.

Strategic, long-term

partnerships and

cooperative ties with

airlines, hotel chains

and other key players

in the mobility and

tourism industry, such

as GDS systems which

are world-wide

programs targeting

travel agents, tour

operators and

consolidators, are an

important factor in the

Sixt Group’s success.

EUROPCAR

We constantly

establish strategic

partnerships that

reinforce our position

in our markets

worldwide. Our most

important strategic

partners are easyJet,

Europe’s leading low-

cost airline, Accor, the

European leader and

world’s third largest

hotel services group,

TUI, the world’s

largest tour operator,

and SWISS

International Air Lines.

In addition, we have

strong relationships

with the automotive

industry, as a

purchaser of fleet

covered by buy-back

commitment from the

manufacturers.

SIXT

Sixt has created the

most elaborate

software of the car

rental industry,

including internet

booking solutions,

central billing and

yield management

system.

A complex, high-

performance IT

system is essential for

processing rental

transactions. System

malfunctions and

failures can cause

considerable

problems in operating

processes and, in

serious cases, even

bring them to a

standstill. In order to

counter these risks,

we have our own IT

department.

EUROPCAR

We use a variety of IT

systems. The car

rental business deals

with huge investment

volumes. To make car

rental business

profitable, one must

primarily know the

costs and key

performance

indicators. First and

foremost, this is a

matter related to IT.

An IT system is a

prerequisite for the

management of the

whole story and one

of the main success

factors of car rental

business.

Through our IT

platform we manage

the business of all our

subsidiaries and the

reservations for our

franchise network

around the world,

including sales,

marketing, billing and

insurance, as well as

fleet management

and maintenance.

SIXT

The “Sixt” brand

name in particular is

a significant asset.

Sixt won numerous

awards for its high

level of customer

orientation and high-

quality mobility

solutions.

Based on a

representative

online survey

commissioned by

the Company and

conducted in 2007,

spontaneous

awareness of the

Sixt brand stands at

84% among

business travelers in

Germany. It found

that Sixt is

perceived as a

premium brand with

the best service, the

friendliest

employees and the

fastest and least

complicated rental

processes.

EUROPCAR

We received

numerous awards,

including the World

Travel Award for

“World’s Leading

Car Rental

Company” for the

10th consecutive

year.

We were also

named “Leading Car

Rental Company” in

Europe, the Middle

East, Africa and

Central America,

reflecting the high

quality of its

services around the

world.

MAIN CODES

SIXT

In Germany, Sixt has

a market share of

over 30%, making it

the market leader.

Sixt covers over 70%

of the European

rental market.

The Sixt brand has

an almost global

presence and offers

more than 3,500

rental locations with

a fleet of 170,000

rental cars

worldwide.

EUROPCAR

If you want to be

global player, you

need to have a

solution for the

United States. This

is the largest vehicle

rental market.

Therefore, we

entered into a

strategic alliance

with Vanguard. We

now operate in the

EMEA market,

which is Europe,

Middle East and

Africa, while the US

market is covered

by our alliance

partner.

Our franchise

partners recognize

the importance of

an international

network and brand.

For instance, South

Koreans travel much

to Europe and the

USA, and then it

makes sense for our

South Korean

franchisee to be

part of the global

network.

SIXT

Our sales

department takes

care of multi-

national key

accounts.

We acquired a large

number of new

customers, including

some high-profile

international

corporations and

middle-market

companies.

In addition, we

continuously

intensify our

business with

private customers

and holidaymakers.

EUROPCAR

This strategy has

allowed Europcar to

further expand its

presence by gaining

access to a broader

base of customers.

Europcar and

easyJet together

have served nearly 2

million customers.

Europcar serves

customers in more

than 60 countries

where TUI does

business, primarily

through the TUI,

Nouvelles Frontières

and Wolters Reisen

brands.

SIXT

Ultimately, all of our

products and

services have the

same goal: to

provide our business

and corporate

customers with

premium mobility

services that is

comprehensive,

comfortable and

cost-effective. This is

the benchmark by

which we want to be

judged.

Depending on

market

requirements, we

offer customer-

segmented mobility

services, such as

“Sixt Limousine

Service & Chauffeur

Drive”, “SIXT

holiday”, “SIXTI”,

etc.

EUROPCAR

We just launched a

new product for

urban customers

and small and

medium-sized

businesses, the

EuropcarClub. This

subscription-based

system offers a real

alternative to car

ownership, with the

possibility of

occasional car

rentals that allow

customers to save

money and reduce

CO2 emissions.

In a highly

competitive market

such as vehicle

rental, service and

technological

innovation go hand

in hand as strong

sources of

differentiation. We

constantly strive to

anticipate our

customers’ needs by

innovating to

provide new

services.

SIXT

The personal skills

and know-how of

our employees

constitute an

important success

factor and

guarantee service

quality.

If, for instance,

there is a higher

turnover and

therefore a loss of

know-how, this

could affect the

quality of service in

the car rental

business. We guard

against these risks

through increased

involvement in

training and

professional

development, as

part of our

corporate culture

and through the use

of incentive

systems.

The basic principle

of our business

policy remains to

develop

sophisticated IT

systems and to

invest in new

technologies.

Accordingly, every

year, we think of

what to customize

and how to become

better. These

innovations are

important features

that distinguish us

from our

competitors.


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14

Operational know-how Strategic know-how Transfer capabilities Franchise package

'SYSTEM-SPECIFIC KNOW-HOW AND CAPABILITIES' AND THE 'FRANCHISE PACKAGE'

SIXT

The better you become, the more you learn, the

better you handle the countries, the more you

think about expansion.

Of course, I make sure that I find people who

have an academic background and have a certain

intercultural experience.

We are a German company and a lot of our

communication is in German. This might create

the impression that we operate internationally in

the same way as in Germany. But that's not the

case. Our operations are adapted to the specific

markets. For example, software, webpage,

corporate identity features, etc. all are adapted to

the country and the local business plan.

Our activities involve entering into a large number

of different agreements. This is generally only

possible by using standardized agreements. This

means that even minor inaccuracies in the

wording or changes to the legal framework could

have a material effect on business activities. We

counteract this risk via contract management

with the help of legal experts.

Marketing has been a core competence of Sixt.

Driven by innovation, a major portion of our

growth can be attributed to fabulous advertising

and multi-awarded marketing strategy.

EUROPCAR

In Europe, the Middle East and Africa, we have

established our network fully. In Latin America,

there are still a few countries left. We negotiate

for Chile, Brazil and Columbia. Bolivia and

Paraguay are not interesting as there is no market

for car rental business. We conducted a market

analysis in both countries and the whole rental

market is made up by 1000 cars. That does not

make so much sense. Of course, at some point we

will deal with Paraguay and Bolivia, but at the

moment we are dealing with Brazil and Chile,

Korea, perhaps also Taiwan…

One has to be flexible enough to implement the

criteria according to local requirements. For

example, we could suggest making the contract

“offshore”.

We have a highly experienced franchise team at

headquarters. One colleague has been a former

fleet director while the other one was operational

director in France. Further colleagues are from

Holland and UK. So we are a multicultural team.

We still have one colleague in Florida who is in

charge for Latin America, and the one in Bangkok

is responsible for Asia.

MAIN CODES

SIXT

We have experience and know-

how in the car rental industry

since 1912.

We have pursued a very

cautious fleet policy. The

reduction in the fleet size,

combined with strict cost

management and successive

price increases, subsequently

led to an improvement in

earnings.

EUROPCAR

We accelerated the

implementation of programs

designed to integrate recent

acquisitions, as well as

numerous initiatives to

improve network and fleet

productivity.

We will pursue our strategy of

improving profitability by

maintaining strict pricing

discipline, optimizing our

business portfolio and

improving the operating

efficiency and yield of our

fleet.

SIXT

Sixt were one of the first

providers in the market to

analyze the costs of the entire

rental process, including

selection of manufacturer,

booking channels, vehicle

check-out and return, accident

management, etc.

We reduce bureaucratic

administration and focus on

sales and marketing to support

our franchise partners'

operation.

EUROPCAR

It is of course our expertise to

perform car rental business

efficiently...It is important that

you are familiar with certain

procedures, for example claim

management and the

expenditures. If a car is

damaged during the rental

process, then it has to be

managed very efficiently in

order to avoid high sunk costs

otherwise. There are special

procedures to detect and

report damage, immediately

repair the car and bring it back

into our IT system.

SIXT

Our franchisees benefit from our

worldwide network, e.g. having

access to existing international key

accounts such as EADS, Siemens, Mc

Donald’s, Danone, KMPG, UPS as well

as integration in our global call center

system generating millions of

reservations per month. We are

running call centers in 85 countries –

in English and each national language

and offer special call center training

programs to all our partners.

Our online reservation platform will

be tailor-made to local country needs

by offering the same Sixt-corporate

identity.

Franchisees benefit from our

longstanding relationships with

leading car manufacturers, such as

Mercedes-Benz, BMW, Audi, Ford.

Nevertheless, the franchise

agreement does not guarantee

preferential purchasing conditions.

We transfer business planning tools,

fleet cost calculation schemes and

customer margin analysis models to

help our franchisees secure their

investments and build a profitable

business.

EUROPCAR

Our network structure and

procedures, business plan, the whole

knowledge to run a reasonable car

rental business are transferred as

part of the franchise package to our

partners. Of course, they must accept

our corporate identity, and will

receive training on that. Our

marketing package is a virtual

marketing agency where all of our

advertising campaigns and tools can

be downloaded, such as poster

templates. We teach our partners to

produce their own flyers and posters.

I can tell you from experience that

someone who acts as part of the

Europcar group, will receive better

financial conditions. Being part of the

franchise system opens profitable

funding opportunities.

We extend our European and pan-

European framework agreements

with Daimler, Volkswagen, etc. to our

franchise partners as well.


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15

Local market assets &

know-how exploration

'MARKET-SPECIFIC ASSETS, RESOURCES, KNOW-HOW & CAPABILITIES'

CAPITAL-INTENSIVE INVESTMENTS

OF LOCAL NETWORK EXPANSION

Capital-intensive tangible and

intangible investments

SIXT

For example, in

most countries in

Eastern Europe,

the population is

moving between

2-10 million

inhabitants.

Hence, in most

cases, there is a

major city and

many smaller

cities, and the

focus of

development will

be of course, to

build a network in

this major city, at

its airport, and

maybe 1 or 2

additional city

offices.

Physical assets,

fleet and staff are

the largest costs,

which the partner

must finance.

In some contracts,

we also include

minimum capital

requirements.

Because in the

first two years,

they [our

partners] will

definitely not

achieve a break-

even point.

EUROPCAR

The partner must

be able to

establish a car

rental business.

This means having

money or options

to finance it. 100

cars simply cost

money, and you

need to cough up

some millions.

We operate in a

capital-intensive

business. The

investments are

large. Therefore,

we do not want to

establish a

company in each

country. This is

simply too costly.

We cooperate

with solvent

partners who will

not, after a year

or so, notice that

they do not have

enough financial

resources.

The most

important thing

are the cars and

the costs of

financing. As a

rule, fleet covers

50% of the total

investment

volume.

MAIN CODESMAIN CODES

SIXT

…which is positive

because he [the

franchise partner]

knows the

market, he

probably already

celebrated

success stories

there, he is

adding an

existent business

volume to the

local franchise

operations, and

we will naturally

more quickly

achieve a certain

market position.

…he [franchise

partner] adds

certain synergies

to our business,

that are finances,

cars, or strategic

ties to the travel

industry … these

are the three

important

business

segments which

our industry

depends on.

EUROPCAR

These [our partners] are

either automobile

dealers, importers,

someone from the travel

industry or who has his

own workshop or a bit of

infrastructure.

If he now has a counter at

the airport, then this is

usually his asset. And our

partner in India is Jet Air,

the second largest airline

company. They have a

structure anywhere in

India, they have good

contacts to the airports

and now fly to Europe.

Getting market access to

the USA, you need to be

located at the airports.

This is a very big hurdle to

enter the market,

because contract

negotiations are very

tedious and there are no

spare capacities at the

airports.

This depends a bit on the

situation in that particular

country. The

manufacturers do not

always offer the same

conditions for all

countries. Therefore, due

to the country-specific

situation, to each country

apply different vehicle

purchase conditions in

Europe.

SIXT

…if he ensures

that added-value

comes into play,

such as insurance,

fleet purchasing,

etc. then this will

be his business

model in the

country…

We had the

opportunity to

open a

development

office with a

partner in Asia.

This partner is

naturally

interested that

we work

relatively efficient

there. The

partner has also a

management

function and we

now try via this

joint venture

office to acquire

franchise partners

throughout Asia

and supervise

them on site.

EUROPCAR

It is the partner’s

knowledge that

will take us

quickly into the

market. It is all

about speed.

We want to have

people who can

deal with cars and

understand the

business. This are

people who own

local car rental

companies or

who are in the

automotive

business. We

believe there are

a lot of synergies.

Today we have a

franchise partner

in Switzerland,

probably

contributing one

of the best results

in our network.

So you can see

that local

expertise and

synergies make

sense…

SIXT

It is essential for our

partners to adapt their

products and services

to the changing

economic and social

environment and to the

individual requirements

of their customers.

It makes no sense to

use the same

advertising in Kuwait

and in Spain.

We advertise a high

premium content of

our fleet especially in

the Central European

markets, like Germany,

Austria, and

Switzerland. But in

France, for example, it

is completely different.

The Frenchman prefers

small cars from French

manufacturers, above

all Renault, Peugeot,

and Citroen. Whereas

in Palma de Mallorca,

customers would drive

convertibles, but

certainly not Mercedes

C Class. Therefore, the

fleet is adapted in each

country.

EUROPCAR

In Paris, rather smaller

cars are rented,

because people know

they will generally have

difficulties to find a

parking space.

Local market assets and resourcesLocal operational & strategic

'car rental' know-how


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16

Cultural

uncertainty

Economic

uncertainty

Tangible and

intangible transaction-


partner

Financial loss of

the partner

'TRANSACTION-SPECIFIC INVESTMENTS OF

THE FRANCHISE PARTNER'

MAIN CODES

SIXT

Investments into the

store, corporate

design, all these are

100% system-specific,

even staff training. To

improve service

quality in the vehicle

rental area, we also

took on staff who

were previously

employed by our

partners.

EUROPCAR

We operate in a

capital-intensive

business. The

investments are large.

Our partner invests

into the brand to gain

a presence with the

local network.

There are great

franchisees who also

establish their own

training centers and

train their people.

SIXT

Initial Fee, of

course we do not

pay back. Also the

franchise store,

which is held 100%

in the Sixt design,

the partner can no

longer use, if the

contract is over.

EUROPCAR

If the contract is

over, then the

franchisee is on his

own. Whatever he

has invested in the

brand, in the

awareness of the

Europcar business,

he will lose. For

instance, the

partners must

spend 3% of their

turnover on local

advertising.

The question is

whether the

partner can

continue car rental

business without

the former

trademark.

EUROPCAR

The political stability of countries

is very important. Who wants to

invest in North Korea or

Afghanistan where there is war?

We rather cover risky countries,

such as Syria, with our partners.

This is our principle.

Before, Eastern Europe was

difficult to access due to its

political situation.

Of course, there are always

market entry barriers which are

easier to circumvent with a local

partner than starting your own

car rental business in that

country. We only need to look at

China or other countries with

high entry barriers or

protectionism of markets. For

example, in the US, it is

incredibly difficult for a foreign

corporation to establish car

rental business there. In

principle, this is a free market,

but still the entry barriers are

considerable. Of course, these

conditions encourage us to

expand with the franchise

model. As a rule, the reason why

we do franchising is simply quick

time-to-market pace.

The legal environment for a

franchising can be totally

underdeveloped or not yet

existent in some countries.

That’s why in China there are a

lot of joint ventures. In China,

the risk is very high that the

trademark cannot be protected,

since there is no legally safe

environment.

In Brazil, we are having a court

case with our former partner

since three years. This is

incredibly difficult. Brazil is very

protectionist towards their own

people. Currently there is no

Europcar in Brazil.

'TRANSACTION COSTS DUE TO ENVIRONMENTAL UNCERTAINTY'

SIXT

Demand in the

vehicle rental

business is also

dependent on

numerous random

factors, such as the

weather and short-

term changes in

customers’ mobility

requirements, and is

therefore

intrinsically difficult

to forecast.

The vehicle rental

industry continues

to be dominated by

intense predatory

competition, in

which price is also a

factor.

No reliable estimate

can be given of the

extent to which the

weaker economic

environment will

continue to impact

on the readiness of

companies and

private individuals to

spend money on

mobility services in

future.

EUROPCAR

In a challenging

economic

environment, we

confirmed our ability

to adapt quickly

thanks to our flexible

business model. We

rolled out efficient

adjustment

measures that have

strengthened our

competitive

position.

MAIN CODES

Institutional uncertainty

SIXT

The expansion strategy

involves various risks

including market-

specific, legal, fraud,

financial and personnel

risks. These include

possible incorrect

assessments of market

conditions in the

countries in question,

changes to national legal

frameworks, the costs

associated with the

establishment of an

effective infrastructure

and the need to find

qualified management

personnel and suitable

employees.

Our business is

influenced by a number

of different legal

systems. These include

road traffic,

environmental

protection and public

order regulations, tax

and insurance laws, and

capital market

regulations.

Our business is exposed

to national and

international

developments such as

political unrest, armed

conflicts, acts of

terrorism and epidemics,

and by restrictions on

private and business

travel as a result of such

events. Since such

events are difficult or

even impossible to

predict, consistently

reliable forecasts

regarding the

development of travel

can only be made to a

very limited extent, if at

all, even in the short

term.

SIXT

Cultural and

political stability

are of course

critical factors to

consider with the

expansion into

foreign countries.

We would

definitely not

invest in Russia in

the next 5 years,

simply because

the legal

uncertainty is so

great, the

language barrier

is so large, and

cultural

differences are so

great. So, this is

certainly one

reason to

franchise.

Cultural factors

are very great.

Regarding

franchising in

Asia, it is quite

clear that each

Asian market has

different

conditions.

EUROPCAR

Australians have a

quite similar

business

understanding as

ours, as compared

with Japan or

Indonesia for

example. That’s

why we decided

to convert the

Australian master

franchise license

into corporate

operations.


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17

Recruitment

Conceptualization of

the franchise

business format

Initial set-upStandardized centralized

support servicesSwitching costs

SIXT

The start-up will be

guided by our franchise

team. Tailor-made

training programs (e.g.

station manager training,

call center management)

will ensure that the

partner's know-how and

service level will be

according to the

standards of Sixt.

The set-up includes the

implementation into the

Sixt booking system, as

well as initial training of

everything that was

considered relevant in

the business plan. We

provide marketing

materials, equip the

partner’s first station in

Sixt corporate identity

and provide all these

materials from the

German headquarters.

Software, webpage,

corporate identity

features ... we offer all

these start-up services,

tailor-made according to

country, culture, climate

and the local business

plan.

EUROPCAR

The first week is called

our introductory week.

We show our partners

how to conduct an

efficient car rental

business according to

our standards, how to

set up a station, and, of

course, we will connect

them to our reservation

system.

SIXT

The franchise system

is documented with

system manuals,

operation manuals,

training manuals,

corporate identity

manuals which we

constantly update.

Monitoring, quality

control, purchasing,

marketing,

advertising… These

are the processes of

our franchise

business format.

EUROPCAR

That's part of the

whole package. We

have developed an

internet platform for

our partners. This is

like a virtual

marketing agency,

including all our

advertising

campaigns and the

tools you need for it,

such as any

templates, posters.

SIXT

We screen

applicants based on

financial

information by

credit institutions

and business

partner references.

We like to ask for

references. We just

call people over the

telephone. If our

potential partner is

a car dealer, then

we would call the

manufacturer.

EUROPCAR

Sometimes it is us

who contact the

potential partners,

sometimes they

approach us. We

use all the

elements to find an

appropriate

partner, also a local

consultant. All

information about

potential local car

rental companies,

leasing companies,

banks, which could

be interesting for

us to partner with.

Partner selection is

a systematic

process.

For a year or so,

our man in Bangkok

established contact

with potential

applicants. Now we

found one. This is a

bank that is into

the leasing

business.

MAIN CODES

SIXT

With the non-

competition clause,

we want to protect

ourselves against the

fact that the partner,

whose agreement had

to be terminated, will

start acting as a direct

competitor in the

market. Because this

would be the worst

thing that could

happen, that I develop

a partner in a country

who, someday, simply

switches the brand

and then uses

everything he was

trained against us in

the future.

EUROPCAR

There are certainly

partners who exploit

their bargaining

power.

If the partner has

achieved a leading

position in the market,

then that is also a

certain pressure

situation for us. If we

would decide now to

terminate working

with him, then we

would lose leadership

position and presence

in this market.

SIXT

Regular training is conducted at

headquarters and on site, on a „need-to-

need“ basis, depending on staff turnover

and growth potential of the local network.

We conduct on site audits based on

demand potential as well as customer

complaints over quality.

The Sixt marketing team supports the

partners in implementing the system and

quickly and efficiently growing the

business through advertising assistance.

In order to enhance the communication

and best practice exchange between the

countries in terms of corporate sales,

marketing and operations, we have

structured the Sixt world in 6 geographical

areas. Once a year, area summits will be

held in every region. In each Sixt area, one

area director is in charge of coordinating

the region with a direct link to Sixt

headquarters.

EUROPCAR

We visit our partners once a year and

carry out an audit, for instance, regarding

the state of the fleet and the local

network overall. And then we have the

official audits of accounts, books,

operations, etc. conducted by our internal

audit department once every few years.

We also implemented a complaint

management system to find out where

the causes of customer dissatisfaction lie.

In Hamburg, there is a large training

center. Training is part of the franchise

system. We teach our partners on what

makes up the Europcar system. Of course

they must accept our corporate identity.

We organize regional meetings once a

year for each region.

The supervision of our franchise partners

is quite intense and we travel a lot. We

have four regional directors at

headquarters plus two persons on site in

Asia and Latin America respectively, who

take care of the countries.

'TRANSACTION-SPECIFIC INVESTMENTS OF THE FRANCHISOR'


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18

Geographic and cultural distance Free-riding Under-investment EntrepreneurshipStandardized franchise terms

and conditions

SIXT

This is generally only possible by using

standardized agreements.

We implement all features of our car rental

software in about 20 countries. This makes it

relatively easy then to control the revenues in

these countries.

Basically, I would say that our monitoring is

standardized. We can break down, describe

and control all necessary work processes, so

that performance measurements can be

carried out.

The Sixt Group also relies on intellectual

property rights to protect its business

activities. Preserving these rights at national

and international level is an important

precondition for maintaining competitiveness.

The franchise agreement describes above all

the relationship between franchisor and

franchise partners. It refers to the franchise

system which in turn, is documented with

system manuals, operation manuals, and

corporate identity manual.

Our contract durations are quite different. If

we start with a new partner, then we usually

stipulate a 5-years minimum contract length.

Our contract also includes a business plan,

financial plan, and development plan.

If the partner violates the contract, we may

terminate the contract at any time…Poor

service, high rate of complaints, non-paying of

franchise fees would be reasons for

termination.

EUROPCAR

We have a list according to which we check

whether the partner fulfills our predefined

criteria of car rental business.

For new partners, our contracts vary from 3 to

5 years duration.

After five years, we want to have the

opportunity to say that we will not continue.

The franchise contract is established between

us and the exclusive partner who represents

the whole country and is also responsible for

the sub-franchisees.

Contracting is in English. We have an English

contract which is binding.

We usually develop the business plan and

development plan together, and agree on how

the area must be developed in the next 2 to 3

years. And all that becomes part of the

contract. Our procedures, manuals, service

level agreements are also incorporated in the

contract.

SIXT

But in Asia or South America, it is not as

easy to implement our European software

and control the partners' business

operations.

With the expansion to South America, we

needed to hire staff at headquarters who

speaks Spanish. Supervision of countries

from distant cultures cannot be done in

English. That is clear.

The greater the distance from Germany,

the harder it is to acquire information

regarding the partner’s competences and

experience. How would you do a credit

check or a reputation check of a potential

franchisee in Congo? This is virtually

impossible.

We use franchising in the markets that are

remote and where we can use less

logistical synergies. The greater a country’s

distance from system headquarters, the

less control we have and the more likely

franchising will be our chosen distribution

strategy.

The qualifications of the staff in India, in

China are very different. The cultural

differences, the salary structure and the

personnel situation are country-specific.

EUROPCAR

Europe is not a big problem. But the further

you get away from Europe, the more

difficult monitoring of the franchisees will

be.

We had to develop a strategy of how to

expand to very distant countries, not only

in terms of geographic distance, but also

the culture and business attitude. So there

is not much choice but to franchise.

We want to develop the Asia Pacific region.

And our corporate unit in Australia gives a

little stability in the structure. If we would

only work with franchise partners there,

then these would be quite far away.

There are always country-specific

characteristics and differences. In Asia,

they work differently than in Africa or in

Europe.

We know that one cannot apply the same

standard in Zimbabwe as in Germany.

When I get to exotic countries where

people probably do not have so much

experience with the car rental business yet,

then knowhow transfer is not so easy. It is

different if one talks with people from

Poland as with people in Honduras.

'MONITORING EFFORT, OPPORTUNISITC BEHAVIOR, NON-COERCIVE AND COERCIVE CONTROL'

SIXT

Franchise partners, most

likely, will first oppose to

invest in brand-specific

assets, such as new logos.

EUROPCAR

If we introduce something

new, then it must also be

introduced in the partner’s

country. Uniformity is

indeed desired. But we are

not so strict. We see this a

little more flexible. The

logo, the corporate identity,

that's holy. These must

certainly not be affected ...

or of course if the partner

does not fulfill the terms of

the development plan...that

is a different, more serious

story then.

Moral hazard

MAIN CODES

SIXT

The advantages of

franchising are access

to financial capital

and motivation.

Basically, the master

developer is his own

boss, of his own

enterprise. He is

motivated to make a

profitable business at

the end of the day, of

course, much more

than an employed

manager.

And our joint venture

partner is naturally

interested that we

work relatively

efficient in China.

EUROPCAR

And if the partners

generate business

that takes place in

other countries, then

they receive a fee for

it. This is only fair.

SIXT

The reports, which we

receive from our

franchisees, might not

always be 100% correct. I

think it is quite normal that

a franchisee is trying his

franchisor…to try at least

once, to get the optimum

out of the contract.

EUROPCAR

In Thailand, we terminated

the contract with our

former partner, out of

contractual problems. They

were not satisfied with

certain contract terms, they

would not want to pay so

much money [fees,

royalties] to us.

SIXT

In the markets in

which we have an

incredibly strong

presence, we

quest to maintain

the highest level of

service standard

and quality. While

for markets which

are further away

from Germany,

such as

somewhere in

Eastern Europe or

perhaps in Asia,

keeping a 100%

service standard is

less important. The

more distant the

markets are

located from the

system

headquarters and

the higher the

number of

distribution levels,

the more we

compromise on

the service level.

EUROPCAR

We cannot force

people to be nice

with the

customers. This is

an essential part of

the service. From

time to time,

customers

complain, for

example, if

something was not

working well with

the rented

vehicles.


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DETERMINANTS OF THE GOVERNANCE STRUCTURE...

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