Trust in franchising governance: Some insight

Franchising, a business model widely employed globally, has attracted considerable attention from researchers due to its distinct structure and operational benefits. Interest in franchise systems had been driven by their rapid expansion in many industries, such as fast food, retail, and services. In these areas, firms aimed to leverage the reputation and operational expertise of established enterprises to achieve growth. This article examined the two dominant theoretical frameworks in franchise research: Agency Theory and Transaction Cost Theory and included a review of prior studies on trust in franchising governance. Agency Theory analyses the dynamics between franchisors and franchisees, specifically focusing on control and incentive alignment. In contrast, Transaction Cost Theory evaluated the cost-effectiveness of franchising as a business model compared to alternative forms of business partnerships. Furthermore, this article consolidated prior empirical research on three pivotal aspects that contributed to the governance of franchising: transparency, consistency of support, and fairness. Transparency involved the use of open and transparent communication between franchisors and franchisees. Consistency of support refers to the continuous assistance and resources provided by the franchisor. Fairness pertained to equitable treatment and practices within the franchise partnership. The synthesis of these factors introduced a new and innovative concept that built upon a well-established theory of franchising. The objective was to deepen the understanding of governance mechanisms and enhance the overall efficiency and long-term viability of franchise systems in today's business environment.