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Regulatory Framework of Franchising in Australia

Question:

Discuss about the Future of Franchise Business in Australia.

The current paper discusses the brief history of the future franchising and its development in Australia. The regulatory framework is reported and is linked to the analysis that is relevant to this research. From the findings, it is understood that the approach is found to be disparate and hoc to the research along with the scoping studies that have been done at the budding stage of the franchise development. There is a significant evidence for this census-style of research which has concluded with the path of the disparate studies by utilizing research methods that are highly sophisticated (Barthélemy, 2008).

If the research of franchising has to advance, then it appears that it has to be interfaced with the various other domains of research in the SME and the research on the entrepreneurship. The kind of issues that are subject to the franchising research should be extended. For having the better understanding of the change over time it has, to begin with, the longitudinal studies. In order to enhance the knowledge and understanding to that level of analysis, the studies should be promoted in the direction of sectorial focus. With the volume of the work that is being undertaken the representation of the cross-cultural research should be increased.

As per Bebchuk, the franchising sector of Australia is represented by over 71400 franchise system units that are contributing to around 131 billion dollars in the sales of services and goods to the gross domestic product of Australia every year. In Australia in the past three decades, there is rapid growth in the franchising (Bebchuk, 2007). The body of the research can be contextualizing with the wide range of history about franchising and the regulatory management that is governed with the Australia’s sector is presented. In this context, the strategic considerations of the research are highlighted with a comprehensive review and the synthesis. Later in the agenda of future research suggestions are put forth (Cochet & Garg, 2008).


It is evident that prior to 1970 there was franchising to some extent in Australia except for the industries such as product franchising in the petroleum and the motor vehicles. In the year 1960s and 1970s, the trend of fast food franchises like McDonalds and KFC has been introduced. It has begun in the systems that are based locally, which requires further expansion as a result. According to Cavusgil et al, during the year 1970s and the early 1980s because of the increased intensity in the competition of business, it has resulted in the failure path of most of the small and the medium-sized businesses and was stimulated growth in franchising (Cavusgil et al., 2014). This was found to be the alternative that is safe for independent operations, which is a means for the small business people who are new to get benefited from the business systems that are established and a brand name that is recognized. This kind of growth in franchising has been credited for the nonexistence of the disturbing controls of regulation at the federal or the state level. For, accepting the new ideas and the investments from foreign there was an increasing comfort from the local population and a greater willingness of the Australian citizens (Combs, Ketchen & Short, 2011).

Rapid Growth of Franchising in Australia

During the 1980s the franchising continued to grow at an enhanced rate. Hence it has been credited from the financial and the public sectors to an increase in the interest. However, in some of the high-profile franchises, the interest of the media has failed which promoted the questions with respect to the appropriateness of the franchising to be the distribution medium. An experimental study has been conducted by Dant & Grünhagen from whom it was found that the survival rates of franchising were found to be greater when compared with the smaller businesses (Dant & Grünhagen, 2014). Yet in the consumer protection and the sector regulation, there was a growing interest. In the year 1981, it has led to the formation of the Franchisors Association of Australia because of the calls from the sector regulation of franchising.

Later in the year 1993, the membership was extended by the private associations for including the franchises and then it became to be known as the Franchise Association of Australia and the New Zealand. In the year 1998, it has become to known as the Franchise Council of Australia with the growth of the membership and the affiliations from international markets (Davies et al., 2011). The association had the key aims which include representation of the franchisors, the franchises and other related entities of franchising equally which also included the consultants of marketing, the advisors, legal representatives, mediators and the accountants.


Parallel to this, the legal framework has undergone some significant development during the same period. However, there is an evidence of little credibility in the literature of franchising which corresponds to the effects of the Franchise regulation of the Australia.  There was no particular statute that is governing this sector in pre-1981 apart from the commonwealth Petroleum Retail Franchise Act 1980 (Elenurm, Ennulo & Laar, 2007). Hence franchise was highly unregulated during those times. The general laws have bound the franchise investment which is governing to the activity of commercial trading with most of the activities taking place under the section 52 of the Trade Practices Act 1974. From this, the franchise can find an option from the franchisors with regards to the deceptive or the misleading conduct allegedly.

The Economic outlook journal which is based on the International Franchise Association reviews about the economic outlook of franchising in the future. From the current journal, the scope found to elaborate the franchise business in near future. The taxation with respect to the franchise businesses is covered and the growth prospects of the different types of businesses of the franchise are explained along with the scope for further expansion.

In this report, the first look of the franchise sector outlook of the US economy in the year 2016 has been prepared by the IHS economy with respect to future of the franchise. In the year 2016, the current IHS forecast of the US economy with specific attention towards the economic indicators relating to the economic sector where it has a significant concentration on franchising is summarized. The overview of the estimations and the forecasts regarding the franchising of the 10 business lines has been presented:

  • In the automotive business
  • The services of business
  • Services related to commercial and residential spaces
  • Lodging
  • Personal services
  • Restaurants of quick service
  • Full-fledged service restaurants
  • Real estate
  • Retail food industry
  • Retail services and products

Future Research Areas for Franchising

Based on the estimations of the year 2015 the initial forecasting of the year 2016 has been reported:

  • Establishment of franchise
  • Employment in franchise
  • Nominal output of franchise


The strategic management journal provides the relationship in between the resources of the franchise and the outputs that are produced out of it. There is an extensive research and focus with respect to the leveraging of the resources of the business and the kind of inputs and the business tactics which are indirectly related to the proportions of franchising (Gitman & McDaniel, 2007). From this research, it is understood that the most important feature of most of the franchise chains is that they are known to use simultaneously both companies owned outlets and also franchising.

In this study, it has been shown that the resources that are provided to the managers of outlets have a relationship with the financial performance with the franchise chain and are dependent on the structure of the governance. The considerations such as specificity, knowledge, and opportunities have seen to prevent the chains from developing the franchised outlets in large proportions from the fully available resources like the name of the brand and the business practices with tactics. While the value of the brand name and the practices of the business tactics are indirectly related to the percentage of the outlet chains that are franchised.

It is understood clearly from the quote that is often well-known states that the shareholder franchise is the conceptual strategy that underpins the justice of the directorial power rests. In similar to this the shareholder franchise can be viewed as the key mechanism in making the boards responsible. Another opinion states that if the elected representatives are not pleasing the stockholders in an appropriate manner, then they have the corporate democracy power in turning the board out.

Hence, there is no solid foundation provided by the shareholder franchise for the justice of the directorial power which it actually has to supply. Commonly the shareholders will not have all the viable powers for replacing the directors of the private companies. The challenges of conducting the elections are rare and the risks taken for replacing through the false contest is very low. For placing the corporate governance on the solid foundations and to restore the accountability the shareholder franchise should be brought into reality.

The main aim of this article is to understand the entrepreneurial orientation of the system of the franchise and its impact on the relationship quality of the franchisor-franchisee. For its independence, it has been given the forces that are conflicting with the standardization or the uniformity and the desire of the franchise. For the future franchise, it has conducted a survey by collecting the data from the sampling of the franchises which are operating in the UK (Kavaliausk? & Vaiginien?, 2011). The survey involved the mail questionnaire through the cross-sectional research designs. The hypothesis that is stated in this study was tested with the help of using the regression analysis. From the results, it is evident that the entrepreneurial orientation was positively and suggestively related to the quality of the relationship.

Establishment of Franchising Associations in Australia

In addition to this the relationship quality is found to have the positive impact if the recruitment of the entrepreneurial franchises was done. For encouraging the entrepreneurial activities the structural support systems have been used by the franchisors of the franchise, but it was not found to be reasonable for the relationship between the EO and the relationship quality. It is suggested from the results that the systems which are with EO and the entrepreneurial franchises might enjoy the better relations in the future expansion (Koen, Bertels & Elsum, 2011).


For many decades, most of the franchising research has leveraged one of the following three theoretical milestones which include the scarcity of resources, agency theory and the symbiosis for answering the queries of franchising. New theories are developed by the current franchising researchers who are investigating the examined aspects of franchising and are exploring on the conceptual factors which will shape its usage (International Franchise Association, 2010).

The article that is considered under this special issue is the new directions in the future franchising. Three milestones which form the theoretical foundation have been introduced in the today’s new direction which summarizes the issues and its implications and also explains why the entrepreneurship researchers are positioned well in advancing their knowledge of franchising.

From the agency theory, it is depicted that franchising is the solution for any kind of agency problem. To monitor the actions of the managers of the company who are working in the distant locations is quite costly. In contrast to this, the franchise contracts will give the franchises the residual chains in the profits of the outlet so they work without requiring any monitoring from the franchisor (International Franchise Association, 2010). The major implications from the observations of Rubin’s are that franchising has to occur in chains where the decisions quality of the local managers will be hard to evaluate and where the distance location make the direct observation costlier. The literature review and the meta-analysis are in support with the explanations of the agency theory of franchising.

If the research in this particular area advances, then there would be the need of recognizing the interface with respect to the other domains of research in the SME and the entrepreneurship research. For instance, the significant links are highlighted from the UK studies between the franchising and the small businesses (Dant & Grünhagen, 2014). Systematically, the range of issues should be expanded that are subjected to the franchise research, for example for the more complex governance structures that are developed in Australia include the theoretical foundations, adoption of the franchise for the portfolios of brand, merging and acquisition of the investor behavior, etc. which are found to be the initial gaps in the research that have been identified from the articles.

Conclusion

From the articles, the broad areas of the research have been identified in franchising from all the aspects. There is a gradual shift from the narrow focusing of the businesses to the descriptive and the scoping studies to the excess studies in the different areas from 2000 onwards such as experience internationally, the motivations, knowledge, governance, the service quality, etc. few of which were identified. The censuses surveys were utilized by most of the studies which are based on the case approach and consequently highly advanced method quantitatively have been incorporated into the sector as it matured.

References

Barthélemy, J. (2008). Opportunism, knowledge, and the performance of franchise chains. Strategic Management Journal, 29(13), 1451-1463

Bebchuk, L. A. (2007). The myth of the shareholder franchise. Virginia Law Review, 675-732

Cochet, O., & Garg, V. K. (2008). How do franchise contracts evolve? A study of three German SMEs. Journal of Small Business Management, 46(1), 134-151

Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L.,( 2014). International business. Pearson Australia.

Combs, J. G., Ketchen Jr, D. J., & Short, J. C. (2011). Franchising research: major milestones, new directions, and its future within entrepreneurship. Entrepreneurship Theory and Practice, 35(3), 413-425

Dant, R. P., & Grünhagen, M. (2014). International franchising research: Some thoughts on the what, where, when, and how. Journal of Marketing Channels, 21(3), 124-132.

Davies, M. A., Lassar, W., Manolis, C., Prince, M., & Winsor, R. D. (2011). A model of trust and compliance in franchise relationships. Journal of Business Venturing, 26(3), 321-340.

Elenurm, T., Ennulo, J., & Laar, J. (2007). Structures of motivation and entrepreneurial orientation in students as the basis for differentiated approaches in developing human resources for future business initiatives. EBS Review, (23).

Gitman, L., & McDaniel, C. (2007). The future of business: the essentials. Cengage Learning

Kavaliausk?, M., & Vaiginien?, E. (2011). Franchise Business Development Model: Theoretical Considerations. Verslas: teorija ir praktika, (4), 323-331

Koen, P. A., Bertels, H. M., & Elsum, I. R. (2011). The three faces of business model innovation: challenges for established firms. Research-Technology Management, 54(3), 52-59

International Franchise Association. (2010). 2012 Franchise Business Economic Outlook

Trappey, C. V., & Trappey, A. J. (2015). Collective intelligence applied to legal e-discovery: A ten-year case study of Australia franchise and trademark litigation. Advanced Engineering Informatics, 29(4), 787-798.

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