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Research method Assignment

Research Methods (Charles Sturt University)

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Abstract

Franchise fast food outlets are known as highly renowned by the people in Sri Lanka due to their
brand image, Signature food items and recognition around the world. In this research the author
identifies the factors affecting to build the relationship between Trust and Franchising in fast
food industry. The Fast food organization used in the assignment is KFC, McDonalds, Burger
King, Pizza hut and Dominos.

In order to identify the factors influencing the relationship between Trust and franchising two
variables were selected they are Satisfaction and Conflict. And the conceptual model was created
accordingly, furthermore to identify that these two variables has an influence in the relationship a
hypothesis was made. Nevertheless, a questionnaire was designed and distributed by the author
for the franchisee managers in the fast food industry in order to gather information about the two
variables identified. The information gathered were entered to the PSPP software to identify the
reliability and the hypothesis viability was tested through the ANOVA method which showed a
significance level below 0.05, which proves that the hypothesis is accepted.

By the significance being below 0.05 it is evident that there is an impact on trust and franchising
by the two variables identified. Satisfaction and conflict was identified as two factors that have a
major impact on the functions and the relationship between franchisee and franchisor. If the
franchisee and franchisor does not have a mutual knowledge about each other problematic
situations will arise.

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Acknowledgement
I would like to use this opportunity to express my gratitude to all those who assisted me in the
completion of this project. First and foremost, I would like to portray my gratitude to my
module lecturer, Ms. Nazeefa Fawzer who extended tremendous support throughout the project
which helped me to a great extent. I also thank my family and friends who assisted me in the
completion of this project.

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Table of Contents
Abstract............................................................................................................................................1

Acknowledgement...........................................................................................................................2

List of Tables...................................................................................................................................4

List of Figures..................................................................................................................................5

1.0 Introduction................................................................................................................................5

1.1 Background of the study........................................................................................................5

1.5 Objectives...............................................................................................................................7

1.6 Significance of the study........................................................................................................7

1.7 Scope of the study..................................................................................................................7

2.0 Literature Review......................................................................................................................8

2.1 Dependent variable................................................................................................................9

2.1.1Relationship between Trust and franchising in fast food industry...................................9

3.0 Research Methodology............................................................................................................11

3.1 Research Approach...............................................................................................................11

3.2 Research strategy..................................................................................................................11

3.3 Conceptual model.................................................................................................................11

3.4 Hypothesis............................................................................................................................12

3.5 Population............................................................................................................................12

3.6 Sampling..............................................................................................................................12

3.7 Questionnaire design............................................................................................................13

4.0 Data Analysis...........................................................................................................................14

4.1 Reliability Test.....................................................................................................................14

4.2 Descriptive Data Analysis....................................................................................................14

4.2.1 Age of Respondents.......................................................................................................14

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4.2.2 Gender of respondents...................................................................................................15

4.2.3 Education Qualifications of respondents.......................................................................15

4.2.4 Average of Dependent Variable.....................................................................................16

4.2.5 Average Independent Variable – Satisfaction among two parties..................................17

4.2.6 Independent variable – Conflict among two parties......................................................18

4.3 Inference testing...................................................................................................................19

4.3.1 Satisfaction among two parties......................................................................................19

4.3.2 Conflict among two parties...........................................................................................20

Conclusion.....................................................................................................................................21

References......................................................................................................................................22

Bibliography..................................................................................................................................24

Appendices....................................................................................................................................25

Appendix 1.................................................................................................................................25

List of Tables

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Table 1- List of Hypothesis........................................................................................................... 13

Table 2 - Age of respondents........................................................................................................ 15
Table 3- Gender of respondents.................................................................................................... 16
Table 4- Education Qualifications of respondents........................................................................ 16
Table 5- Average score on dependent variable............................................................................. 17
Table 6- Average Satisfaction among two parties......................................................................... 18
Table 7- Average Conflict among two parties.............................................................................. 19

List of Figures
Figure 1-Conceptual Framework.................................................................................................. 12
Figure 2- Sample illustration........................................................................................................ 14
Figure 3- Reliability of statistics.................................................................................................. 15
Figure 4- Age of respondents........................................................................................................ 15
Figure 5- Gender of respondents.................................................................................................. 16
Figure 6- Education Qualifications of respondents...................................................................... 16
Figure 7- Average score on dependent variable............................................................................ 17
Figure 8- Average Satisfaction among two parties....................................................................... 18
Figure 9- Average Conflict among two parties............................................................................. 19
Figure 10- Significance value of Satisfaction among two parties................................................ 20
Figure 11- Significance value of Conflict among two parties...................................................... 21

“A Study of Relationship between Trust and Franchising in the Fast Food Industry”

1.0 Introduction
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1.1 Background of the study

Franchising can be identified as an agreement between two parties in which a franchisor provides
a licensed privilege to the franchisee to do business in a certain country and offers assistance in
organizing, training, marketing and managing in return for a monetary consideration. Franchising
can be identified as one of the most effective ways for an organization to be global. Many fast
food chains such as McDonalds, KFC, Subway, Dominos, Pizza hut and Burger King uses
Franchising as the mode of entry to another country.

The success of franchising is heavily dependent upon the trust between the franchisor and
franchisee. Establishing and maintaining good relationships with franchisees is one of the
crucial challenges faced by franchisors. Managing these relationships takes place in the initial
phase, but carries throughout the complete franchisee lifecycle. However only a little is known
about how the franchisor–franchisee relationship develops over time.

Without an understanding of the fundamentals of franchise relationships, it is difficult for

franchisors to determine which segment of the relationship is most critical for the long-term
success of the franchise system. In some phases, franchisees may be more likely to engage in
negative behaviors such as exploitation, reducing investments, or lowering operational inputs.
The franchisor depends on the franchisee to perform at expected levels within the guidelines
provided, likewise the franchisee relies upon the franchisor for promotional support and training
support of employees. This joint reliance between franchisor and franchisee can make the
organization roles and functions unclear due to disagreements over issues of control and decision
making.

Franchisor and Franchisee needs to maintain the trust and goodwill in order to survive in the
market with mutual understandings about functions and operations required. It is crucial that the
franchisee will adhere to operational policies. Otherwise, it would weaken the brand identity of
the franchisor leading to both reduced system sales and later recruitment difficulties. This paper
will talk about the relationship between the trust and compliance in the fast food industry and
how.

1.2 Problem Statement

Franchising is can be identified as one of the popular international entry modes to a new country
utilizes by majority of large fast food companies such as Pizza Hut, KFC and McDonalds, etc.
Therefore, finding a effective franchisee can be identified as one of the major element since the
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company brand name is fully dependent on the operations of the franchisee. Therefore, the trust
between franchiser and franchisee is very crucial in order to manage good relationship.
Therefore, the problem statement is identified as follows.
"To determine the significance relationship between Trust and Franchising in the Fast Food
Industry."

1.3 Problem Justification

Franchising businesses have been increasing rapidly in the past few years due to the immense
success of the fast food companies such as KFC and McDonald's. Therefore, identifying the trust
between franchisee and franchisor can be identified as significant element in terms of successful
business operations. Trust can be defined as franchisee confidence in accepting a calculated level
of risk with the franchisor (Coleman, 1990), Trust is based on criteria of trustworthiness.
Moreover, it can be determined that franchisor's brand name is heavily depend on the busniess
operations of the franchisee since franchisee has the authority to utilize the brand name, logo and
other respective busniess terms in franchisee's country.

1.4 Research Question


What are the factors affecting to build the Trust in Franchising in fast food industry?
 What is the relationship between Trust and Franchising in fast food industry?

1.5 Objectives
 To identify barriers that will have direct impact on Trust and in Franchising
 To identify the importance of having a strong bond with the franchisor
 Understanding the nature of the complex relationship between franchisor and franchisee.

1.6 Significance of the study

This research will be a significant endeavor for Fast food organizations in Sri Lanka to have a
better understanding about the internationalization entry mode of franchising and further to
identify the significance of trust, which should build with the franchisee. Furthermore, this study
will be beneficial for current franchisees in Sri Lanka to determine the significance of the
effective relationship with franchisor in terms of the trust aspect.

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1.7 Scope of the study

 Top managers between the ages 35 and above have been used from the franchisee in
order to conduct the analysis due to their direct functions with the Franchisor.

 The study will be conducted on 5 leading Franchise outlets in Sri Lanka to gather
information and conclude the topic
 Past research papers will be analyzed in order to gather information about the topic.

2.0 Literature Review

In the last few decades, franchising has become a part of everyday life in developed countries. In
particular, due to recent globalization efforts by firms looking to branch out of a saturated
primary market, entry into developing countries has become a viable means of business growth.
However both entrepreneurs and multinational enterprises have adopted franchising as a key
business strategy since markets have become highly competitive and turbulent and are constantly

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changing (Hsu and Jang, 2009).

As the fundamental interests of the franchisor and franchisee are often dissimilar and sometimes
diametrically opposed, basic conflicts between franchisors and franchisees regarding priorities,
timing, and revenue streams are common (Dant and Nasr, 1998; Harmon and Griffiths, 2008).
Furthermore Franchisor- Franchisee Satisfaction can be counted as an essential that affects the
franchise system’s overall performance and its viability in the long run. It is essential for
explaining the principal’s choice of control mechanisms that govern the franchisor–franchisee
and the employer–employee relationships (Mellewigt et al, 2011).

This chapter theorizes that satisfaction and conflict directly affect trust and are indirectly
underlying of franchisee compliance. In the conceptualization, trust in the franchisor is the
single most important determinant of franchisee conformity, which in turn is critical for effective
franchise functions in order build up strong relationships.

2.1 Dependent variable

2.1.1Relationship between Trust and franchising in fast food industry

Trust can be defined as franchisee confidence in accepting a calculated level of risk with the
franchisor (Coleman, 1990), Trust is based on criteria of trustworthiness. The importance of
franchisee trust is that it is expected to be shared by the franchisor. Trust between the functions of
the franchiser and franchisee is vital for the fast food industry, initially trust must build up through
adhering to stipulations contained in the agreement, however, the various types of trust can be
differentiated into two main facets (Ashraf et al, 2006) Knowledge-based trust and general trust.
Knowledge-based trust is developed upon time franchisor and franchisee working together
(Yamagishi, 2011) On the other hand, general trust is mainly developed by the Franchisor and
franchisee personality traits Nonetheless, franchisees may need to rely more on truthfulness for
guiding their expectations regarding their franchise relationships (Griessmair e al, 2014).
Agency Theory Approach
Jensen and Meckling (1976) define the agency relationship as "a contract under which one or
more persons (the principal(s) engage another person (the agent) to perform some service on
behalf of the principal which involves delegating some decision making authority to the agent".
Agency Theory is based on a contractual relationship between the principal and the
agent. According to Berreca and Gupta (1999, p.184) the objective of agency theory is to design

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a contract that minimizes the cost of service performed by the agent to the principal. Therefore,
the theory can be relatable to the Franchising option, in which principal can be identified as
“Franchisor” and Agent can be defined as “Franchisee”.
2.2 Independent variable
2.2.1 Satisfaction among two parties
Franchisee satisfaction is defined as a positive affective state resulting when the economic and
psychosocial expectations of all aspects of the working relationship with their franchisor have
been met (Anderson and Narus, 1990; Geyskens et al., 1999). Satisfaction affects the franchise
system’s overall performance in the long run. It is essential for explaining the principal’s choice
of control mechanisms that govern the franchisor–franchisee (Mellewigt, Ehrmann and Decker,
2011). Franchisee satisfaction is vital and broadly related to the quality of franchisor support,
Satisfaction highlights the importance of mutual agreement between franchisor and franchisee
regarding responsibilities, operational support, fair financial support and profit margins
necessary according to costs incurred which will viewed as elements of franchise relationships
that are critical for preserving the relationship (Morrison, 1996; Spinelli and Birley, 1998).
Franchisors can manage franchisee satisfaction by meeting franchisee expectations. Satisfaction
is also associated with loyalty, which will also enhance the corporate reputation of the franchise.
(Elango and Fried, 1997),

2.2.2 Conflict among two parties

Conflict can be defined as either perceived differences on perspectives that can impede goals
between parties or perceived experiences describing psychological states about the relationship
(Dant et al., 2006). Conflicts can arise from many areas in the relationship, due to the differences
in culture in certain countries including differences regarding priorities, lack of communication
within franchisor and franchisee, and lack of financial support needed will increase conflicts
(Garg and Rasheed, 2006; Shane and Cable, 1997). Consequently, differences on fundamental
issues or perceptions about relationships are unlikely to be quickly resolved, leading to heated
disputes, and creating destructive conflict. Conflict can increase distractions, obstruct goal
alignment, reduce synergy between partners and have a negative impact in the relationship which
will lead to weakening of the relationship (Grünhagen and Dorsch, 2003). Due to the delicate
balance between franchisor control and franchisee autonomy, franchise success is strongly
determined by the ability of the franchisor to manage conflict arising from the balance between
the parties (Fulop and Forward, 1997).

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3.0 Research Methodology

3.1 Research Approach

A deductive research approach was taken to provide an explanatory descriptive type of study
since more detailed information can be gathered about the franchise relationships.
3.2 Research Purpose
By carrying out a deductive approach it will give a greater view on the targeted fast food
franchise organizations in Sri Lanka and carefully analyze the problems in the relationship
between franchisee and franchisor to effectively find out the current status of franchising in Sri
Lanka.
3.3 Research Philosophy
The study is based on quantitative research method using an empirical survey to collect the data
from sample group to clarify the problem statement.

3.2 Research strategy

Data was collected from relevant managers in the industry, in order to identify factors affecting
the relationship among franchisors. Once the data collected it has been summarized into two
forms which can be recognized as descriptive statistics and inference testing.

3.3 Conceptual model

Figure 1-Conceptual Framework

Independent Variables Dependent Variables

Satisfaction among two

parties

Relationship between trust and

franchising in fast food industry

Conflict among two parties

Source: (Author’s work, 2017)

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3.4 Hypothesis
Table 1- List of Hypothesis

H0: There is no relationship between Satisfaction among two parties and Trust and
franchising in fast food industry.

H1: There is a relationship between Satisfaction among two parties and Trust and franchising
in fast food industry.

Ho: There is no relationship between Conflict among two parties and Trust and franchising
in fast food industry.

H1: There is a relationship between Conflict among two parties and Trust and franchising in
fast food industry.

Source: (Author’s work, 2017)

3.5 Population
The population of the research will include managers and top management of franchise
organization in the fast food industry of Sri Lanka. They are namely Dominos, Pizza Hut, KFC,
McDonalds and Burger king. Three managerial level employees from each organization have
been used in order to fill up the questionnaire to identify the factors affecting the relationship of
franchisee and franchisor in terms of trust within them.

3.6 Sampling
To obtain better understanding about the relationship of trust and franchising in the fast food
industry a Stratified random sampling method has been used. This was the most suitable for this
study because the study targets a small standardized group of franchisees due to Sri Lanka’s
limited availability of fast food franchisee organizations. The Education level, age and
experience in the field is vital in identifying and answering. The sample size of the research is 15
managers in top level and mid-level who are actively participating and communication with the
franchisors.

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Figure 2- Sample illustration

Organization- Franchisee
Franchisor No. of managers
local
Abans McDonalds 3
Softlogic PLC Burger King 3
Cargills PLC KFC 3
Jubilant foodworks Lanka Dominos 3
Gamma Pizzacraft Lanka Pizza Hut 3
Source: (Author’s work, 2017)

3.7 Questionnaire design

A questionnaire has been made in order to identify about the relationship between the franchisee
and franchisor. Therefore, to identify the bond and barriers 15 Likert scale questions and 1 one
open ended question have been created according to the conceptual framework variables. Which
also includes demographic details such as Age, Education, and Gender and Organization? These
questions were distributed among the managers of the selected franchisee organizations in Sri
Lanka. (Refer appendix 1).

4.0 Data Analysis

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4.1 Reliability Test

Questionnaires were designed and distributed among managers of Franchise organizations. In
order to identify the relationship between the independent and dependent variable. The reliability
of the data is examined below using the SPSS software. According to the table below Cronbach’s
alpha column shows 0.93, this indicates a High reliability percentage.
Figure 3- Reliability of statistics

Source: (PSPPIRE outlook viewer)

4.2 Descriptive Data Analysis

4.2.1 Age of Respondents

The respondents of the organizations were between the ages 31 to more than 41. Organization
Managers within the age group of 36- 40 above has higher percentage due to experience and
the high designation in the organization, who also has direct link with franchisors were the
more suitable candidates to answer the questionnaire.
Table 2 - Age of respondents Figure 4- Age of respondents
Age
Value Value Frequency Percentage 8
Label 7
6
31-35 3 3 20% 5
4
3
;.Frequency

36-40 4 7 46.67% 2
1
0
Above 41 5 5 33.33% 31-35 36-40 Above
41
Age groups
Total 15 100%

Source: (PSPPIRE outlook viewer)

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4.2.2 Gender of respondents

According to the table below, Higher number of male respondents from the organizations were
part of the questionnaire 66.67% were males respectively different according to the organization,
where some franchisee had females has top level managers.
Figure 5- Gender of respondents

Table 3- Gender of respondents

Gender of Respondents
Value Frequency Percentage 12
10

Frequency
Male 1 10 66.67% 8
6
4
Female 2 5 33.33% 2
0
Male Female

Total 15 100%
Gender

Source: (PSPPIRE outlook viewer)

4.2.3 Education Qualifications of respondents

Most respondents are with a high educational background who has a good knowledge and
understanding about the current market situation and with good knowledge about franchisee and
franchisor relationships and how it should function. Higher education level will help in efficient
and effective functioning of the organization.
Figure 6- Education Qualifications of
Table 4- Education Qualifications of respondents respondents

Value Label Value Frequency Percentage

Secondary 1 3 20%

Graduate 2 4 26.67%

Postgraduate 3 2 13.33%

Other 4 6 40%

Total 15 100%
Source: (PSPPIRE outlook viewer)

Educational qualification

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8
Frequency 6
4
2
0

Education

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4.2.4 Average of Dependent Variable

According to the table below it shows the about the Trust and Compliance in the fast food
industry. In reference to the statistics below, the table demonstrates that there is a higher
percentage for the respondents who have agreed, by adding up the percentages 73.31% of agreed
respondents it is clear that it is important. Moreover, the statistics below shows the mean of the
table 3.97 where there is a high average on managers agreeing that trust is crucial for
Franchisees. Therefore, trust and has a high relationship in the sustainability of franchisee in the
fast food industry.

Figure 7- Average score on dependent variable

Table 5- Average score on dependent variable Average respondent score

Dependant variable
Level Value Frequency Percentage
6
Disagree 2.00 1 6.67% 5

4
Frequency

2.20 1 6.67%
3

Satisfied 3.80 2 13.33% 2

1
Agree 4.20 5 33.33% 0
2 2.2 3.8 4.2 4.4 4.8
4.40 5 33.33% Value

4.80 1 6.67%
Source: (PSPPIRE outlook viewer)
Total 15 100%

Mean 3.97

Standard Deviation 0.80

Source: (PSPPIRE outlook viewer)

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4.2.5 Average Independent Variable – Satisfaction among two parties

According to the table below it shows that Satisfaction between franchisee and franchisor in the
fast food industry has high percentage. In reference to the statistics below, the table demonstrates
that there is a higher percentage for the respondents who has agreed, by adding up the
percentages of agreed respondents which is 80%, it is clear that it is important. Furthermore, the
statistics below shows the mean of the table 4.15 where there is a high average on managers
agreeing that Satisfaction among the two parties is crucial for strong relationship bonds.
Therefore Satisfaction can be vital to for franchisors in order to build up the bond.
Table 6- Average Satisfaction among two parties

Level Value Frequency Percentage Figure 8- Average Satisfaction among two parties
Disagree 2.40 1 6.67%

2.60 1 6.67% Satisfaction among two parties

8
Satisfied 3.80 1 6.67% 7
6
4.00 1 6.67%
Frequency

5
4
4.20 2 13.33% 3
Agree 2
4.40 2 13.33% 1
0
4.60 7 46.67% 2.4 2.6 3.8 4 4.2 4.4 4.6
Value

Total 15 100%
Source: (PSPPIRE outlook view
Mean 4.15

Standard Deviation 0.72

Source: (PSPPIRE outlook viewer)

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4.2.6 Independent variable – Conflict among two parties

According to the table below it shows that conflict between franchisee and franchisor in the
fast food industry has a percentage 86.67%. In reference to the statistics below, the table
demonstrates that there is a higher percentage for the respondents who has agreed, that
conflicts occurred will have an impact on the industry. Furthermore, high conflict may
impact negatively to the relationship between franchisor and franchisee. The statistics
below shows the mean of the table 3.99 where there is a high average on managers agreeing
on conflict. Therefore, it is evident that conflicts have to be dealt with in order gain trust
between the franchisee and franchisor.

Table 7- Average Conflict among two Figure 9- Average Conflict among two
parties parties

Series 1
Level Value Frequency Percentage
9
8
Disagree 2.60 2 13.33% 7
6
5
4.00 3 20.00%
4
3
4.20 8 53.33% 2
Agree 1
0
4.40 1 6.67% 2.6 4 4.2 4.4 4.6

Series 1
4.60 1 6.67%

15 100%
Source: (PSPPIRE outlook viewer)
Total

Mean 3.99

Standard Deviation 0.58

Source: (PSPPIRE outlook viewer)

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4.3 Inference testing

The model Regression analysis has been used in order to identify the significance of
the hypothesis.

4.3.1 Satisfaction among two parties

Figure 10- Significance value of Satisfaction among two parties

Source: (PSPPIRE outlook viewer)

Ho: There is no relationship between Satisfaction among two parties and Trust and
franchising in fast food industry.

H1: There is a relationship between Satisfaction among two parties and Trust and franchising
in fast food industry.

According to the Regression table in order to accept the hypothesis the significance should be
less than 0.05. As seen in the above table, it is clear that there is an impact on the franchise
relationship in the fast food industry. Therefore looking at the significance it is evident that (H 1)
There is a relationship between Satisfaction among two parties and Trust and franchising in fast
food industry.

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4.3.2 Conflict among two parties

Figure 11- Significance value of Conflict among two parties

Source: (PSPPIRE outlook viewer)

Ho: There is no relationship between Conflict among two parties and Trust and franchising
in fast food industry.

H1: There is a relationship between Conflict among two parties and Trust and franchising in
fast food industry.

As seen in the above table, it is clear that there is an impact on the franchise relationship in the
fast food industry. Therefore, looking at the significance it is evident that (H 1) There is a
relationship between conflict among two parties and Trust and franchising in fast food industry.

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Conclusion
In conclusion the study was carried out in order to identify the relationship between trust and
Franchising in the fast food industry. Two barriers were identified which has an impact on trust
and compliance they were satisfaction and conflict. In order to identify real problems faced by
franchisees a questionnaire was designed using the variables identified in the research above.

By the research done it was evident that the sustainability and development of franchisee and
franchisor depends on good working relationships among each other. Understanding between the
franchisee and franchisor is crucial in an agreement like this, since it is long term Conflicts may
arise but in order to overcome and gain trust both parties should work according to a mutual
understanding. Satisfying franchisor by working according to the obedience provided is also
another vital aspect. Working with a mutual understanding will help both parties to strengthen
their bond and to gain that extra competitive advantage.

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Appendices

Appendix 1
Questionnaire
Organization:
Education
Qualification:
Gender: Male Female
Age: 18-25 26-30 31-35 36-40 Above 41

Strongl Agre Uncertai Disagre Strongly

Relationship between Trust and y Agree e n e Disagre
Franchising in Fast food industry e
1. The franchisor has frequently
violated stipulations/terms and
conditions contained in her/his
contract/agreement with you
2. The franchisor and her/his personnel
have poor knowledge of competitors'
products and services.
3. The franchisor demonstrates a great
deal of knowledge about the
features and attributes of Company
X's products and services.
4. I follow most suggestions that the
franchisor makes.
5. I generally try to accommodate the
franchisor's requests.
Satisfaction among two parties
6. My relationship with the franchisor
has been an unhappy one
7. I am satisfied with the profit margins
on products as provided by the
franchisor
8. The franchisor understands the
training needs of franchisees
9. Franchisor provides operational

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support by means of an operational

manual
10. I am pleased with the financial
potential of the geographical area
allocated to my franchise
Conflict among two parties
11. My relationship with the franchisor
can be best described as tense.
12. The franchisor and I have significant
disagreements in our working
relationship.
13. The franchisor and I frequently
clash on issues relating to how I
should conduct my promotional
activities.
14. Franchisor and I do not agree on
new product development
according to local preferences.
15. Franchisor and I have a
communication barriers due to busy
schedule

Do you have further comments?

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