On this basis, the theory is not found suitable and thus not adopted for the investigation. 2.4.2 Resource Scarcity Theory Resources are critical for firm’s performance, survival and growth (Lockett, 2005; Nair, Trendowski, & Judge, 2008). Resources include human, physical and organizational assets (Barney, 1996). While established and older firms have access to rich amount of each of these resources with which they can pursue various strategies and achieve their corporate objectives, young firms on the other hand are generally resource-constrained (Carney & Gedajlovic, 1991; Castrogiovanni, Combs, & Justis, 2006). It is this paucity of resources that forces young firms to search for external opportunity for growth (Madanoglu et al ., 2017). Franchising offers
such an opportunity to overcome resource constraints and access external assets for rapid expansion (Carney & Gedajlovic, 1991; Oxenfeldt & Kelly, 1969). The theoretical basis that is often used to explain this phenomenon is resource scarcity theory. According to the theory, firms franchise when internal resources are not enough to satisfy desire to achieve economies of scale in advertising and promotion (Castrogiovanni et al ., 2006). The key prediction of resource scarcity theory according to Alon et al (2017) as illustrated in table 2.8 above include that (i) franchising will enhance firm survival (ii) young firms will franchise heavily at the early stage and that (iii) franchised systems will ultimately become purely company-owned as they mature and repurchase franchised units. The resource scarcity theory of franchising was popularized by Oxenfeldt & Kelly (1969). According to the authors, the central proposition of resource scarcity theory of franchising is that the growth of young firms are constrained by lack of resources. These firms would therefore seek or accept individuals or other firms that have human and financial resources to expand, grow and achieve scale economies. The firm would continue to use franchising up to the point when it can generate enough resources to achieve scale and competitive advantage.
You've reached the end of your free preview.
Want to read all 5 pages?
- Summer '17