IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v291y2020i1d10.1007_s10479-018-2998-5.html
   My bibliography  Save this article

Franchising contracts in fashion supply chain operations: models, practices, and real case study

Author

Listed:
  • Yue Chen

    (The Hong Kong Polytechnic University)

  • Sai-Ho Chung

    (The Hong Kong Polytechnic University)

  • Shu Guo

    (Ningbo University
    The Hong Kong Polytechnic University)

Abstract

Franchising, defined as a special operations model in the manufacturer-retailer supply chain, is playing an increasingly important role in the fashion industry nowadays. However, regardless of the popularity of franchising in practice, the literature on franchising operations is still relatively limited. Motivated by this research gap, we conduct a comprehensive review on the literature discussing the application of franchising contracts in the fashion industry. In the meantime, the case of Guangzhou Jinyu Garments Co., Ltd. (GJG) is also examined. Based on the combination of both the literature review and the case study, managerial insights are generated concerning how the franchising contracts are implemented in the fashion industry. Besides, key factors influencing the implementation of franchising contracts in the fashion industry are identified, referring to the channel structure, channel operations and channel interaction. The future research opportunities are also discussed.

Suggested Citation

  • Yue Chen & Sai-Ho Chung & Shu Guo, 2020. "Franchising contracts in fashion supply chain operations: models, practices, and real case study," Annals of Operations Research, Springer, vol. 291(1), pages 83-128, August.
    • Handle: RePEc:spr:annopr:v:291:y:2020:i:1:d:10.1007_s10479-018-2998-5
    DOI: 10.1007/s10479-018-2998-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-018-2998-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-018-2998-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June.
    2. Wenming Xie & Yingxue Zhao & Zhibin Jiang & Pui-Sze Chow, 2016. "Optimizing product service system by franchise fee contracts under information asymmetry," Annals of Operations Research, Springer, vol. 240(2), pages 709-729, May.
    3. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
    4. Zhiguo He & Si Li & Bin Wei & Jianfeng Yu, 2014. "Uncertainty, Risk, and Incentives: Theory and Evidence," Management Science, INFORMS, vol. 60(1), pages 206-226, January.
    5. Chow, Pui-Sze & Wang, Yulan & Choi, Tsan-Ming & Shen, Bin, 2015. "An experimental study on the effects of minimum profit share on supply chains with markdown contract: Risk and profit analysis," Omega, Elsevier, vol. 57(PA), pages 85-97.
    6. Volodymyr Babich & Christopher S. Tang, 2016. "Franchise Contracting: The Effects of The Entrepreneur's Timing Option and Debt Financing," Production and Operations Management, Production and Operations Management Society, vol. 25(4), pages 662-683, April.
    7. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
    8. Gary D. Eppen & Ananth. V. Iyer, 1997. "Backup Agreements in Fashion Buying---The Value of Upstream Flexibility," Management Science, INFORMS, vol. 43(11), pages 1469-1484, November.
    9. Christopher S. Tang & Kumar Rajaram & Ayd{i}n Alptekinou{g}lu & Jihong Ou, 2004. "The Benefits of Advance Booking Discount Programs: Model and Analysis," Management Science, INFORMS, vol. 50(4), pages 465-478, April.
    10. Etro, Federico, 2011. "Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying," European Economic Review, Elsevier, vol. 55(4), pages 463-479, May.
    11. Gary D. Eppen & Ananth. V. Iyer, 1997. "Improved Fashion Buying with Bayesian Updates," Operations Research, INFORMS, vol. 45(6), pages 805-819, December.
    12. Gallini, Nancy T & Lutz, Nancy A, 1992. "Dual Distribution and Royalty Fees in Franchising," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(3), pages 471-501, October.
    13. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    14. Arturs Kalnins, 2004. "An Empirical Analysis of Territorial Encroachment Within Franchised and Company-Owned Branded Chains," Marketing Science, INFORMS, vol. 23(4), pages 476-489, September.
    15. Marshall Fisher & Ananth Raman, 1996. "Reducing the Cost of Demand Uncertainty Through Accurate Response to Early Sales," Operations Research, INFORMS, vol. 44(1), pages 87-99, February.
    16. Blair,Roger D. & Lafontaine,Francine, 2011. "The Economics of Franchising," Cambridge Books, Cambridge University Press, number 9780521775892, January.
    17. Choi, Tsan Ming & Chow, Pui Sze & Liu, Shuk Ching, 2013. "Implementation of fashion ERP systems in China: Case study of a fashion brand, review and future challenges," International Journal of Production Economics, Elsevier, vol. 146(1), pages 70-81.
    18. Pietro Giovanni, 2017. "Closed-loop supply chain coordination through incentives with asymmetric information," Annals of Operations Research, Springer, vol. 253(1), pages 133-167, June.
    19. Xiaofang Liu & Jian Li & Jun Wu & Guoqing Zhang, 2017. "Coordination of supply chain with a dominant retailer under government price regulation by revenue sharing contracts," Annals of Operations Research, Springer, vol. 257(1), pages 587-612, October.
    20. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    21. Chun-Hung Chiu & Tsan-Ming Choi, 2016. "Supply chain risk analysis with mean-variance models: a technical review," Annals of Operations Research, Springer, vol. 240(2), pages 489-507, May.
    22. Arturs Kalnins & Francine Lafontaine, 2004. "Multi-unit Ownership in Franchising: Evidence from the Fast-Food Industry in Texas," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 747-761, Winter.
    23. Francine Lafontaine & Kathryn L. Shaw, 1999. "The Dynamics of Franchise Contracting: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 1041-1080, October.
    24. Preyas S. Desai & Kannan Srinivasan, 1995. "Demand Signalling Under Unobservable Effort in Franchising: Linear and Nonlinear Price Contracts," Management Science, INFORMS, vol. 41(10), pages 1608-1623, October.
    25. Haresh Gurnani & Murat Erkoc, 2008. "Supply contracts in manufacturer‐retailer interactions with manufacturer‐quality and retailer effort‐induced demand," Naval Research Logistics (NRL), John Wiley & Sons, vol. 55(3), pages 200-217, April.
    26. Choi, Tsan-Ming, 2007. "Pre-season stocking and pricing decisions for fashion retailers with multiple information updating," International Journal of Production Economics, Elsevier, vol. 106(1), pages 146-170, March.
    27. Shi, Lan, 2011. "Respondable risk and incentives for CEOs: The role of information-collection and decision-making," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 189-205, February.
    28. An Pan & Tsan-Ming Choi, 2016. "An agent-based negotiation model on price and delivery date in a fashion supply chain," Annals of Operations Research, Springer, vol. 242(2), pages 529-557, July.
    29. Shuyun Ren & Hau-Ling Chan & Pratibha Ram, 2017. "A Comparative Study on Fashion Demand Forecasting Models with Multiple Sources of Uncertainty," Annals of Operations Research, Springer, vol. 257(1), pages 335-355, October.
    30. Shen, Bin & Qian, Rongrong & Choi, Tsan-Ming, 2017. "Selling luxury fashion online with social influences considerations: Demand changes and supply chain coordination," International Journal of Production Economics, Elsevier, vol. 185(C), pages 89-99.
    31. Scott Shane & Venkatesh Shankar & Ashwin Aravindakshan, 2006. "The Effects of New Franchisor Partnering Strategies on Franchise System Size," Management Science, INFORMS, vol. 52(5), pages 773-787, May.
    32. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273.
    33. Katz, Barbara G. & Joel Owen, 1992. "On the existence of franchise contracts and some of their implications," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 567-593, December.
    34. Kaufmann, Patrick J. & Dant, Rajiv P., 1996. "Multi-unit franchising: Growth and management issues," Journal of Business Venturing, Elsevier, vol. 11(5), pages 343-358, September.
    35. Niu, Baozhuang & Chen, Lei & Zhang, Jie, 2017. "Punishing or subsidizing? Regulation analysis of sustainable fashion procurement strategies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 107(C), pages 81-96.
    36. Zhimin Huang, 2000. "Franchising cooperation through chance cross‐constrained games," Naval Research Logistics (NRL), John Wiley & Sons, vol. 47(8), pages 669-685, December.
    37. Rajiv Lal, 1990. "Improving Channel Coordination Through Franchising," Marketing Science, INFORMS, vol. 9(4), pages 299-318.
    38. Hendrikse, George & Jiang, Tao, 2011. "An Incomplete Contracting Model of Dual Distribution in Franchising," Journal of Retailing, Elsevier, vol. 87(3), pages 332-344.
    39. Dant, Rajiv P. & Grünhagen, Marko & Windsperger, Josef, 2011. "Franchising Research Frontiers for the Twenty-First Century," Journal of Retailing, Elsevier, vol. 87(3), pages 253-268.
    40. Arrunada, Benito & Garicano, Luis & Vazquez, Luis, 2001. "Contractual Allocation of Decision Rights and Incentives: The Case of Automobile Distribution," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 17(1), pages 257-284, April.
    41. Gérard P. Cachon & Robert Swinney, 2011. "The Value of Fast Fashion: Quick Response, Enhanced Design, and Strategic Consumer Behavior," Management Science, INFORMS, vol. 57(4), pages 778-795, April.
    42. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
    43. Haresh Gurnani & Yi Xu, 2006. "Resale price maintenance contracts with retailer sales effort: Effect of flexibility and competition," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(5), pages 448-463, August.
    44. James A. Brickley, 2002. "Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 511-535, October.
    45. Arturs Kalnins & Anand Swaminathan & Will Mitchell, 2006. "Turnover Events, Vicarious Information, and the Reduced Likelihood of Outlet-Level Exit Among Small Multiunit Organizations," Organization Science, INFORMS, vol. 17(1), pages 118-131, February.
    46. Chabowski, Brian R. & Hult, G. Tomas M. & Mena, Jeannette A., 2011. "The Retailing Literature as a Basis for Franchising Research: Using Intellectual Structure to Advance Theory," Journal of Retailing, Elsevier, vol. 87(3), pages 269-284.
    47. Chihmao Hsieh & Sérgio Giovanetti Lazzarini & Jackson A. Nickerson & Marcio Laurini, 2010. "Does Ownership Affect the Variability of the Production Process? Evidence from International Courier Services," Organization Science, INFORMS, vol. 21(4), pages 892-912, August.
    48. Bin Shen & Tsan-Ming Choi & Chris Kwan-Yu Lo, 2015. "Enhancing Economic Sustainability by Markdown Money Supply Contracts in the Fashion Industry: China vs U.S.A," Sustainability, MDPI, vol. 8(1), pages 1-14, December.
    49. Bin Shen & Qingying Li, 2015. "Impacts of Returning Unsold Products in Retail Outsourcing Fashion Supply Chain: A Sustainability Analysis," Sustainability, MDPI, vol. 7(2), pages 1-14, January.
    50. Lafontaine, Francine & Bhattacharyya, Sugato, 1995. "The role of risk in franchising," Journal of Corporate Finance, Elsevier, vol. 2(1-2), pages 39-74, October.
    51. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 223-233, April.
    52. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    53. Yichen Peng & Jing Zhou & Xiaoling Wu, 2015. "A Study on Project Duration Incentives in a Retail Apparel Franchise," Sustainability, MDPI, vol. 7(2), pages 1-16, February.
    54. Michael Fung, 2013. "A trade-off between non-fundamental risk and incentives," Review of Quantitative Finance and Accounting, Springer, vol. 41(1), pages 29-51, July.
    55. Yang, Daojian & Qi, Ershi & Li, Yajiao, 2015. "Quick response and supply chain structure with strategic consumers," Omega, Elsevier, vol. 52(C), pages 1-14.
    56. Karen L. Donohue, 2000. "Efficient Supply Contracts for Fashion Goods with Forecast Updating and Two Production Modes," Management Science, INFORMS, vol. 46(11), pages 1397-1411, November.
    57. Brickley, James A, 1999. "Incentive Conflicts and Contractual Restraints: Evidence from Franchising," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 745-774, October.
    58. Pierre Azoulay & Scott Shane, 2001. "Entrepreneurs, Contracts, and the Failure of Young Firms," Management Science, INFORMS, vol. 47(3), pages 337-358, March.
    59. Ananth. V. Iyer & Mark E. Bergen, 1997. "Quick Response in Manufacturer-Retailer Channels," Management Science, INFORMS, vol. 43(4), pages 559-570, April.
    60. Kaufmann, Patrick J. & Dant, Rajiv P., 1999. "Franchising and the domain of entrepreneurship research," Journal of Business Venturing, Elsevier, vol. 14(1), pages 5-16, January.
    61. Hempelmann, Bernd, 2006. "Optimal franchise contracts with private cost information," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 449-465, March.
    62. Hag‐Soo Kim, 2003. "A Bayesian analysis on the effect of multiple supply options in a quick response environment," Naval Research Logistics (NRL), John Wiley & Sons, vol. 50(8), pages 937-952, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tarun Jain & Jishnu Hazra & T. C. E. Cheng, 2023. "Analysis of upstream pricing regulation and contract structure in an agriculture supply chain," Annals of Operations Research, Springer, vol. 320(1), pages 85-122, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cintya Lanchimba & Josef Windsperger & Muriel Fadairo, 2018. "Entrepreneurial orientation, risk and incentives: the case of franchising," Small Business Economics, Springer, vol. 50(1), pages 163-180, January.
    2. Muriel Fadairo & Cyntia Lanchimba & Miguel Yangari, 2016. "Optimal Monetary Provisions and Risk Aversion in Plural Form Franchise Network. A Model of Incentives with Heterogeneous Agents," Working Papers 1602, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    3. Muriel Fadairo & Cintya Lanchimba & Miguel Yangari, 2016. "Optimal Monetary Provisions and Risk Aversion in Plural Form Franchise Networks A Model of Incentives with Heterogeneous Agents," Working Papers halshs-01251344, HAL.
    4. Josef Windsperger, 2013. "The governance of franchising networks," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 27, Edward Elgar Publishing.
    5. Choi, Tsan-Ming & Chen, Yue & Chung, Sai Ho, 2019. "Online-offline fashion franchising supply chains without channel conflicts: Choices on postponement and contracts," International Journal of Production Economics, Elsevier, vol. 215(C), pages 174-184.
    6. S. Verbieren & M. Cools & A. Van den Abbeele, 2008. "Franchising. A Literature Review on Management and Control Issues," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(4), pages 398-443.
    7. Cintya Lanchimba, 2013. "Optimal Monetary Provisions in Plural Form Franchise Systems ; A Theoretical Model of Incentives with Two Risk-Averse Agents," Working Papers 1321, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    8. Cintya Lanchimba, 2013. "Optimal Monetary Provisions in Plural Form Franchise Systems; A Theoretical Model of Incentives with Two Risk-Averse Agents," Working Papers halshs-00830899, HAL.
    9. Liang, Hueimei & Lee, Kuo-Jung & Huang, Jen-Tsung & Lei, Hsien-Wei, 2013. "The optimal decisions in franchising under profit uncertainty," Economic Modelling, Elsevier, vol. 31(C), pages 128-137.
    10. Chabowski, Brian R. & Hult, G. Tomas M. & Mena, Jeannette A., 2011. "The Retailing Literature as a Basis for Franchising Research: Using Intellectual Structure to Advance Theory," Journal of Retailing, Elsevier, vol. 87(3), pages 269-284.
    11. Itai Ater & Oren Rigbi, 2007. "Price Control In Franchised Chains: The Case Of McDonald's Dollar Menu," Discussion Papers 06-022, Stanford Institute for Economic Policy Research.
    12. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
    13. Francine Lafontaine & Kathryn L. Shaw, 2005. "Targeting Managerial Control: Evidence from Franchising," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 131-150, Spring.
    14. Cliquet, Gérard & Pénard, Thierry, 2012. "Plural form franchise networks: A test of Bradach’s model," Journal of Retailing and Consumer Services, Elsevier, vol. 19(1), pages 159-167.
    15. Meiseberg, Brinja & Perrigot, Rozenn, 2020. "Pricing-based practices, conflicts and performance in franchising," European Management Journal, Elsevier, vol. 38(6), pages 939-955.
    16. Scott Shane & Venkatesh Shankar & Ashwin Aravindakshan, 2006. "The Effects of New Franchisor Partnering Strategies on Franchise System Size," Management Science, INFORMS, vol. 52(5), pages 773-787, May.
    17. Jindal, Rupinder, 2011. "Reducing the Size of Internal Hierarchy: The Case of Multi-Unit Franchising," Journal of Retailing, Elsevier, vol. 87(4), pages 549-562.
    18. Muriel Fadairo & Cintya Lanchimba Lopez, 2012. "Performance in distribution systems : What is the influence of the upstream firm’s organizational choices ?," Working Papers 1224, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    19. Luis Vázquez, 2008. "Complementarities between franchise contract duration and multi-unit propensity in franchise systems," The Service Industries Journal, Taylor & Francis Journals, vol. 28(8), pages 1093-1105, October.
    20. Kranz, Sebastian & Lewin-Solomons, Shira B., 2008. "Decision Structures in Franchise Systems of the Plural Form," Bonn Econ Discussion Papers 8/2008, University of Bonn, Bonn Graduate School of Economics (BGSE).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:291:y:2020:i:1:d:10.1007_s10479-018-2998-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.