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INTRODUCTION

Franchising has been popular as a growth strategy for small businesses [1]; it is even more so in today’s global and e-commerce centered world [2].  For example, Entrepreneur.com added in 2001 a new category, Tech Businesses, into its Franchise Zone with three subcategories [3]: Internet Businesses, Tech Training, and Miscellaneous Tech Businesses.  At the time of the writing, 25 companies are on the list.  A recent Jupiter report [4] said it best on the phenomenon: "The gap in global Web development will ignite a fierce battle for leadership in the international Internet development and service space, … While it is imperative for sites to gain foothold in these markets, they need to avoid a ‘must build’ mentality, and enter these markets through strategic partnerships such as joint ventures and franchises."  A good example is Online bank Juniper’s allowing its customers to deposit checks at the outlets of the giant franchise chain Mail Box Etc [5].

According to Justis and Judd [1], franchising is defined as “a business opportunity by which the owner (producer or distributor) of a service or a trademarked product grants exclusive rights to an individual for the local distribution and/or sale of the service or product, and in return receives a payment or royalty and conformance to quality standards.  The individual or business granting the business rights is called the franchisor, and the individual or business granted the right to operate in accordance with the chosen method to produce or sell the product or service is called the franchisee.”  Developing good relationship between the franchisor and the franchisee is believed to be the most important factor for the growth of a franchise [1].  The relationship is developed while a franchisee learns from the franchisor how the business operates.  This learning process has five stages [6]: Beginner, Novice, Advanced, Master and Professional.  Through this learning process, both the franchisor and the franchisee gradually build a “family” relationship.  This relationship consists of five crucial elements [6]: Knowledge, Attitude, Motivation, Individual Behavior, and Group Behavior.

Thus, working knowledge is the base of the franchise “family” relationship, and through the process of learning working knowledge is disseminated throughout the system.  As the franchise continues to grow, there may be new products or services, developed out of the assets of the franchise operations, which may transform the business into a more, sometimes surprisingly, profitable enterprise.  For example, McDonald’s real estate business, Franchise Realty Corporation, became the real moneymaking engine as can be evidenced from the following quotation in the book McDonald’s: Behind the Arches [7]: “What converted McDonald’s into a money machine had nothing to do with Ray Kroc or the McDonald brothers or even the popularity of McDonald’s hamburgers, French fries, and milk shakes.  Rather, McDonald’s made its money on real estate and on a little-known formula developed by Harry J. Sonneborn.”  Ray Kroc, founder of McDonald’s, further commented months before he died [7]: “Harry alone put in the policy that salvaged this company and made it a big-leaguer.  His idea is what made McDonald’s rich.”  Thus, the capabilities of leveraging the assets of franchise operations into profitable products or services is at the heart of a successful franchise.

                In this paper, we propose a framework of franchise learning and knowledge management, which enables the franchise to develop dynamic capabilities and value-creating strategies.  Specifically, we address the following questions:

1. How is franchise knowledge conceptualized, used, renewed, stored, retrieved, transmitted, and shared?
2. What are the mechanisms that enable the franchise organizations to learn?
3. What processes do franchise organizations use to develop dynamic capabilities and value-creating strategies?
4. What information technology applications and systems support effective management of knowledge, learning, and capabilities in franchise organizations?
5. What are the implications for companies using franchising as an e-commerce growth strategy in the global market?