Why adopt microfranchising? : evidence from Brazil on an organizational innovation designed to face new challenges

This paper deals with the economic rationality underlying organizational innovations in franchising and the rationale behind them. Using Brazilian primary data, we obtain evidence that spatial distribution of microfranchised units is sensitive to the sector of activity. Our results suggest that labor-intensive activities are suitable for microfranchised units in less populated municipalities. In addition, we provide evidence that the spatial distribution of microfranchising reflects network growth. Indeed, larger networks, in terms of number of units as well as territorial extension, are more likely to be present in smaller markets than smaller networks. Older networks (incumbents) that had a business experience prior to franchising tend to concentrate their franchised units in densely populated areas, while entrants that adopted microfranchising from their foundation target unexplored markets in less populated municipalities.