Development Franchising

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Development Franchising as a Social Innovation: When Entrepreneurial Expertise is Lacking Isaac H. Smith David Eccles School of Business University of Utah

Kristie K. Seawright Marriott School of Management Brigham Young University

Contact: Isaac H. Smith; isaac.smith@business.utah.edu; (T) 801-518-2991; 1645 East Campus Center Drive, 22 KDGB, Salt Lake City, UT 84112

Promoting entrepreneurship in “developing” nations has become a popular strategy for alleviating poverty and stimulating economic development (Khandker, 2005). For example, the worldwide proliferation of microfinance institutions is based on the assumption that providing individuals with better access to financial capital will fuel entrepreneurship and microenterprises, providing opportunities for people to work their way out of poverty. The results of such efforts, however, have been mixed (Snow & Buss, 2001), in part, because not all microfinance borrowers have the entrepreneurial skills sufficient to make a microenterprise succeed (Karnani, 2007a). Cross culturally, successful entrepreneurs have been shown to possess a different set of knowledge structures, or mental schema, than non-entrepreneurs (Mitchell, Smith, Seawright, & Morse, 2000). Interestingly, franchisees—often considered to be entrepreneurs (e.g., Baucus, Baucus, & Human 1996; Grunhagen & Mettelstadedt, 2005)—have been found to have entrepreneurship-related knowledge structures more closely resembling non-entrepreneurs than entrepreneurs, implying that the franchise business model may in many ways compensate for a franchisees’ lack of entrepreneurial skills. Applied to a development context, franchising can be employed as a social innovation—compensating for some of the shortcomings of traditional microfinance strategies that often assume a minimum level of entrepreneurial ability in their borrowers. The purpose of this paper…...

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