Entrepreneurial Orientation, Dynamic Capability, and Franchisee Performance: The Role of Market Responsiveness

Abstract In today’s increasingly competitive environment, the franchisee’s ability to respond to the local market (i.e. market responsiveness) plays an important role in sustaining competitive advantage. Grounded in strategic entrepreneurship with entrepreneurial orientation (EO) and the dynamic capability perspective, this study extends research on how EO and the franchisee’s market responsiveness improves franchised-outlet performance. The internal process through which the franchisee’s perceptions of the franchisor’s EO and franchisees’ EO affect franchisees’ financial performance were examined, revealing that the franchisee’s perception of the franchisor’s EO had a direct effect on franchisees’ financial performance but an indirect effect on franchisees’ financial performance through the franchisee’s market responsiveness. Interestingly, the franchisee’s EO was found to have only an indirect effect on franchisees’ financial performance through the franchisee’s market responsiveness, while the franchisee’s market responsiveness had a positive effect on franchisees’ financial performance. Moreover, a franchisee’s perception of the franchisor’s EO was also found to influence a franchisee’s EO.