IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v214y2019icp95-105.html
   My bibliography  Save this article

Pay upfront or pay later? Fixed royal payment in sustainable fashion brand franchising

Author

Listed:
  • Cai, Ya-Jun
  • Chen, Yue
  • Siqin, Tana
  • Choi, Tsan-Ming
  • Chung, Sai-Ho

Abstract

In the fashion industry, many brands operate under different kinds of franchising systems. In many cases, there is a fixed royalty charged by the franchisor. We observe that some franchisors insist on charging the fixed royalty as an upfront payment (before starting the franchising operations), whereas some request the franchisees to pay after the franchising operations have started. We name the first scenario as the upfront payment (URP) plan and the later one as the later payment (LRP) plan. In this paper, based on real world observed franchising arrangements for sustainable fashion brands, we build analytical models to compare the URP plan and the LRP plan from the supply chain finance perspective. We find that the social welfare performance (SWP) under the URP scenario depends on the value of royalty payment, while the SWP under the LRP scenario is not affected by the royalty payment. Moreover, the profit risks of the franchisee, the supply chain and the social welfare all increase with the order quantity. In the extended model, we explore the case when both the fixed royalty and the variable royalty co-exist. Finally, we explore the supply chain coordination problems and generate managerial insights.

Suggested Citation

  • Cai, Ya-Jun & Chen, Yue & Siqin, Tana & Choi, Tsan-Ming & Chung, Sai-Ho, 2019. "Pay upfront or pay later? Fixed royal payment in sustainable fashion brand franchising," International Journal of Production Economics, Elsevier, vol. 214(C), pages 95-105.
  • Handle: RePEc:eee:proeco:v:214:y:2019:i:c:p:95-105
    DOI: 10.1016/j.ijpe.2019.03.025
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527319301215
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ijpe.2019.03.025?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. Esther Calderon-Monge & Ivan Pastor-Sanz & Pilar Huerta-Zavala, 2017. "Economic Sustainability in Franchising: A Model to Predict Franchisor Success or Failure," Sustainability, MDPI, vol. 9(8), pages 1-16, August.
    2. Zhimin Huang, 2000. "Franchising cooperation through chance cross‐constrained games," Naval Research Logistics (NRL), John Wiley & Sons, vol. 47(8), pages 669-685, December.
    3. 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.
    4. Heydari, Jafar & Rastegar, Mehdi & Glock, Christoph H., 2017. "A two-level delay in payments contract for supply chain coordination: The case of credit-dependent demand," International Journal of Production Economics, Elsevier, vol. 191(C), pages 26-36.
    5. de Brito, Marisa P. & Carbone, Valentina & Blanquart, Corinne Meunier, 2008. "Towards a sustainable fashion retail supply chain in Europe: Organisation and performance," International Journal of Production Economics, Elsevier, vol. 114(2), pages 534-553, August.
    6. Nagurney, Anna & Yu, Min, 2012. "Sustainable fashion supply chain management under oligopolistic competition and brand differentiation," International Journal of Production Economics, Elsevier, vol. 135(2), pages 532-540.
    7. 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.
    8. M. de Brito & V. Carbone & C. Blanquart, 2008. "Towards a sustainable fashion retail supply chain in Europe:Organisation and performance," Post-Print hal-00506351, HAL.
    9. Shuai Yang & Yiping Song & Siliang Tong, 2017. "Sustainable Retailing in the Fashion Industry: A Systematic Literature Review," Sustainability, MDPI, vol. 9(7), pages 1-19, July.
    10. Li Chen & A. Gürhan Kök & Jordan D. Tong, 2013. "The Effect of Payment Schemes on Inventory Decisions: The Role of Mental Accounting," Management Science, INFORMS, vol. 59(2), pages 436-451, September.
    11. Bin Shen, 2014. "Sustainable Fashion Supply Chain: Lessons from H&M," Sustainability, MDPI, vol. 6(9), pages 1-14, September.
    12. Heydari, J. & Rastegar, M. & Glock, C. H., 2017. "A two-level delay in payments contract for supply chain coordination: The case of credit-dependent demand," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 87241, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    13. Xiangfeng Chen & Anyu Wang, 2012. "Trade credit contract with limited liability in the supply chain with budget constraints," Annals of Operations Research, Springer, vol. 196(1), pages 153-165, July.
    14. Sarmah, S.P. & Acharya, D. & Goyal, S.K., 2007. "Coordination and profit sharing between a manufacturer and a buyer with target profit under credit option," European Journal of Operational Research, Elsevier, vol. 182(3), pages 1469-1478, November.
    15. 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.
    16. Pfeiffer, Thomas, 2016. "A comparison of simple two-part supply chain contracts," International Journal of Production Economics, Elsevier, vol. 180(C), pages 114-124.
    17. Chan, Hing Kai & Yee, Rachel W.Y. & Dai, Jing & Lim, Ming K., 2016. "The moderating effect of environmental dynamism on green product innovation and performance," International Journal of Production Economics, Elsevier, vol. 181(PB), pages 384-391.
    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. Choi, Tsan-Ming & Wang, Yingjia & Shen, Bin, 2022. "Selling to Profit-Target-Oriented retailers: Optimal supply chain contracting with bargaining," International Journal of Production Economics, Elsevier, vol. 250(C).
    2. María Fernández-Muiños & Kevin Money & Anastasiya Saraeva & Irene Garnelo-Gomez & Luis Vázquez-Suárez, 2022. "Are the Sins of the Father the Sins of the Sons, but Not the Daughters? Exploring How Leadership Gender and Generation Impact the Corporate Social Responsibility of Franchise Firms," Sustainability, MDPI, vol. 14(14), pages 1-20, July.
    3. Choi, Tsan-Ming & Guo, Shu & Luo, Suyuan, 2020. "When blockchain meets social-media: Will the result benefit social media analytics for supply chain operations management?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 135(C).
    4. Shashi & Piera Centobelli & Roberto Cerchione & Amit Mittal, 2021. "Managing sustainability in luxury industry to pursue circular economy strategies," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 432-462, January.
    5. Ratri Parida & Manoj Kumar Dash & Anil Kumar & Edmundas Kazimieras Zavadskas & Sunil Luthra & Eyob Mulat‐weldemeskel, 2022. "Evolution of supply chain finance: A comprehensive review and proposed research directions with network clustering analysis," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 1343-1369, October.
    6. Song-Man Wu & Felix T. S. Chan & S. H. Chung, 2022. "The influence of positive and negative salvage values on supply chain financing strategies," Annals of Operations Research, Springer, vol. 315(1), pages 535-563, August.
    7. Hua, Jiawen & Lin, Jun & Wang, Kai & Liu, Guoquan, 2023. "Government interventions in new technology adoption to improve product greenness," International Journal of Production Economics, Elsevier, vol. 262(C).
    8. Sher Jahan Khan & Saeed Badghish & Puneet Kaur & Rajat Sharma & Amandeep Dhir, 2023. "What motivates the purchasing of green apparel products? A systematic review and future research agenda," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4183-4201, November.

    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. Fung, Yi-Ning & Chan, Hau-Ling & Choi, Tsan-Ming & Liu, Rong, 2021. "Sustainable product development processes in fashion: Supply chains structures and classifications," International Journal of Production Economics, Elsevier, vol. 231(C).
    2. Olson, Erik L., 2022. "‘Sustainable’ marketing mixes and the paradoxical consequences of good intentions," Journal of Business Research, Elsevier, vol. 150(C), pages 389-398.
    3. 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.
    4. Gopalakrishnan, Kavitha & Yusuf, Yahaya Y. & Musa, Ahmed & Abubakar, Tijjani & Ambursa, Hafsat M., 2012. "Sustainable supply chain management: A case study of British Aerospace (BAe) Systems," International Journal of Production Economics, Elsevier, vol. 140(1), pages 193-203.
    5. Mejías, Ana M. & Bellas, Roberto & Pardo, Juan E. & Paz, Enrique, 2019. "Traceability management systems and capacity building as new approaches for improving sustainability in the fashion multi-tier supply chain," International Journal of Production Economics, Elsevier, vol. 217(C), pages 143-158.
    6. Cai, Ya-Jun & Choi, Tsan-Ming, 2020. "A United Nations’ Sustainable Development Goals perspective for sustainable textile and apparel supply chain management," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 141(C).
    7. Choi, Tsan-Ming, 2013. "Local sourcing and fashion quick response system: The impacts of carbon footprint tax," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 55(C), pages 43-54.
    8. Bin Shen & Qingying Li & Ciwei Dong & Patsy Perry, 2017. "Sustainability Issues in Textile and Apparel Supply Chains," Sustainability, MDPI, vol. 9(9), pages 1-6, September.
    9. Subramanian, Nachiappan & Gunasekaran, Angappa, 2015. "Cleaner supply-chain management practices for twenty-first-century organizational competitiveness: Practice-performance framework and research propositions," International Journal of Production Economics, Elsevier, vol. 164(C), pages 216-233.
    10. Seles, Bruno Michel Roman Pais & de Sousa Jabbour, Ana Beatriz Lopes & Jabbour, Charbel José Chiappetta & Dangelico, Rosa Maria, 2016. "The green bullwhip effect, the diffusion of green supply chain practices, and institutional pressures: Evidence from the automotive sector," International Journal of Production Economics, Elsevier, vol. 182(C), pages 342-355.
    11. Bouguerra, Abderaouf & Gölgeci, Ismail & Gligor, David M. & Tatoglu, Ekrem, 2021. "How do agile organizations contribute to environmental collaboration? Evidence from MNEs in Turkey," Journal of International Management, Elsevier, vol. 27(1).
    12. Alexandra-Codruta POPESCU (BÎZOI), 2015. "On The Sustainability Of Fast Fashion Supply Chains – A Comparison Between The Sustainability Of Inditex And H&M’S Supply Chains," Management and Marketing Journal, University of Craiova, Faculty of Economics and Business Administration, vol. 0(2), pages 333-352, November.
    13. 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.
    14. Zheng Shen, 2023. "Mining sustainable fashion e-commerce: social media texts and consumer behaviors," Electronic Commerce Research, Springer, vol. 23(2), pages 949-971, June.
    15. Lo, Chris K.Y. & Yeung, Andy C.L. & Cheng, T.C.E., 2012. "The impact of environmental management systems on financial performance in fashion and textiles industries," International Journal of Production Economics, Elsevier, vol. 135(2), pages 561-567.
    16. Chan, Chi Kin & Fang, Fei & Langevin, André, 2018. "Single-vendor multi-buyer supply chain coordination with stochastic demand," International Journal of Production Economics, Elsevier, vol. 206(C), pages 110-133.
    17. Mu, Xiuqing & Kang, Kai & Zhang, Jing, 2022. "Dual-channel supply chain coordination considering credit sales competition," Applied Mathematics and Computation, Elsevier, vol. 434(C).
    18. Subrata Panja & Shyamal Kumar Mondal, 2023. "Sustainable production inventory management through bi-level greening performance in a three-echelon supply chain," Operational Research, Springer, vol. 23(1), pages 1-55, March.
    19. Sharma, Varun & Vijayaraghavan, T.A.S. & Raghu Ram, Tata L., 2023. "Resolving operational paradox of sustainable supply chain: A decision framework approach," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).
    20. Hassini, Elkafi & Surti, Chirag & Searcy, Cory, 2012. "A literature review and a case study of sustainable supply chains with a focus on metrics," International Journal of Production Economics, Elsevier, vol. 140(1), pages 69-82.

    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:eee:proeco:v:214:y:2019:i:c:p:95-105. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    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.