This study aims to present a conceptual framework that theoretically explains how innovation activities of franchise headquarters influence the performance of individual franchisees. Unlike previous research that has primarily focused on fragmented causal relationships among individual variables, this study takes an integrated approach by examining both product innovation and business process innovation. It proposes a structural model in which these innovations contribute to economic, operational, and sustainability performance at the franchisee level through the mediation of sustainable competitive advantage. Furthermore, it theoretically posits that government support plays a moderating role in transforming innovation activities into competitive advantage. As a conceptual paper, this study establishes a theoretically plausible model by linking variables through an extensive literature review, laying a foundation for future empirical research. Even without empirical data, the study aims to clarify the structural pathways of innovation activities and develop a framework tailored to the franchise industry. Through this approach, the study defines innovation in franchise headquarters as a strategic mechanism for value creation, highlights the structural link between competitive advantage and franchisee performance, and suggests that policy support serves as an institutional condition that facilitates the diffusion of innovation outcomes. Future research should empirically test the proposed model and conduct comparative analyses across industries.