Franchising As A Common Business Model Business Essay

It is a type of a contractual legal understanding where the parent company ( the franchisor ) delivers merchandises bundle, systems and operation direction and procedure whereas the franchisee contributes capital, market cognition and forces. Franchisor permits the franchisee to utilize the its trade name name, hallmark and concern system and the franchisee agrees to pay the royalty and fee for utilizing the right to make concern under franchisor ‘s trade name. The legal binding contract and besides sometimes the concern run by franchisee are called “ franchise ” . It is a go oning relationship between franchisor and the franchisee. Franchisor grants licensed rights to franchisee to carryout concern and provides with preparation, processes, selling and selling in return of money. Due to its proven processes, systems and path record, franchise has more opportunity of wining that any other concern that is merely get downing up.

The franchise concern theoretical account is a hierarchal. Normally, it consists of the undermentioned degrees.

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Maestro Franchisor

It is the existent proprietor of the concern. It can be the individual or house that conceived the franchise thought and oversees all the franchise concern facets.


It is the individual or administration that largely deals with the franchisee and sells the franchise licence. The maestro franchisor would hold a specific figure of franchisors in a specific district who sell the concern construct in that specific district.


Franchisee is the concluding degree of the franchise concern theoretical account. Franchisee can run from exclusive bargainer to a limited company after acquiring the franchise licence. Franchisee will be guided towards the correct concern format by the degree of hazard involved in the concern.

Franchise is a tested and tried concern theoretical account. Franchisee gets a readymade concern that is merely coming off the shelf. Franchisee does non hold to make explicate new procedures or do immense investing of clip and money to make a new procedure and systems. There are some alone characteristics in franchise concern theoretical account. It gives a rapid start up to concern. The thought of franchise concern that is merely coming out-of-the-box gives the chance to set up a new franchise within yearss of acquiring the licence.

Because of its really nature the franchising concern can be expanded markedly sing the market size. Franchisor would take any given figure of franchises in a peculiar district into history so that excessively many of them might non impact the profitableness and operations. In some franchises, market cognition is non at all necessary. Full and comprehensive franchise preparation is included in the concern theoretical account. Training might be included in the fee of licence. The concern theoretical account would take a period in which the franchise might run at a loss into history. Franchisee ‘s difficult work for their franchise would finally take the concern into net income.

Franchisee ‘s payments to the franchisor every twelvemonth is another facet of the franchise concern theoretical account. Franchisee must happen out the degree of payments when it needs to pay. Franchisee has a certain grade of liberty over the concern but franchisee is non the ultimate proprietor. Franchisor controls about all characteristic of the concern. Franchisee is really merely renting the concern.

Business Format Franchising

In this type of franchising the concern proprietor, the franchisor, gives the individual or concern, usually franchisee, the accredited permission to utilize their concern thought frequently peculiar district. It is really common type of franchise concern. In this type of franchising, the franchisee is administering the merchandises and services from the franchisor, uses its trade name name and hallmarks and takes advantage of its aid and support. Franchisee, in return, pays a start up fee and a royalty or gross revenues gross per centum every twelvemonth to the franchisor. Franchisee is the proprietor of franchise concern they run but the selling and sale of the merchandises and usage of the concern construct is controlled by the franchisor. In this type of franchise, the franchisee is given a comprehensive concern program or format by the franchisor to pull off the concern operations. In this type of franchise, the system, the ways of distributing merchandises and services are developed, checked and related to the hallmark. This manner a successful retail thought can quickly spread out than enlargement through company. McDonald ‘s, Dyno-Rod and Prontaprint are some illustrations of this type of franchising.

Expansion on Franchisee ‘s Capital

Franchising can turn out to be a great manner to spread out into new markets. There are immense advantages of franchising as a manner of spread outing the concern. It is really utile to spread out a concern in a greater geographical district. The chief benefit of being a franchisor is that it can utilize franchisee ‘s cognition, accomplishments and endowment to spread out into foreign states more easy, manage excess mercantile establishment and utilize their capital. Franchisor ‘s investing in capital to spread out the web is lesser as much of the ball comes from the franchisor. Normally, an proprietor is a batch more interested in the well being of concern that is why a franchisee would take more duty and involvement in concern, local imposts, legal ordinances and consumer gustatory sensations. Net incomes can better by the aid of Franchisee bring forthing repeating grosss. Franchisor can undertake distance job when operating in far off states because of lesser supervising required in this type of concern theoretical account. In franchising, the enlargement is given in the custodies of the franchisees that have besides invested their ain financess into the concern and are more interested and motivated for this undertaking. Management stretch caused by enlargement can be lowered with this concern theoretical account as lesser direction is required to engage, train and motor staff than in company owned mercantile establishments concatenation. Besides it can spread out more rapidly as it save the costs and operating expenses involved in seting new mercantile establishments. The enlargement physiques trade name image. Better understanding, information documents and procedure direction manual can assist to get the better of many challenges originating within this concern theoretical account. Over adult houses with corporate tally web can utilize this theoretical account to spread out into markets it could hold otherwise neglected. Franchisor can utilize the franchise Numberss strength to strike better trades with its providers. A profitable and much predictable franchise will be better able to lease locations in promenades where it would hold non been possible otherwise. Franchises can bask instead generous advertizement, selling and merchandise research and development budgets.

Motivation of Franchisee

A franchisee is evidently more motivated to do the concern work as his he has his ain money invested into it. The fact that it is an easier, safer and quicker method of having a concern serves as another motivational factor. Franchisee has the chance to put into necessary expertness and experience alternatively of doing errors and taking hazards. Franchisees get great value in experience and cognition for their investing. Geting an established trade name name with great goodwill purchase geting a franchise is another motivational factor. On the other manus, on its ain, franchisee might hold to put immense clip and money to accomplish same degree of repute and name. If an investor decides to get down a concern separately, he would confront great trouble in acquiring the best location. Whereas, if he is a franchisee of an established house, he can acquire a rental in the finest promenade in the country.

Franchisee can acquire great competitory advantage and increase profitableness due to the franchises ‘ immense purchasing power of a group. A franchisee can acquire far better quality and measure of advertizement from its advertisement financess for its market by the concern than if it would hold made an single investing. Besides it is eligible for some of the best research and developmental programmes that other single concerns can merely woolgather of. These programmes can turn out a immense border in viing and increasing profitableness. These factors are good plenty to maintain the franchisee positively motivated for the concern.

Local Market Knowledge of Franchisee

As the franchisee is chosen from the local market, logically, it would hold the first manus cognition of where the best chances are, what are the booming merchandises or services that it can offer, local consumer gustatory sensation, best methods for selling and advertisement, possible hazards, advertizement ‘s most sensible return on investing, effectivity and nature of market competition and much more. Franchisee can salvage on clip and money in marketing research by pass oning this market cognition that he gathered by accrued acquisition in the really start. Franchisees can utilize their cognition to acquire greater franchise ores, economic systems of graduated table and handiness of better deals with providers by acquiring natural stuffs, goods and services in majority. Franchisees besides have the accomplishments of enrolling the best quality staff from the local market by aiming their employment advertizements in the right countries. Franchisee ‘s proficient cognition in the local market can be utile in their preparation and besides supplying a lower disbursal runing theoretical account.

Franchising in Estonia and India

Franchising is a great manner to come in the emerging markets like India and freshly capitalized states such as Estonia. Emerging markets have around 80 per centum of the universe ‘s population. In following two decennaries, the universe ‘s trade is expected to come chiefly from the emerging markets. These markets present different sort of challenges than markets in developed states because of different conditions where franchisors are more experient. Franchisors should measure the economic and growing potency in these markets and so invent a sensible fee construction for their concern theoretical account. Franchisors should analyze the GDP per capita, population degree every bit good as the economic system ‘s growing rate. GDP is frequently the footing of categorization of the emerging markets as it indicates the economic and political state of affairs of the state every bit good as the income degree. GDP should be seen in context with the buying power as input monetary values and life costs are rather lower in these markets. The population degree is besides a widely discussed factor in economic potency. China and India, each with about one billion people population are considered the most suited topographic point for concern enlargement. A big ball of the population is poorer and lives in lesser developed countries where there are a few franchises. Growth rate of economic system is another factor. Higher the growing rate along with the control demand for better life manner reduces political hazard and creates a in-between category. This turning in-between category should be seen as the most appropriate chance for spread outing the concern through franchising.

Proven Business Format Support from Franchisor

Apart from acquiring an established concern and trade name name, hallmark, acknowledgment and tested and tried procedures, operations and concern patterns, the franchisee gets a ready market to get down with. Franchisee gets a good proved concern format support from the franchisor who does non desire franchisee to travel under as it would stain their repute. Franchisee can utilize the franchisor ‘s services and aid that it needs while running his ain concern. Head office ‘s aid is besides available. Field operation forces are used by many international companies whom can be contacted by the franchisor to decide their issues for the smooth running of the concern. Turnkey operation is a widely offered franchised format these yearss. The franchisee gets the necessary equipment and supplies to run the concern when the understanding is signed and initial franchise fee is made. Franchisor besides helps franchisee in taking the best location for the new franchise. Business can besides assist in discoursing lease dialogues, store layout programs, supplying and store adjustment etc. A suited stock list of stock to open the concern can be determined by the aid of franchisor. These advantages and support from the franchisor under the understanding are the chief factors in taking franchising.

Much needed preparation is besides provided by the franchisor to get down the concern ab initio. The franchisee and his staff are taught about the concern theoretical account that includes production, quality control, and direction, hiring and selling.

Buying Supplies at Lower Costss

Due to the group purchasing power of the franchising concern, it can assist the franchisee to acquire all necessary supplies at lower cost. Franchisor can pull off to acquire immense price reductions for the franchisee because of the predicted regularity and size of the order. Each franchise gets immense nest eggs because of the sweeping purchase of the supplies for all the franchisees in the web. By cut downing disbursals, the franchises can derive a critical competitory advantage. Franchisee has more benefits in this type of set up than acquiring independent supplies.

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