Franchising is simply a business contract between a Principal or franchiser and a franchisee. It is a business arrangement in which a franchiser grants a local franchisee the right to do business in a prescribed manner over a particular period of time in a specified place and within an agreed financial obligations.
International firms often develop strategic distribution systems for their products through franchising. The franchisee usually contributes money and agrees to manage the local business while the franchiser in turn contributes such things as business idea, trademark, goodwill, training, legal framework and advice. It must be noted that , the franchisee is not employed by the franchiser, however the franchisee is expected to make profit and the franchisee agrees to compensate the franchiser.
Types of Franchising
Advantages in Franchising Business
Issues associated with Franchising Business
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International firms often develop strategic distribution systems for their products through franchising. The franchisee usually contributes money and agrees to manage the local business while the franchiser in turn contributes such things as business idea, trademark, goodwill, training, legal framework and advice. It must be noted that , the franchisee is not employed by the franchiser, however the franchisee is expected to make profit and the franchisee agrees to compensate the franchiser.
Types of Franchising
- Manufacturing-Wholesaler: This is a system of franchising whereby manufacturers grant franchises to wholesalers who in turn sell to other businesses
- Manufacturing-Retailer: In this type of franchising, a manufacturer enters into a contract with an independent local business to distribute its products to targeted customer.
- Wholesaler-Retailer: wholesaler purchases goods in large quantities and are distributed by the retailer.
- Trademark Holder-Retailer: This is a type of franchising whereby a franchiser is in a business of selling business packages and ideals to a buyer of such business system.
Advantages in Franchising Business
- Franchiser has the benefit of reduced burden of financing its outlets. Each franchisee covers a part of the costs.
- Franchising system is a form of globalization and localization of business activities.
- Under franchising, economic of scale and production is possible in most areas of operations.
- Franchiser has limited control and management of localized businesses and outlet .
- In most cases the returns from franchised outlets are limited to the amount set by the franchise contract.
- Under franchising system, it’s often difficult for labour union to organize and mobilize workers into unionism.
- The cost of financing franchising outlets often lead to set back in business operations
- Interference by the parent firm in franchising business do affect smooth running of business activities.
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