Growth of Franchising

Singer Sewing Machine first franchise (mid-19th century) Automobile (e.g. Ford), petroleum products (e.g. Shell), soft drinks (e.g. Coca Cola) Food and restaurants (e.g. McDonalds, Starbucks)

Franchise

A business that uses the name, logo and trading systems of an existing successful business

Franchising

Franchising A marketing system revolving around a two-party agreement, whereby the franchisee conducts business according to the terms specified by the franchisor Franchisee The person who purchases the franchise. Franchisor The person offering the franchise.

When to Franchise?

When Is Franchising Most Suitable?

Franchising is most suitable when a firm has a strong or potentially strong trademark, a well-designed business method.
A franchise system will ultimately fail if the franchisees brand doesnt add value for customers and its business method is imperfect or poorly developed.

Advantages of Franchisingto the Franchisee

Product

acceptance - Has an accepted name, product, or service. Management expertise - Managerial assistance provided by the franchisor. Capital requirements - Up-front support can save entrepreneur significant time and capital. Knowledge of the market - Offers experience in business and market. Operating and structural controls Helps in standardization and administrative controls.

Advantages of Franchisingto the Franchisor

Expansion
Allows

risk

venture to expand quickly using little capital. Business can be expanded nationally and even internationally. Requires fewer employees than a non-franchised business.
Cost

advantages

Supplies

can be purchased in large quantities to achieve economies of scale. Ability to commit larger sums of money to advertising.

Disadvantages of Franchising

Initial Cost The money youll have to obtain to start a franchise can be quite unreasonable. Strict Guidelines These restrictions can limit how you can advertise, what you must charge for the products you sell, and how much of an element you can put on a food product.

Lack of Guidance and Support Most larger companies offer prosperity of support and access to resources, but smaller companies may not. Unending Royalty (Fess) Payments When they sell franchise rights, they earn a royalty on each store. Its up to the franchise owner to make these royalty payments.

Types of Franchises
Acts as a retail store for the manufacturer. Franchise that offers a name, image, and method of doing business. Franchise that offers services Dealership

Single Franchise Owner Owns the franchise rights to operate in just one business location or region

Product and Trade Name Franchise

Grants the right to use a widely recognized product or name (i.e. gas stations) Provides an entire marketing system and ongoing guidance from the franchisor (i.e. fast-food)

Business-Format Franchise

Multiple-Unit Ownership

Holding by a single franchisee of more than one franchise from the same company

Area Developers

Individuals or firms that obtain the legal right to open several franchised outlets in a given area

ACQUISITION

Acquisition

A transaction where one firms buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine together to form a new company altogether. Ex. Reliance HDFC bank acquisition of Centurion Bank of Punjab in $2.4 b New Name: HDFC bank, Vodafone Acquired 52% in Hutch Essar in $10 b New Name: Vodafone Telecommunication ltd.

Why is important
i.

ii.

iii. iv. v.

Increased market share. Lower risk comparing to develop new products. Serve the customer better. Increased diversification Avoid too much competition

Advantages of an Acquisition
Economy of Scale. Reduced firm risk through diversification.

Limit

competition Cost reduction.

Resources increase.

More

opportunity to be creative. Tax benefit. Increase market power. Introduction to new technology.

Disadvantages of an acquisition

Cultural differences.

Failure

to join together well. Customer services. Job losses. Raise conflict between the employees. Marginal success record. Overconfidence in ability. Key employees loss. Over evaluation.