FRANCHISING

A form of business organization in which a

firm which already has a successful
product or service (the franchisor) enters
into a continuing contractual relationship
with
other
businesses
(franchisees)
operating under the franchisor's trade
name and usually with the franchisor's
guidance, in exchange for a fee.

3 main types of franchise:

Product distribution franchise;

Business format franchise; and
Management franchise.

Trade/product name franchising:

in this the franchiser licensing a franchisee to
sell specific products under the franchisers brand
name and trademark through a selective ,limited
distribution network. this method allow
franchisees to acquire some of the parent
companys identity
A product distribution franchise model is very much like a
supplier-dealer relationship.
typically, the franchisee merely sells the franchisors
products. however, this type of franchise will also include
some form of integration of the business activities.

Produces the
syrup
concentrate
Sells the syrup
concentrate

FRANCHISEE

Produces the final

drink

Retail Stores
Restaurants & F&B
Outlets

Vending Machine
Operators

PURE FRANCHISING OR BUSINESS

FORMAT FRANCHISING:

it involves providing the franchisee with a

complete business format. they are:
licence for a trade name
the products or services to be sold
the physical plant
quality control process
a marketing plan.
in a business format franchise, the
integration of the business is more complete.

outlet in
Sale, Australia

outlet in
Marseille, France

A form of service agreement.

The franchisee provides the

management expertise, format
and/or procedure for conducting
the business.

1)

Management training and Support

- franchisers offer managerial training
programs, counseling services

2)

Brand Name Appeal

- franchisee purchases the right to use a
nationally known and advertised brand
name for a product or service

3) Standardized Quality of Goods

and Services
- quality of goods or services sold
determines franchisers reputation
4)National

Advertising Programs

- advertising campaigns are

organized and controlled by the
franchiser

5) Fianancial Assistance
support the prospective franchisees
6) Proven Products and Business
Formats
franchise owner dont have to build
business from scratch
7) Centralized Buying Power
- participation in the franchisers
centralized and large-volume buying
power
8) Site Selection and Territorial
Protection
- location is critical to success

DRAWBACKS OF BUYING A
FRANCHISE

Franchise contracts are always written

in favor of the franchiser.
Franchisees also should understand the
term and conditions under which they
may renew their franchise contracts at
the expiration of the original agreement.
In the most cases, franchisees are
require to pay a renewal fee and to
repair any deficiencies in their outlets or
to modernize and upgrade them.

Before signing on with a franchise, it

is wise to find out the details of the
training program the franchiser
provides to avoid unpleasant
surprises.

Franchisees in fast-growing systems

reap the benefits of the franchiser`s
aggressive growth strategy: market
saturation.

Franchise growing that rapidly runs

the risk of having outlets so close
together that they cannibalize sales
from one another.

 When

franchisees sign a contract, they

agree to sell the franchiser`s product or
service by following its prescribed
formula.
This feature of franchising is the source
of the system`s success, but it also
gives many franchisees the feeling that
they are reporting to a boss.
Highly independent, go-my-own-way
entrepreneurs often are frustrated with
the basic go-by-the- rules philosophy
of franchising.

Home markets saturated attractive

opportunities overseas

Lack of/relaxation of regulations in most

countries

Expansion of international trade.

Exposure to international media

Franchising is more than

distributorship
1.1)Extends to an entire operation

or method of business
2.2)Greater assistance, control and
longer duration
3.3)Distributor
merely
re-sells
products to retailers or customers

Leveraging on a recognised brand

name
Enhancing business image
Ensuring consistent quality
Attaining higher productivity/better
motivated staff
Access to good locations
Economies of scale
Reducing risks of failure

Franchises offer important pre-opening

support:
site selection
design and construction
financing (in some cases)
training
grand-opening program

Franchises offer ongoing support

training
national and regional advertising
operating procedures and operational
assistance
supervision and management support
increased spending power, access to bulk
purchasing and economies of scale

Developing franchise
concept
Market research
Familiarity with local laws
and regulations
Providing training and
support to franchisees

Criteria for choosing franchisees

Control over franchisees
Supply of products/materials to
franchisees
Intellectual property rights issues,
e.g. trade mark registration

Demand
Profitability of franchise, and
length of time required to
recoup investment
Track record of franchisor
Support rendered to other
franchisees

Experience and profitability of

other franchisees
Existence of competition
Capital required
Demands of franchisor, e.g. income
projections, deadline to open more
franchise outlets

ELEMENTS

FRANCHISER

FRANCHISEE

APPROVES;MAY
CHOOSE SITE

CHOOSES SITE
WITH
FRANCHISERS
APPROVAL

SITE
SITE
SELECTION
SELECTION
OVERSEES AND

EMPLOYEES

MAKES GENERAL
RECOMMENDATION
S AND TRAINING
SUGGESTIONS

HIRES,MANAGES
AND FIRES
EMPLOYEES

PRODUCTS AND
SERVICES

DETERMINES
PRODUCT OR
SERVICE LINE

MODIFIES ONLY
WITH
FRANCHISERS
APPROVAL

PRICES

CAN ONLY
RECOMMEND
PRICES

SETS FINAL PRICES

The franchisee is not completely independent.

In addition to the initial franchise fee, franchisee

must pay ongoing royalties and advertising fees.

Franchisee must be able to balance restrictions

and support provided by the franchisor with their
own ability to manage the business

A damaged image or franchise system can result

if other franchisees perform poorly or the
franchisor has financial problems.

The duration of a franchise is usually limited and

the franchisee may have little or no say
concerning termination

Not reading, understanding and/or asking

questions about the franchisee agreement and
other legal documents
Not understanding the responsibilities of a
franchisee and the rights and obligations of a
franchisor
Not seeking sound legal and financial advice
Not verifying oral representations of franchisor

Not analyzing the local market in advance

Not analyzing the competition
Not making thorough due diligence of the
franchisor
Not choosing the right location

There are approximately 1150 national and

international business format franchise
systems in India
The growth rate in franchised units from
2006-07 to 2009-10 was 30 to 35 per cent
for the last 4-5 years.
Some 500000 persons are employed in
business format franchise organizations.
Franchising contributed less than 3 per cent
to Indias Gross Domestic Product (GDP) in
2007.