FRANCHISE

• History of Franchising:

  • The earliest signs of franchising in the United States date back to the 1850s after Isaac Singer invested in a Sewing Machine due to lack of capital for manufacturing machine
  • Singer's idea was noticed and over the next several decades, many other companies began to copy and enhance the business model of franchising
  • Companies like McDonald's and Burger King took franchising to a new level
• Definition of Franchising:

  • An individual or company purchases and runs a franchise
  • Franchisee purchases the rights to use business trademarks, associated marks, and other proprietary knowledge to open a branch
• Definition of a Franchisor:

  • An individual or company owning rights or license of a business
  • Franchisor grants the license or permission to various franchisees
• What Is a Trademark:

  • A recognizable insignia, phrase, word, or symbol that denotes a specific product and legally differentiates it from others
  • Trademarks are a form of intellectual property and may or may not be registered
• Difference between a franchisor and a franchisee
• Business Format Franchise:

  • Most popular form of franchising
  • Offers use of trademark and advertising
• Product or Trade Name Franchise:

  • Involves distributing products
  • Allows using of trademark and authority to distribute goods
• Business Model:

  • Explains how the organization seeks to earn a profit by selling its goods
• Dealership or Distributorship, Licenses, Agencies:

  • Dealership and distributorship format franchise allows selling products under the franchisor's trademark
  • Agencies format franchise own the rights to sell products on behalf of a supplier
• 3 Theoretical Perspectives on Strategic Management:

  • Industrial organization emphasizes the influence of the industry environment on the firm
  • Resource-based theory views performance based on the firm's ability to use resources
  • Contingency theory uses joint outcome of environmental forces and firm's strategic actions
• Manufacturing and Unit Franchise:

  • Manufacturing Franchise provides the right to manufacture products
  • Unit Franchise grants the right to operate a single unit or branch
• Master Franchise:

  • Grants rights to a substantial territory, usually a whole country
• Regional Franchise:

  • In a geographically large area, master franchisee may appoint a regional franchisee
• Multiple Franchisee:

  • Some franchisees operate several units
• Developers:

  • Large corporations may prefer to exploit territories by opening outlets themselves
• Advantage of Franchise:

  • Increase the number of outlets with minimum exposure of capital
  • Fast name recognition and awareness
  • Running small business units under a franchise agreement can lessen efforts and be beneficial through receiving royalty fees
• Disadvantage of Franchise:

  • Limited to almost no control over daily business operations
  • Limitation on coordinating independent business networks
  • Complexity in choosing the appropriate franchise partner
• A good Franchise Agreement