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About Franchising Essay

Franchising is an ongoing relationship according to the International Franchise Association, which offers the franchisor license rights to start a company plus help to organize, train, administer and product loyalty and a loan from the franchisee. In this phase the owner (franchisor) licenses an independent company to sell its services to a business expansion (Müller, 2015). A franchise is therefore a legal arrangement that permits another store to use the concept, trademark, name and even product of its mother business. Every party must offer the rights to acquire others through the constitution.The franchisor is then able to increase the outlets and gain extra profit while the franchisee opens a new business something that may be could not have managed to do. The world gets smaller day by day, customers come from all corners, and the product brands continue to become dominant. Several reasons can make one take away the name far from home, among the primary one being economic. Global expansion benefits both the franchisee and the franchisor. For people to establish critical relationship across borders and create powerful brand recognition, then they can domestically start to cultivate. Mostly, franchise works better for global expansion, thanks to the blueprint and the model they provide for the system which has been successful in various places. It is just simple, all that people have to do is ship overseas, and if they get a partner who is conversant with the blueprint, they just start the business as quick as possible, which is far much better than when working alone. Most people prefer this model of investment because it is easy to expand and capture a more significant market; it is effective when best practices are utilized and is well controlled by the government.

Body

For the franchisor, international expansion sells the brand much faster than when using the traditional model to expand. Although using corporate in different countries to open shop requires extra power, franchising gives one an opportunity to find new partners in the target nations. The global partner has the information about the language, culture and should share your goals, values and vision allowing them to grow the brand quickly more than any office could have done.

For the franchisee, benefits can even be more significant; an established company should have some open units in their home country. Together with the establishment, there should also be training, market and business systems and ongoing support that is employed successfully across the domestic market. All such methods are transportable and adaptable to the local market and could save a new international partner a considerable deal of painful mistakes. Also saves time and money both of which are critical and scarce when launching a business. The partnership offers an opportunity for both franchisee and franchisor to reap cash as the vital reward and allow everyone to recoup investment faster than when one is alone. Global partnership always signs a multi-unit or area deal and hence with the support of the brand, they can expand quickly without harsh hiccups.

Even though the brand can be strong domestically, the first step for a company can be daunting. If one is new to this model, it is better to first stick close to the home market at the beginning. Expand in the home location and closest countries first. For instance, if you are to base the company in U.S, some of the international efforts should be Canada which is a market with development potential and also has a common language. It is also close to U.S that one can travel quickly to check the progress. Managers have to utilize several steps that amount to best practice for them to achieve franchisee success. Some of them include technology, professionalism, creativity, partnership as well as communication.

Technology

In businesses today, it is critical for franchisors to embrace the available tools and systems from the technology side. With the increased technological capabilities, great opportunities become available at a fraction to the franchisor. The franchise marketing systems have some partners and referrals literally for all kind of franchise-related technologies.

Professionalism

Those who have worked for long as entrepreneurs can tell the negative side of unprofessionalism. It is true that most small business people live a life according to their terms and they feel happy and proud of what they have accomplished. The tricky side of this model of business is that the franchisor is expected to be a little polished, professional and should always have their feet forward when it comes to the franchisee (Croonen et al. 2016). The franchise owners do not have the conviction or the personality held by most entrepreneurs; when they see any mess, they think that everything is going down. But as a franchisor, small things can be overlooked.

Creativity

A franchisee continually assesses the commitment to the model; it never ends. It is the responsibility of franchisors to continue answering asked questions with new tactics and ideas, an insightful strategy and to be reliable when needed. Most effective models would be those that are not one trick pony. The franchisor must be well developed and have a competent management team that is looking forward, creative and providing continuous innovations and great ideas that would help the franchisee improve their foundation and increase the income. McDonald is one of such examples that observe this creativity method.

Everyone would love a discount and a friend in any business; this is the responsibility of the franchisor to find what the client needs on a regular basis and then research what would be required to meet those needs. Such a process can only succeed using strategic alliances and partnerships with outside companies and vendors. For instance, if the franchise is using large amounts of printed materials, the mother can find a printing partner, and that is a great deal of adding value to the franchisee business.

Communication

As a great franchisor, it is easy to forget the other side, and that can typically give the franchisee a very different perspective on what the company does. Proper franchise management would require looking things from different angles to make impactful decisions. A franchisor, on the other hand, should have regular communication with the client and also have a relationship beyond the legal binding. They should never assume that the outlets are comfortable with everything; picking the phone is a smart way of managing them. The franchise marketing systems provide guidance as well as hands-on management services.

Government regulation on franchising

Franchising has two broad categories: service and retail. Most businesses in either group are today subjected to extensive government regulations which can, in turn, increase the financial investments and responsibilities to both franchisor and franchisee. For instance, an in-person franchisee service such as pest control experts and water conditioning have to be informed about the Environmental Protection Agency (EPA) regulations that govern the use of toxic products. The same applies to automotive retail where they have to answer questions about the disposal of used batteries, oil and rusted mufflers. The franchisor should handle such issues, but the franchisee must be aware of the laws before opening the business.

Because several companies have their operations in different states, it was inevitable to the federal government to involve itself with the regulations. Franchisors are required to provide their clients with a document that protects every party and such requirements are known as Franchise Trade Rules (FTC). The material should contain twenty different information categories about the process and must be handed to the franchisee at least ten days before the contract. The pieces of information required include the necessary investment, the required fee, the history of the franchisor litigation and the bankruptcy. Also, more about the length at which the agreement shall be in effect, financial statements as well as earning claims has to be stipulated (Khan, 2014).

According to the law, franchisors should not only do business but also supply the clients with necessary products and services that made the ownership easier. It handled the imbalances in the agreements that were tipped on to the franchisor’s favor. But it is also crucial to understand that the law does not entirely protect the franchisee. For example, the FTC does not offer certification of any provided information, but instead, individuals become responsible for verification. From the time that the Congress authorized the FTC to regulate the process, they can now launch complaints to the agency. The state can also impose the requirements as long as they are stricter than those provided by the federal government. On the other hand, some also prefer to use the Uniform Franchise Offering Circular (UFOC) than the FTC disclosure policy.

The future of franchisee

Basing on how companies have enjoyed franchising since it started in the 1950s, its structure has always been positive. The department of commerce in U.S. predicts that due to slow population increment, relocation to metropolitan areas as well as the coming up of new technologies, new opportunities shall be created for the franchisee. Acquisition and mergers are expected to increase as the bigger franchisor take over the small (Jell-Ojobor & Alon, 2017). Universities and schools are now adding franchising studies to the curricula. When we combine these aspects with low rates of franchise failures, industry stability and much daily return; then there is a formation an unstoppable force to the American economy and entire world as well. Franchising is an excellent model of doing business, but it also had demerits alongside the merits. It offers numerous advantages to both franchisee and the franchisor which helps to elaborate its success.

Advantages

The franchisor benefits because the business can now expand faster than it could have been able to do on its own. Lack of funds or even workers causes the moderate level of growth. However, through the method of franchising, the company uses less labor and cost because the franchisee provides everything.

The company can also be able to ensure competency of managers in every franchised outlet because owners are primarily concerned with the success of the business and hence spend extra energy in providing for its prosperity. Moreover, they have opportunities to give rights only to qualified people and can also be able to raise money through franchising without selling their company share.

The franchisee also reaps several advantages from the process. Here, the company faces fewer risks as compared to starting the business from scratch. Those risks are related to other franchising merits that emanate from affiliating with a stable organization. The franchisor has had a field understanding concerning the industry and has already acquired recognition. Franchisees are also provided with proven and efficient operational methods through the years in business such as training and management assistance as well as marketing assistance and other advantages (Beckmann & Zeyen, 2014). The franchisor also conducts national or regional marketing campaigns developed by professionals which help the franchisee to run local ad campaigns as well. Though they have to contribute a minimum of one and a maximum of five percent towards the advertisement funds, the agreements can significantly increase the outlet success chances.

Moreover, franchisors help franchisee obtain money for the business as well as prepare business strategies and plans. Here, if a franchisee needs money, financial institutions would be willing to lend if the franchisor backing up the business is established and not based on concepts. Besides the many advantages to both parties, there also exist disadvantages as well.

Disadvantages

Cost

Because of the benefits that the franchise receives, they must pay a fee for loyalty which ranges from $5000 to $1 million and thus can be a considerable expenditure. They must also continue to pay periodically during the agreement period which is usually a certain percentage of the gross income or a fixed amount. The franchise cost depends on different types of business and locations. For instance, a company offering franchised employment services such as the talent force based in Georgia can pay $7500 less plus a one year starting capital of $50,000 or more while a company like J.O.B.S in Florida can be as low as $45,000 including $30,000 franchise fee. The cost also pale as compared to food franchise, for instance, Popeye Famous Fried Chicken and Biscuits is likely to cost the franchisee $200,000 with no availability of financing assistance, but the one at Perkins Restaurant, Operating Co., L.P is expected to cost $959,000 and $1.5 million. The individual’s initial investment would cost roughly $150,000. Such costs are enormous impediments to peoples trying to start a business.

Funding the franchise

Because franchisors do not provide funding, people have to rely on themselves, family and friends as well as institutions such as banks. The higher the cost, the more difficult it becomes for operators to raise the required capital. However, this is a disadvantage since the profit shall get shared by a list of specialists such as bankers, accountants and lawyers who earn a significant amount from the involvement (Nijmeijer et al. 2014). For people with less cash, franchising may not the best idea to go for; however, for many people who have started it, they have reaped substantially. Apart from the high fee, the franchisee has to give up some business controls and lose the identity. For instance, most patrons have no idea of who owns McDonald or the Burger King meaning that many of the outlet owners are relegated to anonymity which is a considerable drawback.

Some franchisors often subject the franchisee to harsh supervision to the point that they have to control who to do in the business and even the location that you have to start. Some go further to stipulate on when to empty the cans or how to dress the employees. Moreover, workers have to follow the specified guidelines and never deviate. Another problem is that the franchisee can fall victim to a failing company. For instance, the company may be forced to pay extra loyalty cost in the case where other chains are falling even if your outlet is doing better. In more terrible circumstances, the franchisor can drop out of the business, and the agreement allows selling the company as the only means of withdrawing.

Recommendation

Because the franchisor also benefits from the franchisee, they should reduce the loyalty cost and attract more customers who can join in this venture. They should not seem to take advantage of other stores that can improve their business globally. They should also allow their clients to look for the best location at which start. Some control and guidelines are too severe and require review, I would not recommend the franchisor to withdraw them, but they should not be in an extreme form such as how the employees should dress. Finally, the franchisor should also review the agreement policies to ensure that if the chain is poorly managed or is facing specific challenges, it does not affect individual outlets and cause adverse effects. As the franchisor, you also have to build a strong team and reliable for international development, they shall be critical contacts for the corporate and global franchisee to work with and strategize in every stage of the expansion. Moreover, one has to get the house in order by reviewing the capital and resources to help in developing a sensible strategy. Also, consider business systems, training and the support to ensure they fit the company and can allow the best practice. Such are the blueprints for export and should expect the franchisee to utilize them as a means of ensuring brand success. They should be locked in a place before taking the initial step abroad. Once done, take the plunge; we often leave it because we assume it as usual, but it is possible for one to focus much on planning and forget that the first goal is expansion. After strategizing, planning, inventorying and searching on the international market, then one has to look and sign an international franchisee (Forte & Carvalho, 2013). There is no decisive move more than starting to expand. If done in the right manner, rewards are overwhelming.

Conclusion

Opening a business can sometimes be a tricky and expensive task; some entrepreneurs find success while others fail. It is crucial for people to prepare themselves and be smart through planning, researching and making the right decisions and actions. Franchising continues to be one of the best expansion models, and the legal market is still robust. Due to the world’s financial crises, most people are now looking for an international expansion for both traditional markets and new ones such as Africa. The primary issue with franchisee is the classification of franchisors as employers, and such a problem is expected to impact profoundly on the franchising nature. Most franchisors take their relationship with franchisee as paramount to the business success. They feel the need for a committed partner, and they would urge peoples to give up other jobs and take this venture. The law exists to protect the interest of peoples in the franchise which is a far cry from the early days when there were controversies over the franchising benefits.

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References

Beckmann, M., & Zeyen, A. (2014). Franchising as a strategy for combining small and large group advantages (logics) in social entrepreneurship: A Hayekian perspective. Nonprofit and Voluntary Sector Quarterly, 43(3), 502-522.

Croonen, E. P., Grünhagen, M., & Wollan, M. L. (2016). Best fit, best practice, or stuck in the middle? The impact of unit ownership on unit HR performance in franchise systems. International Entrepreneurship and Management Journal, 12(3), 697-711.

Forte, R., & Carvalho, J. (2013). Internationalisation through franchising: the Parfois case study. International Journal of Retail & Distribution Management, 41(5), 380-395.

Jell-Ojobor, M., & Alon, I. (2017). 17. Determinants of master international franchising. Handbook of Research on Franchising, 348.

Khan, M. A. (2014). Restaurant franchising: Concepts, regulations and practices. CRC Press.

Müller, H. J. (2015). The Internationalization of the Service Franchising Operations: Decision Making During Internationalization Process: A View in International Consulting/Training Business. pinnacle business management.

Nijmeijer, K. J., Huijsman, R., & Fabbricotti, I. N. (2014). Creating advantages through franchising in healthcare: a qualitative, multiple embedded case study on the role of the business format. BMC health services research, 14(1), 485.

August 31, 2021

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