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Explain the nature of franchising. Discuss the advantages and disadvantages for both the franchisor and the franchisee.

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Introduction

FRANCHISING Question: Explain the nature of franchising. Discuss the advantages and disadvantages for both the franchisor and the franchisee. Franchising is 'a continuing relationship in which the franchisor (the owner of a company) provides a licensed privilege to the franchisee (the buyer) to do business and offers assistance in organising, training, merchandising, marketing, and managing in return for a consideration. It is a form of business by which the franchisor of a product, service, or method obtains distribution through affiliated dealers (franchisees).' (http://www.business.gov) A franchise is essentially a replica of an existing business. When you purchase a franchise, you buy the rights to use the parent company's name and to sell its product or service in exchange for an up-front franchise fee and ongoing royalties, which are usually between 3 and 6 percent of sales. While buying a franchise does have certain disadvantages, the right franchise can provide a certain amount of security that is often missing from new ventures. The franchisor and franchisee's aim is to create a strategic alliance with a common goal to dominate a market. Although there are many advantages for both the franchisor and franchisee, there are also many disadvantages and I will be analysing these throughout the assignment. ...read more.

Middle

Support and assistance is also provided by the franchisor, giving the franchisee quick access to help solve any problems that may arise. This gives the franchisee a sense of not being alone. This can be hugely beneficial, as entrepreneurship can often be a lonely and difficult road and success can be particularly isolating. This links in with Elton Mayo's ideas of being part of a time. As franchises are not in effect, individual businesses, they have team like qualities and therefore employees feel more motivated. Disadvantages for the franchisor include the fact that the establishment of a franchised business will demand a significant amount of investment. There will be high set up and development costs to begin with. Once the franchised business has been set up the franchisor will need to provide the franchisee with much support, particularly in the early stages of the new franchise, as sales figures will most probably be low. In the early stages of franchising a business there will most likely be initial losses, but 'as soon as a reasonable number of franchises are up and running, and early franchisees begin to mature, the franchisor's income flow will become increasingly attractive.' ...read more.

Conclusion

The franchising industry is worth �9.65 billion, that is an increase of 2% on 2003. The franchising industry employs around 330,000 people in the UK, which is an increase of 1% on last year. For well-known brands such as McDonald's, Pizza Hut and the Body Shop, franchising has brought considerable rewards for both the franchisor and the franchisee. Franchising can be particularly beneficial over setting up your own business as it reduces the risk involved and generally provides the franchisee with a steady flow of customers, as opposed to trying to form your own customer base. With franchising being proven to be the safest way of starting up your own business, its is no wonder that nine out of ten franchisees are reporting a profit. Franchising enables you to see your potential business in operation before you invest a penny. On the other hand, it is probably not for someone who does not like to be told what to do and likes to do things their own way. Although there are disadvantages for both the franchisor and franchisee, I would personally say that the advantages outweigh the disadvantages and that franchising seems to be a particularly wise option and is expected to increase significantly within the next 12 months. ...read more.

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