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"Franchising and small businesses"

Extracts from this document...

Introduction

Assignment "Franchising and small businesses" MODULE: OPERATION MANAGEMENT INSTRUCTOR: STUDENT'S NAME: CONTENTS Definition of the concept of franchising..............................................3 Types of franchising........................................................................4 Systems of franchising.....................................................................6 The franchisor.................................................................................8 Disadvantages to the franchisor......................................................10 The franchisee...............................................................................12 Disadvantages to the franchisee......................................................14 Advantages to the consumer............................................................15 Disadvantages to the consumer.......................................................16 An example of a franchised company...............................................17 The characteristics a future franchisee should have...........................18 Conclusions..................................................................................19 Bibliography.................................................................................21 Definition of the concept of franchising There are three ways for starting a small business: a start from the beginning of a new company, the buy over of an existing company and the franchising. Franchising is the bought of right to use a specific trademark or business concept. (http://home3.americanexpress.com/smallbusiness/resources/starting/franchise/frannqa.sh..) This means that in franchising, "semi- independent business owners that called franchisees are paying fees and royalties to a parent company that is called franchisor in return for the right to sell its products or services and often to use business format and system". (Norman M. Scarborough- Thomas W. Zimmerer, "Effective Small Business Management", 6th edition, Prentice hall Inc, New jersey, 2000, pp.102). The franchisees instead of starting their own self-directed companies choose to buy a company that has already a success in the market, and the franchisors on the other hand are going to show them how to operate this company. The franchisors build up the systems of the business that is being franchised and direct the distribution methods they use. The success of franchising as a method is this distribution from the franchisors. There are three types of franchising and are analyzed at the following page. Types of franchising There are three types of franchising and these are: the trade- name franchising, the product distribution franchising and the pure franchising. Trade name franchising The trade name or else the brand name franchise is the franchise in which the franchisor sells only his brand name to the franchisee. The franchisee has an opportunity to be recognized with this name, without deal out with particular products entirely under the producer's name. ...read more.

Middle

However, to bring about such changes can be lengthy and cumbersome operation when dealing with individual owned franchised outlets. The changes need to be carefully handled to avoid conflicts stemming from perceived threats to the franchisee's independence. VI. There may problems of information feedback from the franchisee to the franchisor. This can result from the franchisee's need of independence (Norman M. Scarborough- Thomas W. Zimmerer, "Effective Small Business Management", 6th edition, Prentice hall Inc, New jersey, 2000). VII. The franchisor may have difficulty in recruiting suitable franchisees, which see franchising as an attractive method of operating a business, are motivated by the prospect of self- employment and have the necessary capital available for investment. (Clifford M. Baumback, "Basic Small Business Management, Prentice- Hall Inc, Englewood Cliffs, N. J., 1983). The franchisee The franchisee is the person that buys the rights of owning a small business by the franchisor. He gets the opportunity to have a complete business quickly and, because of the brand name of the franchisor, the opportunity to reach the break- even point faster that an independent company. As happened with the franchisor, franchisees also have benefits and limitations. Advantages to the franchisee 1. Franchisees benefit from the experience of the franchisor. In fact, the experience is what franchisees buy to start their business, because the franchisors are providing specialized knowledge that is compensated by a training program organized by the franchisor. The franchisor also can supply professional managerial advice and leadership to overcome the problems that any small business is likely to face. 2. Franchisees gain a great satisfaction of their job, because it is something that they choose to do for living. 3. The franchisee's product or service is known by a brand name, and if this name is an established success, then the franchisee isn't anxious with the promotion of the product. The franchisors most of the times undertake national and local advertising campaigns in order to keep franchisees' products firmly in the public mind, and this promotion scale is of course away from the scope of an individual or a small business. ...read more.

Conclusion

Because of the fact that Mc Donald's listens to its franchisees, is perennially named as Entrepreneur Magazine's "Number one franchise". (http://home3/McDonalds.com). The characteristics a future franchisee should have When franchisors are looking for a franchisee, they are looking for a person with the following characteristics: o Experienced o Hard working o Team player o With management and leadership skills o Well- educated o With a desire to succeed. Conclusions Although all franchises have at least three elements in common, such as the brand, the operating system and the requirement payment to the franchisor, differences between and among franchise structures are many. Moreover the reasons that companies offer franchises vary considerably among the companies. Because no two franchises are identical, a prospective franchisee must thoroughly evaluate all aspects of franchises he is considering acquiring, and of the franchisors with which he is considering affiliating. Understanding the differences and how they will affect business operations, financial risks and financial return is critical to the prospective franchisee. Also most franchises succeed because the founders of franchising companies have developed a successful business and have a vision which enables their business to expand and to seize the competitive opportunities. Successful franchise organizations are always attuned to development within the market place and always are searching for ways to position the products and services which their franchisees offer so as to take advantages of marketplace changes. Franchisees have the benefit of this "vision" and business perspective which usually exceeds their own. Of course, franchise ownership does not include a guarantee that the strategies adopted by the franchisor will succeed in coping with the new challenges. More over, coping with challenges may require a redefinition of the business which could fundamentally change the way products and services are delivered. Nothing guarantees that the strategy the franchisor selects, if any, will be superior to others or even to a strategy that an individual franchisee may prefer. In other words, when franchisors and franchisees link themselves through franchise agreements, that commitment is usually been made "for better or worse". ...read more.

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