A franchisee is a firm that is licensed to use a franchisors business idea and procedures and is often granted an exclusive right to sell the franchisors goods and services in a specified territory.

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S,. 6  BUSINESS STUDIES  NOTES                                                                     FRANCHISING  (I)

About half of all independent small businesses fail within their first five years.  People who start out as franchisees have a much better chance of success.

Familiar examples of franchise operation include Holiday Inn,  Pizza Hut,  H & R  Block, Roto-Rooter, and Jiffy Lube.  By the year 2005 franchising will have become $1-trillion-a-year industry and will account for  half of all retail sales.

In each case a firm developed an idea and procedure for doing business that could be duplicated in many outlets.  this firm,  called a franchisor,  licenses others (franchisees)  to use  the idea, name, and procedure.

A franchisor is a firm that licenses other firms to use its business idea and procedure and to sell its goods or services in return for royalty and other types of payments.

A franchisee is a firm that is licensed to use a franchisor’s business idea and procedures and is often granted an exclusive right to sell the franchisor’s goods and services in a specified territory.  Each franchisee owns his or her franchised unit.

In the case of an individual franchisee, the owner usually works in the business.  For example,  a fast-food franchisee would work in the fast-food restaurant.  Some franchisors license territory operators,  who set up local franchisees within their geographic areas.

The franchisor and the franchisees are related to each other through the franchising  agreement.   A franchising agreement is a contract between a franchisor and a franchisee that spells out the rights and duties of each.  The agreement creates a franchise,  a franchising system,  a franchisor, and a franchisee.

Some franchises are owned by parent firms, and others are independent.  Pizza Hut is owned by Pepsi Co.   McDonald’s is independently owned.  Franchise operations vary in the proportion of company-owned outlets to franchisee-owned outlets.  In general,  the trend is toward more company-owned outlets.  This gives the franchisor more control over operations.

Franchisee Benefits

Franchisees own and operate their own businesses whole benefiting from being part of a type of a chain organization.  The benefits  include  (1)  recognition.  (2)  management training and assistance ,  (3)  economies in buying ,  (4)  financial  assistance,  and (5)  promotional assistance.

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Recognition

A growing number of franchise operations reach into many different countries.  Some , however, operate only in one city.   Regardless,  the franchised outlets  (shops,  stores, restaurants and so on )  enjoy widespread consumer recognition because all units are basically alike.  The franchisor usually provides the franchisee with a blueprint for construction and insists on standardized operation of all outlets.  The standards are spelled out in the franchisor’s operations manual and franchising agreement and are backed up with standardized forms and control procedures.

Management Training and Assistance

Many franchisors operate training schools for franchisees. McDonald’s franchisees go ...

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