Advantages and Disadvantages of Franchising

Tuesday, 23 November 2010

Write an individual essay, developing the arguments both for and against franchising as a mode of foreign market entry, outlining also any elements of risk arising for franchisor and franchisee and how they may be minimized.

Tavano Filippo Dr.Paliwoda Stanley, Dr. Jafari Ali Akbar

To understand the effects of globalization and the challenges it presents is assisted through the use of modern communication technologies and also the ability to expand into newly opening local markets and exposing them to new methods of production and marketing (FranExcel, 2001). However new challenges often occur, such as the use of managerial insight and intelligence, to examine a variety of different systems that will be able to compete amongst the already established "local" competition, which in some markets can prove to be extremely severe. The ability to compete, hold a strong place in the market and position the company accordingly, can only be achieved by the employment of franchising. This system has an extremely successful track record and allows the user to ensure the company's prosperity and carry it confidently into the future. One of the principal tactics in doing business in today's current environment, particularly for SMSs, is franchising. This method has been improved ever many years through trial and error and has become a clear concise process. It has been exposed to many different business relationships such as agencies, distribution and licensing. Franchising has proved its worth as a more refined procedure by supplying the "business system" that guarantees that the company follows the set out standards and operating procedures.

The question of "why choose franchising?" (FranExel, 2010) is a common and understandable issue. However we can identify and summarize the possible responses putting in evidence all economic advantages for the franchisor. In this instance, he can extend and increase his units thanks to the investment risk assumed by other parties in the host country. One of the main financial benefits includes the fact that the franchisor gains from additional incomes such as franchisees fees and on-going royalties. This increase of capital improves profits and return on investments. McDonalds, for instance, sell their name for $1,800,000 a piece. This is huge for the franchisor because for every new McDonalds they open they make a profit from the name and products they sell to the franchisee and also have a stake in the profits that the franchisees make (AssociatedContent, 2010). Another financial benefit is the reduced operating, distribution and