BBA 6th ESBM Franchising

Entrepreneurship & Small
Business Management
FRANCHISING

Definition
The practice of using another firm’s successful business model.

According to David H. Holt: A business system created by a contract between a parent company called
“Franchisor”, and the acquiring business owner called
“Franchisee”, giving the acquiring owner the rights to sell goods or services, use certain product, names or brands or to manufacture certain brands.

Characteristics
 It is an agreement
 Franchise does not own the parent firm and the products or name  It is for fixed period
 Replication of successful business format
 Takes place with business models having successful track records
 It is for oneself not by oneself

Types
 Product – Earliest type. Dealers are given right to distribute goods for manufacturer. The dealer pays some fee for the right.
 Manufacturing – The franchisor gives the right to take care of at least one of the entire manufacturing cycle of a product. E.g. bottling plants.
 Business-format – Wide range of services of the parent company is done by the franchisee. E.g. advt., promotion, planning etc.

Advantages
 The task becomes easier for franchisee
 Reduce chance of failures
 Market recognition for franchisee
 Increase in purchasing power
 R & D becomes strong
 Protected and privileged rights
 Obtaining loans are easy
 Brand equity

Disadvantages
 No room for creativity
 Number of franchisee restricted
 Govt. norms
 No right to switch over business
 Goodwill created by franchisee remains for franchisor
 Any time termination of contract
 Failures when happen, franchisee suffers

Evaluation of franchise agreements
Franchisee: Knowing the business and operation of the business are two different entity and so the requirement for to be a franchisee need the knowledge and business idea of how to run the show.
Any sort of technical issues when emerges has to be dealt with within the norms and conditions of the parent company.
Evaluation the