What Is Franchising?
1 Introduction
The purpose of this paper is to shed some light on the concept of franchising from the viewpoint of the franchisor, discuss its different uses taking into account the advantages and disadvantages attached to them, and link these considerations to a firm’s internationalization decision-making process.
1 What is franchising ?
Franchising as it is generally known today is a form of marketing or distribution in which a parent company customarily grants an individual or a relatively small company the right, or privilege, to do business in a described manner over a certain period of time in a specified place. The parent company is termed the franchisor; the receiver of the privilege is called the franchisee; and the right, or privilege itself, is called the franchise.
A simple way to describe franchising is that it is basically a method of cloning success by duplicating a format based on established “best practice” (Stanworth - Smith 1991, 29). A business concept that has proved to be successful is duplicated to the franchisee, who commits himself to a contract to act upon the original business concept. Companies that operate following this original business concept form a franchise network. The franchise concept together with the franchise network form the franchise system that the franchisor is in charge of (Laakso 1995, 6). Franchise systems will be discussed in more detail in chapter 3.
The privilege may be quite varied. It may be the right to sell the parent company’s products, to use its name, to adopt its methods, and to copy its symbols, trademarks, or architecture, or the franchise may include all the rights. The time period and the size of the area of business operations, which are specified, may also vary greatly (Vaughn 1979, 1-2).
Franchising can also be defined as a special type of licensing. Franchising is really incomplete licensing. In licensing, the licensor allows a foreign company to manufacture a complete
The purpose of this paper is to shed some light on the concept of franchising from the viewpoint of the franchisor, discuss its different uses taking into account the advantages and disadvantages attached to them, and link these considerations to a firm’s internationalization decision-making process.
1 What is franchising ?
Franchising as it is generally known today is a form of marketing or distribution in which a parent company customarily grants an individual or a relatively small company the right, or privilege, to do business in a described manner over a certain period of time in a specified place. The parent company is termed the franchisor; the receiver of the privilege is called the franchisee; and the right, or privilege itself, is called the franchise.
A simple way to describe franchising is that it is basically a method of cloning success by duplicating a format based on established “best practice” (Stanworth - Smith 1991, 29). A business concept that has proved to be successful is duplicated to the franchisee, who commits himself to a contract to act upon the original business concept. Companies that operate following this original business concept form a franchise network. The franchise concept together with the franchise network form the franchise system that the franchisor is in charge of (Laakso 1995, 6). Franchise systems will be discussed in more detail in chapter 3.
The privilege may be quite varied. It may be the right to sell the parent company’s products, to use its name, to adopt its methods, and to copy its symbols, trademarks, or architecture, or the franchise may include all the rights. The time period and the size of the area of business operations, which are specified, may also vary greatly (Vaughn 1979, 1-2).
Franchising can also be defined as a special type of licensing. Franchising is really incomplete licensing. In licensing, the licensor allows a foreign company to manufacture a complete
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