Resources through franchising


The addition of the franchisee in the franchise chain results in the franchisor getting more of the resources. This is because the franchisee uses own capital for the franchise, and addresses the issues of recruitment, retention and motivation of staff or agents and of overall management of the business.

The franchisor also gains time as the allotment of franchises helps in expanding his business more rapidly than other traditional methods of expansion. Thus, franchising has outgrown the narrow concept of marketing a product or a service through its distribution channels.

Franchising is one of the fastest growing methods of doing business in the world today. It begins with a vision of growth and expansion.

Better option for distribution System Company owned or franchising

Company owned units display some clear advantages when compared to franchising such as:

Ø More control over units.
Ø No sharing of profits.
Ø Ease of instituting changes in units.
Ø Ease in testing new products or services.
Ø Ability to change the basic products.
Ø Ability to even change the mission or goal of the organization.
Ø By virtue of ownership Company headquarters can easily control the reporting system, managerial system, and marketing system of all its units.

However, there are disadvantages of company owned units:

(a) Company-owned businesses require lots of capital due to cost of maintaining and developing units.

(b) Business partnerships that look fruitful in the beginning, quite often do not work in the long-term.

(c) They require a fairly extensive managerial team to oversee and control them and their activities.

(d) Difficulty in finding and keeping good motivated managers.

(e) The age old marketing channel of distributors, among others offers no control and little influence over how the product and services are being distributed.

Franchising advantages:-

* The franchisor provides the franchisee an opportunity to operate a tested, proven, and profitable business and in addition provides him support services and training that increase his chances of success.
* Franchising allows for intensive and rapid expansion of a regional or national business system.
* A franchise generally requires fewer management personnel than a chain organization and therefore, has a lower staff payroll and problems.
* When a franchisee invests his own money in a franchise, commitment follows. Unlike a salaried manager, a franchisee generally prides his ownership and is self-motivated in operating a successful business.

Franchising disadvantages:-

· Franchising is not a miraculous problem-free solution to business expansion. It is an excellent opportunity to expand with the assistance of other individuals, their investments and drive.
· Net receipts from franchisees could be less than net receipts from company-owned operations. Only few new franchises break even immediately most take up to six months to a year.
· Business skills required to operate a franchise are at variance with those required for running a retail store.
· A franchisor needs to realize that they are now working with several independent business people who have their ideas and ways of doing things.