The following report clearly elucidates the concept, elements, practices and rules of franchising. Before a detailed discussion of these franchising components, one needs to understand what franchising is. Franchising is a business process where a firm (franchisor) distributes its products though affiliated business organisations (franchisee) on the basis of written contracts.
Franchising is a business format which involves two parties, the franchisor and the franchisee. The franchisor grants the right to sell, market and distribute its goods and services for a specified period of time. The franchisor may provide resource and training of the work force of the franchisee in order to ensure that the franchisee maintains the standard of operations. The business model of franchising stands on legal and expressed agreement which governs areas like sharing of profit between the parties, quality of services and so on(franchise.org.au, 2017).
The basic aim of selling franchise is to expand the business in different areas in order to reach out to the greater number of customers or consumers. The franchisees have full right to employ the workforce according to the requirement but strictly follow the actual ethics entitled to them by the head franchisor (Perrigot et al., 2014). The franchisor and the franchisees share the profits and losses as per the agreements
The franchising business model is initiated by the franchisor when he appoints firms or individual with the exclusive rights to market, distribute or sell products in a new market. The franchising is one of business strategies used by the companies when they want to enter foreign markets by giving firms existing in the new market the offer to distribute their products and enjoy a portion of the profit in return. The franchising model allows the franchisees to use the brand name and the market position of the franchisor to conduct business and earn profits. This business model is usually used by multinational companies to explore foreign markets and increase their market penetration.
The franchisor and the franchisee are bound by certain legal obligations like provison of initial support to the franchisee by the franchisor till the former is able to source his own resources. These are:
The franchisor should be the owner and it should have the legal and ethical right to make use of the trade name of its expanding network. It should be further authorised to hold the trade mark and identification of its expanding business. For example, KFC should be fully authorised to use its trademark and business identity while selling franchise to different countries.
Since both the parties are to follow same franchise principles, the franchisees are also entitled to maintain certain obligations for which they shall rove to be eligible to undertake franchise business. Followings are the obligations that a franchisee needs to perform:
The franchisor can share the business strategies with the franchisee but the latter should maintain its confidentiality. The latter should not share the strategies with a third party since he is not the owner of the plans and merely uses them by the virtue of the contract.
Franchising is practised through best understanding between two business wings. In this case proper reciprocity and mutual dealings have to be ensured between both the parties.
The multinational companies like KFC and Starbucks use franchising model to enter the developed markets like Australia and Europe. In the beginning of the twenty first century, the food chain giants like KFC, Dominos, Cadbury and KFC franchised their business in several LDC s like China, India Brazil and other emerging profitable markets. This gives them access to huge consumer base in these countries which generates the immense amount of revenue these companies earn. The franchising practices do not remain limited in food chain. Manufacturing industry has also enjoyed franchising in these emerging markets to profit by catering to growing market demand. New Zealand’s master brewery company Lion beer also enjoys franchising in more than eight countries and has more the nine hundred franchises across the world (Bauer, 2016). Hence, franchising depends on the market expansion strategies, financial strengths and so on of the companies (McDermott, Boyd & Weaver, 2015).
Franchising has emerged as a strategic global expansion tool adopted by the global companies. It is associated with its different operating methods of the global companies and a part of their business models. A successful franchise heavily depends upon its elements. Requirement and execution of the following elements help a franchise reach its ultimate growth:
The franchising business is adopted by multinational companies to spread their market into new countries. These companies allow franchisees in the new market to sell their famous brands which easily attracts a lot of buyers. For example, Unilever offers franchising of its established brands like Magnum and Ponds which find ready acceptance in the market. Therefore, franchising is positively associated with the brand name and its market image. The new franchisees automatically become the business representative of an existing brand.
Before purchasing a franchise, the franchisee is introduced to the existing business model of the franchisor. Establishment of the franchising relationship and supply chain management of the marketing model is not required for the franchisees to take care of.
Franchise business is highly dependent on the provision of proper training by the franchisors. Every country has different macroeconomic conditions which impact the business operations. An Australian company can depend on the local franchises of New Zealand to understand the marketing mode of the latter. However, the franchisee may not possess trained workforce so that the best business practices are ensured. Hence, provision of training becomes essentially an important element in franchise business.
It is known to all that franchising is probably the fastest way to grow a business of a particular company i.e. the franchisor. It is one of the cheapest ways as well. There are various reasons for the franchisors to allow a party to open its franchise in a particular area. In order to achieve the market share, the franchisors assess market demand, which is not at all centralised (Jeon, Dant & Baker, 2016). In the initial stage, the franchisor faces scarcity of resource. These resources are necessary to fund the growth of the company. Through following ways, a franchisor manages to get rid of the resource scarcity-
The present customer trend ensures the franchisor that its running business in a particular country is truly profitable. Therefore, the franchisor shows its interest to grow the number of franchises facilitating the franchisees with its different franchising policies.
The theory of agency applies to franchising because the franchisee acts as an agent of the franchisor. Sometimes, the franchisors extend their business wings in order to advance their business thus ensuring the maximum profit margin. Agency theory, as it was named by Brickley, is initially based on the separation between the principal and the agent. The clash raises question pertaining to the ability of the agents. Hence, the principal i.e. the property or the owner decides to franchise its business in order to check the actuality in the market. Thus a company becomes hundred percent franchised.
This theory of franchising is based on the mode of structure by Bradach who developed a formula on Franchising. This formula described that the chain of franchising is the result of mixed ownership of the companies. These companies utilise and enjoy advantage of the market simultaneously. The franchisee enjoys independence in its business practices and plurality prevails in the market. For example, the companies that sell their franchises to the outlets fall into business pluralism. The market intervention is not examined by a single company. Both the parties examine the present condition of the market and decide how to run the business. Plural Organisation Theory has become one of the most relevant ways in the 21st century because of its uniformity and objectivity in the business.
While participating in business franchise, both the parties- the franchisor and the franchisee are to perform some certain roles and shoulder some certain responsibilities.
The franchisor should provide substantial training and material support to the franchisees. These trainings are subject to the scale of business and market position of the parties. The support is not just one time support, these are rather constant assistance in terms of troubleshoot on technical, marketing and HR issues.
The franchisor and the franchisee compete in the market as one unit and hence support each other to expand the business. This process comprises of product and service update and rolling on the trend of the industry (Boulay et al., 2016).
The business career of the franchisees depends upon the quality of the brand and product provide by the franchisors. The franchisors are to ensure the standard of its brand- product or service. Effective intervention in standardisation of brand keeps both the parties alive in the market competition. Hence, this is extremely important for a franchisor to maintain the standard of the brand. This is to carry on the good impression along with its franchisees.
This responsibility is shouldered by the franchisee. In order to maintain best practices in the business, the franchisees are to follow the set of rules designed by the franchisors so that the second party does not deviate from the core business ethics and operations strategy of the franchisors. In that case a proper communication is extremely necessary between the franchisee and the franchisor.
The franchisee is to shoulder some responsibilities regarding the growth of the franchised business. This growth is highly recommended by the operations head. However, the franchisee may sometime improvise some business strategies in order to meet the current market demand. Food chain market or brewery market in New Zealand or in Australia is completely different is from that in any Asian or African country (Alon, Madanoglu & Shoham 2017). Therefore, the franchisee has the full right to intervene with some strategic market plan in the respective areas. Most of the companies have established their master franchise offices in different countries. They operate the local business maintaining the actual business model of the head branch. Cadbury’s head quarter in the UK operates the core business rules although allowing the head franchises to differ according to the market criteria.
To open a business franchise in New Zealand, one has to abide by certain rules and ethics designed by the Franchise association off New Zealand. FANZ (Franchise Association of New Zealand) . According to the code of ethics designed by FANZ, the franchise members shall have to adhere to the code of practice, confidentiality and secrets concerning to the association (“Franchise Association of New Zealand – Important Information”, 2017). Opening franchise in New Zealand is not a free business method. As per the franchise law prevailing in New Zealand, a company that shows interest in opening franchise in the country has to adhere to the followings:
In case of opening a franchise in the country both the parties are to comply with the Rules, Codes and code of Ethics provided by the FANZ. As per the clause 14 and 15, the participating organisations shall thoroughly maintain disclosure documents. In this case both the parties have to update the documents at least fourteen days prior to the agreement made between the franchisor and the franchisee. It, in fact, helps the engaging parties to have a clear idea about the franchising members (“an introduction to FRANCHISING IN NEW ZEALAND – Franchise New Zealand”, 2017
While franchising, the franchisor has to ensure that a minimum standard is maintained in the disclosure document. These standards are the set of parameters designed for the supply of information in the market.
There are two kinds of agreements made in franchising. The first type is made between the mother company and the franchisee. The second one is made between the master franchisee and the sub- franchisee. In both the cases, sufficient information about both the parties has to be mentioned in the disclosure document.
It can, therefore be said that franchising business in New Zealand is performed through a very stringent filtering process so that transparency is properly maintained in the business practice.
Conclusion:
It can thus be concluded that opening franchise is no doubt a great business deal. It does not only helps a company extend its business and corporate opportunities, but also gives way to the franchisees to perform small business management tasks. Different countries have different franchise rules. These rules are usually formed by the franchise associations who hold respective business ethics in the countries. All the franchising members are to follow these franchise rules balancing the marketing characteristics in different levels.
References:
Alon, I., Madanoglu, M., & Shoham, A. (2017). Strategic agility explanations for managing franchising expansion during economic cycles. Competitiveness Review: An International Business Journal, 27(2).
An Introduction to FRANCHISING IN NEW ZEALAND – Franchise New Zealand. (2017). Franchise.co.nz. Retrieved 21 March 2017, from https://www.franchise.co.nz/article/117-an-introduction-to-franchising-in-new-zealand?cat_id=11
Bauer, S. (2016). Development of a Growth Strategy for Small-and Medium-Sized Enterprises and Derived, Selected Recomendations for Action: Principles, Concept and Methodology by Means of a Practical Example.
Boulay, J., Caemmerer, B., Evanschitzky, H., & Duniach, K. (2016). Growth, Uniformity, Local Responsiveness, and System?Wide Adaptation in Multiunit Franchising. Journal of Small Business Management.
Franchise Association of New Zealand – Important Information. (2017). Franchise Association of New Zealand Inc.. Retrieved 21 March 2017, from https://www.franchiseassociation.org.nz/things-you-should-know.html
Gillis, W. E., Combs, J. G., & Ketchen, D. J. (2014). Using resource?based theory to help explain plural form franchising. Entrepreneurship Theory and Practice, 38(3), 449-472.
Jeon, H. J., Dant, R. P., & Baker, B. L. (2016). A Knowledge-Based Explanation of Franchise System Resources and Performance. Journal of Marketing Channels, 23(3), 97-113.
Madanoglu, M., Shoham, A., & Alon, I. (2017). Push and pull factors in international franchising. International Marketing Review, 34(1).
McDermott, M. J., Boyd, T. C., & Weaver, A. (2015). Franchise Business Ownership: A Comparative Study on the Implications of Military Experience on Franchisee Success and Satisfaction. The Entrepreneurial Executive, 20, 9.
Perrigot, R., Basset, G., & Meiseberg, B. (2016). Resale prices in franchising: insights from franchisee perspectives. Journal of Product & Brand Management, 25(7).
Perrigot, R., Basset, G., Briand, D., & Cliquet, G. (2014). Network uniformity and risk of reclassification of the franchise contract. International Journal of Retail & Distribution Management, 42(10), 884-901.
What is Franchising. (2017). franchise.org.au. Retrieved 5 May 2017, from https://www.franchise.org.au/what-is-franchising-.html
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download