Franchise Organizations
Franchising is based on a marketing concept that can be adopted by an organization as a strategy for business expansion. Where implemented, a franchisor licenses some or all of its know-how, procedures, intellectual property, use of its business model, brand, and rights to sell its branded products and services to a franchisee.
In return, the franchisee pays certain fees and agrees to
comply with certain obligations, typically set out in a franchise agreement.
The word "franchise" is of Anglo-French derivation—from the franc, meaning free—and is used both as a noun and as a (transitive) verb. For the franchisor, the use of a franchise system is an alternative business growth strategy, compared to expansion through corporate-owned outlets or "chain stores".
Adopting a
franchise system business growth strategy for the sale and distribution of
goods and services minimizes the franchisor's capital investment and liability
risk.
Franchising is not an equal partnership, especially due
to the legal advantages the franchisor has over the franchisee. But under
specific circumstances like transparency, favorable legal conditions, financial
means, and proper market research, franchising can be a vehicle of success for
both franchisor and franchisee.
Thirty-six countries have laws that explicitly regulate franchising, with the majority of all other countries having laws that have a direct or indirect effect on franchising. Franchising is also used as a foreign market entry mode.
Three important payments are made to a franchisor: (a) a
royalty for the trademark, (b) reimbursement for the training and advisory
services given to the franchisee, and (c) a percentage of the individual
business unit's sales. These three fees may be combined in a single 'management
fee. A fee for "disclosure" is separate and is always a
"front-end fee".
Franchise Organizations in India
A franchise usually lasts for a fixed period (broken down
into shorter periods, which each require renewal), and serves a specific
territory or geographical area surrounding its location.
A franchise is merely a temporary business investment
involving renting or leasing an opportunity, not the purchase of an own
business.
Franchise fees are on average 6.7% with an additional
average marketing fee of 2%.
However, not all franchise opportunities are the same and many franchise organizations are pioneering new models that challenge antiquated structures and redefine success for the organization as well as the franchisee.
A franchise can be exclusive, non-exclusive, or "sole and exclusive".
Although franchisor revenues and profit may be listed in
a franchise disclosure document (FDD), no laws require an estimate of
franchisee profitability, which depends on how intensively the franchisee
"works" the franchise.
Therefore, franchisor fees are typically based on
"gross revenue from sales" and not on profits realized. See
remuneration.
Various tangibles and intangibles such as national or
international advertising, training, and other support services are commonly
made available by the franchisor.
Franchise brokers help franchisors find appropriate
franchisees. There are also main 'master franchisors' who obtain the rights to
sub-franchise in a territory.
According to the International Franchise Association,
approximately 44% of all businesses in the United States are franchisee-worked.
Franchising Franchise Organizations
Franchising brings with it several advantages and
disadvantages for firms looking to expand into new areas and foreign markets.
The primary advantage is that the firm does not have to bear the development cost and risks of opening a foreign market on its own, as the franchisee is typically responsible for those costs and risks, putting the onus on them to build a profitable operation as quickly as possible.
Through franchising, a firm has the potential of building
a global presence quickly and also at a low cost and risk.
For the franchisee, the primary advantages are access to
a well-known brand, support in setting up the business using operating manuals,
and ongoing operational support including access to suppliers and employee
training.
A primary disadvantage to franchising
is quality control, as the franchisor wants the firm's
brand name to convey a message to consumers about the quality and consistency
of the firm's product. They want the consumer to experience the same quality
regardless of location or franchise status
One way around this disadvantage is to set up extra
subsidiaries in each country or state in which the firm expands.
This creates a smaller number of franchisees to oversee,
which will reduce the quality control challenges.
Franchise Organizations
These organizations help in different aspects of
franchising and some of them are:
• introduce an obligation under the Code for parties to
act in good faith in their dealings with one another
• introduces financial penalties and infringement notices
for serious breaches of the Code
• requires franchisors to provide prospective franchisees
with a short information sheet outlining the risks and rewards of franchising
• requires franchisors to provide greater transparency in
the use of and accounting for money used for marketing and advertising and to
set up a separate marketing fund for marketing and advertising fees.
• requires additional disclosure about the ability of the
franchisor and a franchisee to sell online
• prohibits franchisors from imposing significant capital
expenditure except in limited circumstances.
These are significant changes and franchisors,
franchisees, and potential franchisees must understand their rights and
responsibilities under the Code.
The proven system of the franchise and the businesses,
the franchisor spent an experience for building their brand and systems so they
have knowledge which works and which doesn’t so it is very effective to step up
as a franchisee with proper guidance along with that this franchising industry
serves as an intermediate so proper training and ongoing support can be received.
Franchise Consultants Mantra:
Starting a business, becoming a consultant could be a good option for you,
depending on your experience level.
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