Franchising is an arrangement where franchisor grants or licenses some rights and authorities to franchisee. Franchising is a well-known marketing strategy for business expansion.
Franchisee pays an initial fee and ongoing royalties to a franchisor; in return, the franchisee gains the use of a trademark, ongoing support from the franchisor, and the right to use the franchisor’s system of doing business and sell its products or services.
Advantages:
– Receive an initial capital injection
– Can spread brand quickly
– Easy to terminate
– A good way to test the market before full investment
– Franchisee may provide better local knowledge
– Franchisor management can focus on strategic rather than operational issues
Disadvantages:
– Share profits
– May give access to strategic capabilities and eventually allow the partner to compete in core areas
– There may be a lack of goal congruence
– There is a loss of control over quality, recruitment etc.
– There may be a lack of consistency across franchises
– It may be difficult to attract franchisees