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FRANCHISING

30 October, 2015 - 09:17

Franchising is a form of licensing in which a company (the franchisor) licenses a business system as well as industrial property to an independent company or person (the franchisee). Franchising permits various companies and individuals to take advantage of a highly publicized name, a well-respected set of procedures, and a carefully developed and controlled marketing strategy, to sell products and/ or services. Fast food, soft drinks, home and car maintenance services, and hotels are the industries with the biggest franchisors.

Franchising has several advantages:

  1. A company can expand rapidly into a foreign market with a small capital outlay.
  2. A standardized method of marketing gives the product or service a distinctive image.
  3. Franchisees tend to be highly motivated.
  4. The political risks are low.

The key disadvantages of franchising resemble those of traditional licensing:

  1. The franchisor's profit is limited.
  2. Franchisors lack full control over the franchisees' operations.
  3. Franchising may create competitors.
  4. Many governments impose restrictions on the terms of franchise agreements.