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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:
- A company can expand rapidly into a foreign market with a small capital outlay.
- A standardized method of marketing gives the product or service a distinctive image.
- Franchisees tend to be highly motivated.
- The political risks are low.
The key disadvantages of franchising resemble those of traditional licensing:
- The franchisor's profit is limited.
- Franchisors lack full control over the franchisees' operations.
- Franchising may create competitors.
- Many governments impose restrictions on the terms of franchise agreements.
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