In the lecture we know that franchise is a external method for business expansion through using another person's business philosophy. And franchise can benefit both franchisor and franchisee.
Benefit s to franchisor, it helps the organization grow quickly with providing the majority of the capital. And saves cost, because franchisees share many of franchsor's cost. Compare with manager in the firm, franchisees are high controled and bounded by contractual agreement.
Franchisees are more committed and motivated to the success of their individual units than the managers. Market expansion is low because franchisees provide most of the cost. Franchisees increase buying powers by enlarging the size of their business system, allowing then to purchase products.
However, the advantages for both parties do not always exist. Several preconditions should be fulfilled for franchisor, otherwise it will not work out positive feedback. Before deciding to franchise, a firm should consider the following analysis before doing franchising (Barrubger & Ireland, 2004).
1. The business’s product or service should be unique along some dimension that customers value.
2. The business should be consistently profitable, and the future profitability of the business should be fairly easy to predict.
3. The business should be profitable year-round, not only during the specific seasons.
4. The system and procedures for operating the business should be polished and the procedure documented in written form. The system and procedure should also be fairly easy to teach to qualified candidates.
5. The business proposition should be crystal clear so that the prospective franchisee fully understands the business proposition to which he or she is committing. The relationship between the franchisor and the franchisees should be completely open, and communication between them should be candid.
1. The business’s product or service should be unique along some dimension that customers value.
2. The business should be consistently profitable, and the future profitability of the business should be fairly easy to predict.
3. The business should be profitable year-round, not only during the specific seasons.
4. The system and procedures for operating the business should be polished and the procedure documented in written form. The system and procedure should also be fairly easy to teach to qualified candidates.
5. The business proposition should be crystal clear so that the prospective franchisee fully understands the business proposition to which he or she is committing. The relationship between the franchisor and the franchisees should be completely open, and communication between them should be candid.
Reference:
Barrubger, B. R. & Ireland, R.D., (2004). Entrepreneurship successfully launching new ventures, New Jersey: Pearson Education Ltd.
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