A franchise organization is one which already exists as a successful product or service and the franchiser makes a contractual relationship with the franchisee to operate under the franchiser’s trade name and guidance in return for an initial royalty fee. Franchising involves a continuing relationship by providing the franchisee the licensed privilege to operate the business and at the same time gives assistance in organizing, training, trading, promoting and managing in exchange for monetary concerns.
For a well known brand that enters into business as a franchise organization has many advantages as compared to an entrepreneur who just began a business. The most evident point to explain this situation is the availability of a well proved system of operation and training is given as how to implement it. The new franchisees can ignore many mistakes that an entrepreneur could make because the franchise organization has already perfected the daily operation through trial and error bases.
A reputable franchise organization firstly works on marketing research before selling out a new outlet. This makes the franchisee more hopeful and confident that the demand of the product or service is high in the market. The organization gives a clear view about the competition that exist and how to differentiate themselves from the rival businesses.
[large]As a result, the franchisee enjoys the advantage of having a huge strength in number. They will acquire the economies of scale through buying materials, supplies and services, as well as negotiations in terms of locality and leasing. For a franchise organization it’s a great business strategy to gain a huge market share. The organization purpose to operate as a franchisor is to increase and retain customer’s loyalty.
A franchising organization forms a strategic alliance between different groups of people to develop specific relationships with the intention of dominating markets, to be more successful than its competitors. The McDonalds is an excellent example of the world’s largest franchising company to be known around the globe. About 80% of the world’s franchises are owned by McDonalds and make them earn 37% of revenue through franchising in across 31,400 restaurants all worldwide. Franchising is considered to be the most convenient form of expansion than forming company’s owned new stores as it cost the parent company much less rather than when its operated by a third party.
Following are some of the advantages of buying a franchising company;
The corporate image: The brand image and its awareness have already made a mark in the business industry.
Training: The franchisee has full support and guidance from the franchisor.
Secure more time: The more emphasis is made on running a successful business smoothly.
The most apparent benefit of owning a franchising organization is to own an existing brand name or image and the parent company provides all the support and training in running the franchise easily. However, the disadvantage that is usually seen in owning the franchise is the initial cost to bear the rights of the parent company for operating the business. The franchise contract can be restrictive for some business owners and it’s obligatory for them to follow the strict rules or they may suffer of losing the whole business.