Franchising (a variation of licensing but their contracts are much longer in duration), the franchiser licenses (an entire business system) as well other property right to franchisee ( its business under the franchiser’s trade name and operate business as per the guidelines set by franchiser) receives fees, royalties and other payments for way of doing business. Franchising agreements usually require payment of a fee upfront and then precentage of revenues, the franchisee may have to buy supplies and other materials from the franchiser and the franchiser’s aim is to ensure quality goals are maintenaned as well as standardization in the material used. International franchising is particullary attractive to a company when its product cannot be exported to a foreign country; and when its production process (or business system) can be transferred to an independent company in the foreign country without much difficulty.
Direct franchising requires more franchiser involvement but gives the franchiser much greater control over the foreign operations or to form a partnership with another company, resulting in formation on third company, which theb developes franchises in other country. A problem with having such joint venture is that control is somewhat restricted and the financial issues then to get complicated. A third and more typical approach involves the establishment of a master franchisee who is then given the right to develop units within a particular country or area. Master franchisees are selected because of their resources, experience, and knowledge of local laws and marketplace. Master franchisees provide local expertise and oversight of the subfranchisees thus reducing franchiseer’s cost, oversight, and control requirements.
Franchising affords the franchiser an efficient and standard way to rapidly enter a market without the need for large capital outlays. Usually, the franchisee woll raise the resources to establish the business itself though often, the franchisr will provide a variety ofb assistance including market research data, advise on site selection, lease negotiations, arranging of loans, advertising, training and technological consulting. Subfranchising agreements and opportunities to ecxpand are offered in the adlocated teritory. By requiring the franchisee to purchase its supplies from it, the franchiser srates another source of revenue, is able to excersies control over many quality issues, secures scale benefits, and is able to fransfer out revenues fro the host country should restrictions on payments of royalties be imposed.
From an inward perspective, an advantage is that the franchisee does not have to be a large organization. Indeed, sole proprietors look up or small firm are usually interested in are able to secure a franchise. A franchise allows a formerly unknown business with limited prospects to hitch it self with an internationally recognized brand name or product. The franchisee’s business prospect look up and it is able to draw upon the resources of a sucsessfull foreign organization to expand and improve its potential in ways it may not have been able to do otherwise. Of course, the franchisee has to be careful as to which franchiser it enters into business with. A product or a way of doing business that is successful in one country does not alaways translate as well in another country, especially if it is economically and culturally different. Both the franchiser and the franchisee take a risk, with market research should obiviate. The franchiser runs the risk of the franchising a business in a country not ready for this product or type of business; the franchisee risks paying for a franchise that does not succeed.
To be successful in international franchising, franchisers must do a great deal of homework before venturing aboard. Some franchisere expand aboard by “rolling out” the standardized package that had worked successfully in the home market. Such format franchisers, therefore, select foreign markets because they are proximate and similar to the home market. While in some cases the home format has been transferred aboard intact succesfully, in others minor adjusments are made. Franchisers new to a country sometimes use pilot projects. These franchiser financed market – testing ventures introduce new concepts, ideas, services, and products to the foreign consumer and help acquaint the franchiser to am arket that considerably different consumer habbits.
Other Key Issues in franchising
1. Issues of quality and brand image
The franchiser has to be concerned with the ability of the franchisee to maintain the quality and image the quality and image of the products, the srvice, and the facilities, so that the international image of the organization is not sullied. To ensure that, franchisees have to be selected carefully, trained properly, and provided with a full range of support services. Sheer numbers of franchisees and their distance from the parent country contribute to laxity in quality control. With more and more franchisees, difficult tend to arise cover maintaining oversight on quality trainning, and many strain headquarters resources with regards providing assistance, advice, necessary equipment, and supplies. One way firms handle this potential problem is by being close to the franchisees through offices, the franchiser has in effect a local presence, and can liiasion on a continous basis with the franchisees in that region. This practice enables closer over sight quality, brand integrity, and market performance.
2. Franchiser support
Franchises are dependent on the franchiser not only for the brand name and image but also the formula for doing the business. Thus, sales and profits contigent on how well established and well known the franchiser’s product and business are and how that image is protected and enchanced. Failurer of the product , and business are and how well established and well known the franchiser’s product and business at headquarters or even at un related franchisee will adversely affect other franchisees. Yet another concern is the extent of support they actually receive. In some cases, the complaint of the franchisee is the marked lack of autonomy available to it as to how to organize its business and take advantage of local opportunitiy for autonomous decisions on the part of the franchisee is usually constrained. In recent years, franchisees have begun to band themselves into associations to protect their right and advance their interests with respect to franchiser. Thus, maintaining the proper relationship between the two party a necessary and vital task for managers.
3. Selecting the partner
Choosing the right partner is just as important as choosing the right market. Each concept and country must be considered separately in relation to a multitude of issues about market, potential franchisees, legal matters (e.g. right of the franchiser, protection of trademarks and trade secrets, amd termination of contracts). Receptivity to franchising, and feasibility of the particular concept. A key to success in franchising is a sound relationship between the parent firm and the franchisee. As operations become more complex in terms of capital, technology and market knowledge required, maintaining good relations is often easier said than done.
Franchising are used successfully by many firms to increase their profitability and to tap into the opportunities provided by a global market. Technical superiority has allowed many firm profitability expoloit their parents and unique production methods without being directly involve in overseas manufacturing and operations. Integration of country markets and the creation of successful brand names have helped many service industries to grow enormously through franchising. Before selecting this option, however, managers should consider other alternatives that arae available, which might conceivably earn higher incomes and provide greater growth opportunities. Negotiating a franchising agreement requires forecasting future market potential and mutual trust both sides will deliver what theu promise. These forecasts are often difficult to make, and expectations may have to be lowered. The dangeer of losing control over one’s core competencies or proprietary knomledge together with the possibility of creating porential rivals strongly suggest carefully negotiating franchising.