Advantages and Disadvantages of Franchising

2315 Words Dec 2nd, 2011 10 Pages
MK325
Tuesday, 23 November 2010

Write an individual essay, developing the arguments both for and against franchising as a mode of foreign market entry, outlining also any elements of risk arising for franchisor and franchisee and how they may be minimized.

Tavano Filippo

Dr.Paliwoda Stanley, Dr. Jafari Ali Akbar

To understand the effects of globalization and the challenges it presents is assisted through the use of modern communication technologies and also the ability to expand into newly opening local markets and exposing them to new methods of production and marketing (FranExcel, 2001). However new challenges often occur, such as the use of managerial insight and intelligence, to examine a variety of different systems that
…show more content…
One of the main financial benefits includes the fact that the franchisor gains from additional incomes such as franchisees fees and on-going royalties. This increase of capital improves profits and return on investments. McDonalds, for instance, sell their name for $1,800,000 a piece. This is huge for the franchisor because for every new McDonalds they open they make a profit from the name and products they sell to the franchisee and also have a stake in the profits that the franchisees make (AssociatedContent, 2010). Another financial benefit is the reduced operating, distribution and
1

advertising costs. This, in turn, will mean more funds will be allocated for research and development. The key operational benefit is the ability for the franchisor to have a far smaller centralized headquarter, compared to having to owning many business locations and developing then into franchisees. Moreover, the management can ensure conformity across the company, through the use of standardized procedures achieving consistent outcomes, greater productivity levels and better quality results. Another advantage is the ability to instigate effective quality control. Particularly where the franchise agreement is long-term (Holmes & Lofstrom, 2003), the franchise will feel like it has a greater sense of control, ownership and autonomy; this is likely to cause the manager to invest more into the business, in the forms of time,