What Is Franchising?

7596 Words31 Pages
1 Introduction

The purpose of this paper is to shed some light on the concept of franchising from the viewpoint of the franchisor, discuss its different uses taking into account the advantages and disadvantages attached to them, and link these considerations to a firm’s internationalization decision-making process.

1 What is franchising ?

Franchising as it is generally known today is a form of marketing or distribution in which a parent company customarily grants an individual or a relatively small company the right, or privilege, to do business in a described manner over a certain period of time in a specified place. The parent company is termed the franchisor; the receiver of the privilege is called the franchisee;
…show more content…
During the boom years in the United States, the nest of the franchising concept, franchising was often touted as a surefire method of getting rich. For many it was. But for some unlucky people it was a disaster. Shady or slipshod operators ruined a number of investors through dishonesty or sheer incompetence. The government ultimately intervened and passed laws to protect consumers from poorly set-up franchises or out-and-out frauds. Franchising underwent a baptism of fire and emerged stronger than ever (Siegel 1983, 1).

3 Reasons behind rapid growth

There are several economic, social, and psychologic reasons that help explain why franchising has managed to get a firm foothold particularly in industrialized countries. These factors are as follows:
1. Increased concentration of business to the hands of few and powerful companies threatened the survival of SMEs. Higher efficiency and effectiveness requirements made franchising and other co-operative forms a desirable choice.

2. In countries that have experienced relatively slow co-operative development between companies, franchising has turned out to be a popular form of building competitive advantage and scale economies.

3. In large countries, such as the United States, franchising has been an ideal operation mode to gain a fair share of the market rapidly. This advantage is not applicable in the feasible sense in smaller countries.

4. The truth is that today we

More about What Is Franchising?

Get Access