FRANCHISING

Meaning
A franchise is the agreement or license between two legally independent
parties which gives:
 A person or group of people (franchisee) the right to market a product or
service using the trademark or trade name of another business
(franchisor)
 the franchisee has the right to market a product or service using the
operating methods of the franchisor
 the franchisee has the obligation to pay the franchisor fees for these
rights
 the franchisor has the obligation to provide rights and support to
franchisees
Concept
Concept
• Franchising is an arrangement where one party (the franchiser) grants another
party (the franchisee) the right to use its trademark or trade-name as well as
certain business systems and processes, to produce and market a good or service
according to certain specifications.
• The franchisee usually pays a one-time franchise fee plus a percentage of sales
revenue as royalty, and gains :-
(1) Immediate name recognition,
(2) Tried and tested products,
(3) Standard building design and décor,
(4) detailed techniques in running and promoting the business,
(5) Training of employees, and
(6) Ongoing help in promoting and upgrading of the products.
Types of Franchise

Product
Distribution
Types of
Franchise
Business Format
 Types of Franchise
• Product franchise is a type of franchise in which a
manufacturer of a product contracts with a select
number of retailers or wholesalers to distribute its
products.
Product • Also known as “Trade Name Franchising”
Distribution • The retailer or wholesaler typically gets the right to
Types of Franchise identify itself as an “authorized dealer” of the
Business Format franchisor.
• In product distribution franchising, the franchisor
licenses its trademark and logo to the franchisees
but typically does not provide them with an entire
system for running their business.
• The industries where you most often find this type
of franchising are soft drink distributors,
automobile dealers, gas stations etc.
 Types of Franchise
• Business format franchises uses a franchisor’s
product, service and trademark, along with all
methods to conduct the business itself, such as the
marketing plan and operations manuals.
Product • These are the most common type of franchise. It
Distribution involves a franchisor offering a franchisee the right
Types of Franchise to use its business methods and systems in addition
Business Format to selling the franchisor’s signature goods and
services.
• It use the same procedures, recipes, and practices
of the franchisor.
• Examples include typical restaurant franchises,
home cleaning service franchises, and auto repair
franchises.
Types of Franchise Arrangements
• Because so many franchisors, industries and range of investments are
possible, there are different types of franchise arrangements available to a
business owner.
Franchise
• Two types of franchising arrangements: Arrangements

Single Unit Multi Unit

Area
Development

Master
Franchise
Types of Franchise Arrangements
Franchise • A single-unit (direct-unit) franchise is an
Arrangements agreement where the franchisor grants a
franchisee the rights to open and operate ONE
franchise unit.
Single Unit Multi Unit • This is the simplest and most common type of
franchise.
• It is possible, however, for a franchisee to
Area purchase additional single-unit franchises once
Development the original franchise unit begins to prosper.
• This is then considered a multiple, single-unit
Master relationship.
Franchise
Types of Franchise Arrangements
Franchise • A multi-unit franchise is an agreement where
Arrangements the franchisor grants a franchisee the rights to
open and operate MORE THAN ONE unit.
• There are two ways a multi-unit franchise can be
Single Unit Multi Unit achieved:

Area
Development

Master
Franchise
Types of Franchise Arrangements
Franchise • Under an area development franchise, a
Arrangements franchisee has the right to open more than one
unit during a specific time, within a specified
area.
Single Unit Multi Unit • For example, a franchisee may agree to open 5
units over a five year period in a specified
territory.
Area
Development

Master
Franchise
Types of Franchise Arrangements
Franchise • A master franchise agreement gives the
Arrangements franchisee more rights than an area development
agreement.
• In addition to having the right and obligation to
Single Unit Multi Unit open and operate a certain number of units in a
defined area, the master franchisee also has the
right to sell franchises to other people within the
Area territory, known as sub-franchises.
Development • Therefore, the master franchisee takes over
many of the tasks, duties and benefits of the
Master franchisor, such as providing support and
Franchise training, as well as receiving fees and royalties.
Advantages of Franchising
• Access to existing brand and operating systems.
• Franchisor brand and support can reduce chances of business failure.
• Customer awareness of brand, its products and services.
• Ongoing advice, guidance and support from franchisor.
• Franchising provides an opportunity for people to more easily get into
business for themselves.
• Centrally organised marketing and brand promotions.
• Franchisee not required to be a marketing expert.
Disadvantages of Franchising
• Potentially higher set-up costs compared to independent small business
• A franchise is for a limited time only
• Lack of independence to be completely innovative
• Franchisee may lack freedom of choice in suppliers
• Support may not meet expectations
• The requirement to pay franchise fees to the franchisor
• Risk of franchisor choosing unsuccessful marketing strategies or tactics
What Kinds of Businesses are Franchisable?
• While virtually any business in any industry can be franchised,
some industries are more susceptible to successful franchising
than others, including the following:

• Restaurant/food service concepts are relatively easy to franchise,

provided the recipes and menus are easy to replicate;
• Businesses that manufacture or supply goods and services with
widespread consumer appeal;
• Businesses that currently operate in fragmented industries not already
saturated with franchised brands; and
• Businesses with procedures and systems that are easily learned and
implemented.
• According to data published by the IFA, emerging franchise systems rapid growth
over the past year include the following categories:

1. Personal fitness;
2. Real estate brokers/services;
3. Coffee and tea;
4. Sub sandwich shops; and
5. specialty/gourmet retail food
Prof. Harsha Satramani
 Outsourcing is the contracting out of a business function to an external
supplier, involving the transfer of people, processes and assets.
 This contracting out can be undertaken at either an on-shore or off-shore
location, and to one (single-sourced) or more (multi-sourced) outsourcing
partners.
 outsourcing is a management strategy by which an organisation contracts out
its major non-core functions to specialised service providers with a view to
benefit from their expertise, efficiency and cost effectiveness, and allow
managers to concentrate on their core activities.
 The process of contracting out less important (i.e., non-core) business activities to external
agencies that are highly specialised in those business activities.
 It means, companies contract out certain activities to other firms that specialise in them.
 Outsourcing is most mature in the Information Technology sector (Information Technology
Outsourcing – ITO) although it is increasingly developing to include a wide range of business
processes (Business Process Outsourcing – BPO) such as HR, Finance, Procurement,
Customer Service, and the wider back office function.
 It involves contracting out.
 Normally outsourcing is done in case of non-core activities.
 There are two main forms of outsourcing the business processes;
(i) outsourcing to a thirty party, and
(ii) outsourcing to its own subsidiary company specially formed to handle a
specific. (Captive Unit)
Advantages of Disadvantages of
Outsourcing Outsourcing

 Focusing of attention on core  Confidentiality breach

activities.
 Ethical concerns
 Quest for excellence
 Resentment in the home countries
 Cost of operation are reduced
 Helps in generating employment
opportunities.
 Growth through alliance