Question

Question 1

Requirments:

A. In examining the concept of franchises, what are the advantages and disadvantages for a company that decides to franchise instead of just opening additional stores and locations, itself, which is the better option in your opinion of expanding locations and services, corporate ownership of all locations or franchises and why?

B. In looking at franchises, what risks does the corporation take on, by having franchises, as could a bad location, that has issues create image problems for the corporation? Explain  

Answer 1

A . Advantages of buying a franchise
- Franchises offer the independence of small business ownership supported by the benefits of a big business network.
- You don't necessarily need business experience to run a franchise. Franchisors usually provide the training you need to operate their business model.
- Franchises have a higher rate of success than start-up businesses.
- You may find it easier to secure finance for a franchise. It may cost less to buy a franchise than start your own business of the same type.
- Franchises often have an established reputation and image, proven management and work practices, access to national advertising and ongoing support.
Disadvantages of buying a franchise
- Buying a franchise means entering into a formal agreement with your franchisor.
- Franchise agreements dictate how you run the business, so there may be little room for creativity.
- There are usually restrictions on where you operate, the products you sell and the suppliers you use.
- Bad performances by other franchisees may affect your franchise's reputation.
- Buying a franchise means ongoing sharing of profit with the franchisor.
- Franchisors do not have to renew an agreement at the end of the franchise term.

Franchising is seen by many as a simple way to go into business for the first time. But franchising is no guarantee of success and the same principles of good management - such as informed decision-making, hard work, time management, having enough money .

Risks associated with a franchise:

Franchise might become a source of dissatisfaction for a number of reasons including these:

Irrelevant business model. Some of the business models, which serve as a foundation for a franchise, might be simply irrelevant in a given market under given circumstances. In one case, demand for specific products or services in different countries might be so different, that the franchise that is successful in one country might face extremely low demand in another. In other case cost structure that allows profitable operations in one location might become unbearable in other location due to, for example, higher cost of labor, rent or logistics. Quite often the pricing policy becomes a source of irrelevance, when, for example, franchise from a wealthier country expands to less prosperous country and fails to adapt its prices to the buying power of the target region.

Poorly documented franchise. Some franchisors are unwilling to invest into quality of their operating manuals, quality standards, training programs and other means of assisting franchisee in replicating franchisor’s business successfully. Franchisee, that will buy such a franchise, might find it hard to replicate a business model and exploit the benefits of franchisors’ “know-how”. Franchisee’s compliance with poorly documented standards could also become a source of conflicts with a franchisor simply because it is quite difficult to follow the rules that are described unclearly and unprofessionally.   

Fake franchise. Nowadays there are so many franchise opportunities out there and they are promoting themselves so similarly, that one might easily got himself misled by a “fake” franchisor. “Fake” franchise stands for a franchise that either does not exist in real life apart from its marketing material (this is pure fraud) or is built unprofessionally and is based on a business model that is neither proven nor successful. Best way to avoid “fake” franchises is to take your time to analyze comprehensively all information about the franchise that you could possibly get from the franchisor, other franchisees and public sources of information.