Question

Discuss franchising as an alternative for entrepreneurs in South Africa. Do so from the perspective of the franchisor and the franchisee. 30 MARKS

Answer 1

Franchising as an alternative for entrepreneurs in South Africa form of venture capital offers a number of advantages. The main reason most entrepreneurs turn to franchises is that they allow them to expand without the risk of debt or stock costs. First, because French franchises provide all the capital needed to open and manage a unit, it allows the company to grow using the resources of others. Using the money of others, the buyer of the right to do business can grow exponentially indefinitely.

In addition, because the franchise company is not a franchise, it signs leases and makes various contracts. The franchise allows for expansion without a fixed obligation, thus reducing the risk for the franchise. This means that as a monopoly, you not only need less capital to expand, but your risk is largely limited to the capital you invest in developing your franchise, which is often a large amount. Small of the cost of opening an additional company location.


Another hurdle for many entrepreneurs who want to expand is finding and retaining good department heads. Business owners often spend months finding and training new managers, just wanting to see them leave or, worse, hire competitors. And hiring managers are the only employees who may or may not be truly committed to their work, which makes managing their work a remote challenge.

But monopoly allows business owners to overcome these issues by replacing owners with managers. No one is more motivated than those who have invested materially in the success of an operation. Your franchisee will be the owner - often with life savings invested in the business. And his compensation will be more in the form of profits.

The combination of these factors will have many positive effects on performance at the unit level.

Long-term commitment- . Because business rights are invested, it will be difficult to leave your business.

Better quality of management.- As a long-term "manager", your business will continue to learn about the business and is likely to gain institutional knowledge about your business that will make him or her a better entrepreneur over the years. Decades of his life in business.

Improve operational quality.- Although there are no specific studies that measure this variable, business owners tend to take great pride in wealth. They will keep their location clean and train their staff better because they own, not just run the business.

Creativity.- Because they contribute to the success of their business, brand entrepreneurs are always looking for opportunities to improve their business - traits that most managers do not share.

Franchise is usually managed by a manager.- Franchise will also be very careful about the cost of the equation for labor costs, theft (from employees and customers) and other costs in the contract that can be reduced.

Franchise usually has a higher status than a manager.- Over the years, both research and news have confirmed that franchises will outperform managers when it comes to revenue generation. Based on our experience, this improvement in performance can be significant between 10 and 30 percent.