...A. Advantages from the Franchisor’s point of view: Financial: Franchising creates another source of income for the franchisor, through payment of franchise fees, royalty & levies in addition to the possibility of sourcing private label products to franchisees. This capital injection provides an improved cash flow, a higher return on investment and higher profits. Other financial benefits that the franchisor enjoys are reduced operating, distribution and advertising costs. Of course that also means more allocated funds for research and development. Additionally, there will always be economies of scale with regard to purchasing power. Operational: The franchisor can have a smaller central organization when compared to developing and owning locations themselves. Franchising also means uniformity of procedures, which reflects on consistency, enhanced productivity levels and better quality. Effective quality control is another advantage of the franchise system. The franchisee is usually self motivated since he has invested much time and money in the business, which means working hard to bring in better organizational and monetary results. This also reflects on more satisfied customers and improved sales effectiveness. Strategic: To the franchisor, franchising means the spreading of risks by multiplying the number of locations through other people’s investment. That means faster network expansion and a better opportunity to focus on changing market needs, which in its turn means...
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...An Introduction to Franchising Franchising * Franchising is a form of business organization in which a firm that already has a SUCCESSFUL product or service (FRANCHISOR) licenses its trademark and method of doing business to another business or individual (FRANCHISEE), in exchange for a franchise fee and ongoing royalty payment * International Franchise Association (IFA): “A franchise operation is a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format and/or procedure owned or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his own resources.” * Franchising is MORE than just distributorship because it extends to an ENTIRE operation or method of dong business, involves greater assistance, control and longer duration, whereas the distributor merely re-sells products to retailers or customers Growth of Franchising The word “franchise” comes from an old dialect of French and means privilege or freedom Singer Sewing Machine - first franchise (mid 19th century) Automobile - Ford, Petroleum Products - Shell, Softdrinks - Coca Cola, Food & Restaurants - McDonalds & Starbucks Home markets became saturated, resulting in attractive opportunities overseas...
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...literature review of a discussion that critically review the different academic opinions related to the issue of franchising. covering as follow; 1. history of franchising 2. definition of franchising 3. concept of franchising 4. PEST of franchising 5. advantages and disadvantages of franchising 6. franchising in the hospitality industry A Very Brief History of Franchising Most of the historians consider that the concept of franchising started in the middle ages, at the time when the feudal aristocrats have started to sell the rights of collecting taxes and operating markets to others on their behalf. This is however indicating franchising as a political activity instead of the business activity. Moreover, according to some historians the very first example of the franchising indicating a method of conducting business is traced back in the mid nineteenth century in Germany where the contact was made with the tavern/bar owners in order to sell beer entirely in taverns. But, in the United States the earliest use of the franchising was not found in the taverns and breweries rather it started with the product selling the housewives that are located on U.S. prairie. However, in 1851, a singer named Isaac became the first U.S. franchisor of the product name when he started to sell the rights to the independent salesman in order to sell the sewing machine to the end users. Though, Singer Sewing Machine was the first U.S. product name or identity franchisor in America...
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...covering international trade and also increases communication speed. The four phases in the phase model of globalization are, exporting, cooperative contracts, strategic alliances and wholly owned affiliates. (McWilliams 2010) The word export means shipping the goods and services anywhere out of the boundaries of a country. The one who ships the item is known as ‘exporter’ and the overseas buyer is known as an ‘importer’. Exporting is been increasing ever since globalization began. It is estimated that in today’s globalized world the value of global trade in form of exports and imports is expected to be more that $12 trillion. World trade has grown at more rapid rate than world productivity. (BusinessVictoria 2008). There are many advantages of exporting, two of them are it increases sales and profit. Removing the trade barriers allows a company, organisation or an individual to serve their goods and services to a wider reach in different nations. Expand Life Cycle of Product....
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...International Business and Institutions 1 Modes of Foreign Market Entry • • • • • Exporting Licensing/Franchising Management Focus: Tata Group: Foreign Entry Strategies pp.443-444 Joint Ventures Wholly Owned Subsidiaries Mergers & Acquisitions (M&A) 2 Exporting • Advantages – Avoids the substantial costs of establishing operations in the host country – Achieve experience curve and location economies • Disadvantages – High transportation costs, esp. for bulk products – Tariffs – Divided loyalties of local agents 3 Licensing • An arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specific period, in return, the licensor receives a royalty fee from the licensee. • Intangible property: patents, inventions, formulas, processes, designs, copyrights, and trademarks • Advantages – Licensing firm does not need to bear the development costs and risks – Make use of intangible property that a firm possesses that they do not want to develop itself 4 • Disadvantages – Does not give a firm tight control – Limits a firm’s ability to coordinate strategic moves across countries – Difficult to control its technological know-how— Opportunistic Behaviour of Licensee 5 Franchising • Similar to licensing, but franchising involves longer term commitment and insisting strict rules on licensees • Franchiser assists franchisee to run the business...
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...Report To - Michel Chang From - Consultant of the Michel Chang Date - 15th May, 2013 Subject -Financial analysis of the investment proposals by investment appraisal tools and giving suggestions and recommendations. I am going report the suggestion of acceptable investment with NPV method to you as a consultant of Michel Chang. For Beer Chang, 0 (15000) × 1 = (15000) PVIFA (r=10%) n 1-10 3000 × 6.145 = 18435 10 1500 × 0.386 = 579 NPV = 4014 For EduCare, 0 (10,000) × 1 = (10000) 1 (500) × 0.909 = (454.5) 2 1500 ×0.826 = 1239 3 2500 × 0.751 = 1877.5 4 3500 × 0.683 = 2390.5 5 4500 × 0.621 = 2794.5 6 5500 × 0.564 = 3102 7 6000 × 0.513 = 3078 8 5400 × 0.467 = 2521.8 9 4400 × 0.424 = 1865.6 10 2000 × 0.386 = 772 9186.4 Due to NPV method, the final results show that both investments show positive answer and are possible. Comment and Suggestion I can tell Both Beer Chang Project and EduCare are acceptable based on these calculations with NPV method. But we cannot do both of them at the same time. We have to choose the most possible project. According to this calculation, EduCare can make more profit more than Beer Chang can get. This is the fact, why we have to choose EduCare Service. 1. Investment Appraisal Methods There are four types of Investment Appraisal methods. They are- 1. NPV (Net Present...
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...Franchising - strategy, system, advantages, model, type, company, disad... http://www.referenceforbusiness.com/management/Ex-Gov/Franchising... Reference for Business Encyclopedia of Business, 2nd ed. Reference for Business » Encyclopedia of Business, 2nd ed. » Ex-Gov » Franchising Powered by JRank Search FRANCHISING When an individual has the desire and drive to run their own business but lacks a strong idea for a company, this person may look to franchising in order to be their own boss and run a proven business. Franchising is an agreement or alliance between two organizations—the franchisor and the franchisee. The franchisor has the business model, training materials, and other materials for the business. The franchisee is the entrepreneur who agrees to operate a branch of the business in their location while paying the franchisor various fees and royalties for the use of the business idea or model. TYPES OF FRANCHISING Business-format franchising exists when a franchisor allows someone to market products or service, using the business name or trademark, in return for fess and royalties. When franchising is mentioned, most people think of this businessformat franchising, like McDonald's, AAMCO Transmission, or Molly Maid. There is also product or trademark franchising. This is a limited franchise where a manufacturer may grant another party license to sell goods produced by the manufacturer. This might includes sales of cars through dealerships (e.g....
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...International Marketing Management Using Business Format Franchising as a Market Entry Method McDonald’s Student Name: Nursulu Student ID: Lecturer: Dr. Lester Massingham/ Dr. Tom Abstract This report is based on the advantages and disadvantages of business format franchising and the fundamentals of market entry methods. Using McDonalds which happens to be one of the largest food service companies in the world, the author of this paper will look into the concepts of various market entry strategies in comparison to business format franchising. This report will also look into various elements that will essentially be needed to be addressed. It will critically discuss the various aspects involved in franchising as a market entry strategy and focus on how business format franchising can assessed as an expansion strategy in contrast to other modes of entry. Contents A Brief Journey into the History of McDonalds 3 1.0 An Introduction to Franchising (Facts about Franchising) 4 2.0 The Advantages and Disadvantages of Business Format Franchising 5 2.1 Marketing Franchises Vs Marketing Standalone Enterprises 7 2.2 Brand Image Transformation – Maintained Brand Equity of Franchises 8 2.2 Franchise Marketing Mix Vs Other Entry Modes 9 3.0 Market Entry Methods 10 3.1 Direct Export & Indirect Exportation 10 3.2 Licensing 11 3.3 Contracting 11 3.4 Manufacturing Abroad 11 3.5 Joint Venture 11 4.0 Conclusions & Recommendations 12 Bibliography 13 List of Figures ...
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...Diversification into new industry. B. The firm’s foreign business strategy 1. There are 6 main steps in the firm's foreign business strategy: (a) the firm’s evaluation; (b) selection of a target market (country/region); (c) selection of product to make/sell in target market; (d) selection of market entry-entry mode (exporting, franchising, licensing, sub-contracting, joint ventures or wholly owned companies); (e) Business plan development and execution; (f) Monitoring and evaluation of results. 2. Exporting has the advantage of low costs and risks, avoiding the costs of setting up manufacturing operations in another country. The business plan in the case of exporting can take the form of an export marketing plan. 3. The main advantage of licensing is represented by the low costs for the franchisor because the franchisee bears the costs and risks of opening a new market; the main disadvantage is the risk for the franchisor of losing the control over technology. 4. The main advantage of franchising is that the franchisee bears the costs and risks of opening a foreign market. The main disadvantage is the lack of control over quality. 5. The main advantage of sub-contracting (‘toll production’) is low investment...
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...Franchising is a method and marketing tool for companies that are looking to create an immediate income in an inexpensive manner. When you franchise you receive brand name recognition because the parent company has already established logos, slogans, and advertising. Franchising has low risk in overseas expansion because they are purchasing the rights to sell a product or service that already has a prestigious reputation. Advantages - * Startup equipment and products are provided by the parent company. * You can receive training and advice from experts on staffing, quality control procedures, and operating hours. * Franchising can consistently provide quality products and services. Disadvantages- * There a monthly franchise fees that may affect the businesses income. * Strict rules that the parent company sets in place, such as dress codes, cleaning procedures, and quality control measures * May require you to purchase supplies from parent company only. Franchise example would be Pizza Hut or McDonalds Joint venture is an agreement between two companies that are trying to make money on a business idea. Each partner puts money into the venture and takes on the responsibilities that they’re best qualified for. Partners share ideas that will enhance the business venture. These ideas and expertise are what drive the business. Advantages- * There are no strict rules or procedures to start the business. *...
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...affording better control over distribution. Direct export works the best if the volumes are small. Large volumes of export may trigger protectionism. The main characteristic of direct exports entry model is that there are no intermediaries. Advantages: * Control over selection of foreign markets and choice of foreign representative companies * Good information feedback from target market, developing better relationships with the buyers * Better protection of trademarks, patents, goodwill, and other intangible property * Potentially greater sales, and therefore greater profit, than with indirect exporting. Disadvantages: * Higher start-up costs and higher risks as opposed to indirect exporting * Requires higher investments of time, resources and personnel and also organizational changes * Greater information requirements * Longer time-to-market as opposed to indirect exporting * Indirect exports Indirect export is the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market. Types: Export trading companies (ETCs), Export management companies (EMCs), Export merchants, Confirming houses, Nonconforming purchasing agents Advantages * Fast market access * Concentration of resources towards production * Little or no financial commitment as the clients' exports usually covers most expenses associated with international sales. * Low risk...
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...1. Reasons for Going Abroad 1) Market Factors ❖ Limited growth in domestic market □ The company’s domestic market might be stagnant or shrinking; □ For example: Tesco’s move into the Far East, the US, and Central and Eastern Europe. ❖ Small domestic market □ In some industries, survival means broadening scope beyond small national markets to the international area. □ For example: Philips, Nokia and Electrolux could not compete against the strength of global competitors by servicing their small domestic market alone. For them, internationalisation was not an option: it was a fundamental condition for survival. ❖ Foreign markets attractive □ The company might discover foreign markets that present higher profit opportunities than the domestic market does. 2) Competition Factors ❖ Global competitors offering better products or lower prices might attack the company’s domestic market. The company might want to counterattack these competitors in their home markets to tie up their resources. (Kotler, et al. 2004). ❖ When several companies in an industry go abroad, others feel obliged to follow suit to maintain their relative size and growth rate. This is particularly true in oligopolistic industries. 3) Cost Factors ❖ High national labour cost, shortages of skilled workers, and rising energy charges can raise domestic cots to uneconomic levels. These factors may stimulate moves towards foreign direct investment...
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...will put a strain on their partnership. This led them to another choice, which is franchising. Firstly, in case for restaurant, decision have to be made regarding Channel width that is how many outlets, for wing shack, so far they only have one primary outlets, and are planning to built another one in another town, this led us to the selective distribution where it refers to The wing Shack uses more than one outlets but restrict viability of the products or services to a limited outlet. This channel is based on a geographic segmentation. This is because the Wing Shack is started by only a couple of students, and they want to limits themselves to large cities where there is a large demand for their business. Next the channel length, that is the number of intermediaries between the manufacturer and final consumer. I think that the wing shack uses a direct channel that is the manufacturer sells directly to the consumer, and the manufacturer performs all the channel function. I think wing shack have no other choice but to choose the direct channel because the restaurant service must be performed while the consumer is present. This will also enable the firm to have a close contact with the final consumer and the ability to react quickly to changes in market. And for franchising, the wing shack owners should consider the advantages and disadvantages of franchising. Advantages Disadvantages Franchisee Established product/ service Technical / managerial...
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...SMEs have to fight for their existence and may disappear at all if they choose a wrong approach of internationalizing. Usually small start-up companies do not survive longer than the first 5 years therefore it is very important for SMEs to take the right steps in order to become successful. Motivations for Internationalization of SMEs There are different types of motivations for going international. These are proactive and reactive motivations. Proactive motivation is usually why you want to go international while reactive motivation is what pushes you to become international: |Proactive Motivation |Reactive Motivation | |Profit advantages...
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...her business, then she needs to determine who, if anyone, will help her run the business and lastly decide if the name she has chosen is suitable. Betty must first decide what business form would be suitable for the coffee house. There are many forms of business entities to choose. Since this is a small business a Public Corporation, Subchapter S Corporation, Closely Held Corporation, Multinational Corporation, Limited Partnership, General Partnership, and Professional Corporation can all be eliminated. Some possibilities for Betty’s business might be. A sole proprietorship is the easiest and least expensive way to create a business organization (Kubasek, Brennan, & Browne, 2012). The LLC or Limited Liability Company provides the advantages of a corporation with the tax efficiencies and flexibility of a partnership (Starting & Managing a Business, 2012). Franchises are relationships based on private commercial agreement between the franchisor and the franchisee (Kubasek, Brennan, & Browne, 2012). A joint venture is a partnership agreement of two or more individuals or companies who agree to share the risk, profits and/or loss (Kubasek, Brennan, & Browne, 2012). The narrative indicates Betty is the only owner of the coffee house; therefore a joint venture would not be an adequate...
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