{"id":275,"date":"2014-09-05T17:28:12","date_gmt":"2014-09-05T17:28:12","guid":{"rendered":"https:\/\/courses.candelalearning.com\/internationalbusiness1xmaster\/?post_type=chapter&p=275"},"modified":"2015-02-17T21:58:15","modified_gmt":"2015-02-17T21:58:15","slug":"reading-franchising","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-fmcc-internationalbusiness\/chapter\/reading-franchising\/","title":{"raw":"Reading: Franchising","rendered":"Reading: Franchising"},"content":{"raw":"
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Franchising is the practice of licensing another firm's business model as an operator.<\/h2>\r\n<\/div>\r\n
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KEY\u00a0Points<\/h3>\r\n
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  • Essentially, and in terms of\u00a0distribution, the franchiser is a supplier who allows an operator, or a\u00a0franchisee, to use the supplier's trademark and distribute the supplier's\u00a0goods. In return, the operator pays the supplier a fee.<\/li>\r\n\t
  • Thirty three countries, including the United States, China, and Australia, have laws that explicitly regulate\u00a0franchising, with the majority of all other countries having laws which have a direct or indirect impact on franchising.<\/li>\r\n\t
  • Franchise\u00a0agreements carry no guarantees or warranties, and the franchisee has little or no recourse to legal intervention in the event of a dispute.<\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/section><\/div>\r\n<\/div>\r\n<\/div>\r\n
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    Terms<\/strong><\/h4>\r\n
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    • Franchisee<\/em>:\u00a0 A holder of a franchise; a person who is granted a franchise.<\/li>\r\n\t
    • Franchising<\/em>:\u00a0 The establishment, granting, or use of a franchise.<\/li>\r\n\t
    • Franchise:\u00a0 <\/em>The authorization granted by a company to sell or distribute its goods or\u00a0services in a certain area.<\/li>\r\n\t
    • Franchiser:\u00a0 <\/em>A franchisor, a company which or person who grants franchises.<\/li>\r\n<\/ul>\r\n<\/div>\r\n
      <\/div>\r\n
      \r\n\r\nFranchising is the practice of using another firm's successful\u00a0business model. For the\u00a0franchiser, the franchise is an alternative to building \"chain stores\" to distribute goods that avoids the investments and liability of a chain. The franchiser's success depends on the success of the franchisees. The franchisee is said to have a greater\u00a0incentive\u00a0than a direct employee because he or she has a direct stake in the business. Essentially, and in terms of distribution, the franchiser is a\u00a0supplier\u00a0who allows an operator, or a franchisee, to use the supplier's\u00a0trademark\u00a0and distribute the supplier's goods. In return, the operator pays the supplier a fee.\r\n\r\n
      \"\"\r\n
      Subway Franchise - Russia<\/div>\r\n
      There are over 22,000 Subway restaurant franchises worldwide.<\/figcaption><\/figure>In short, in terms of distribution, the franchiser is a supplier who allows an operator, or a franchisee, to use the supplier's trademark and distribute the supplier's goods. In return, the operator pays the supplier a fee.\r\n\r\nEach party to a franchise has several interests to protect. The franchiser is involved in securing protection for the trademark,\u00a0controlling\u00a0the business concept, and securing know how. The franchisee is obligated to carry out the services for which the trademark has been made prominent or famous. There is a great deal of standardization required. The place of service has to bear the franchiser's signs, logos, and trademark in a prominent place. The uniforms worn by the staff of the franchisee have to be of a particular\u00a0design\u00a0and color. The service has to be in accordance with the pattern followed by the franchiser in the successful franchiseoperations. Thus, franchisees are not in full control of the business, as they would be in retailing.\r\n\r\nA service can be successful if equipment and supplies are purchased at a fair\u00a0pricefrom the franchiser or sources recommended by the franchiser. A coffee brew, for example, can be readily identified by the trademark if its\u00a0raw materials\u00a0come from a particular supplier. If the franchiser requires purchase from his stores, it may come under anti-trust legislation or equivalent laws of other countries. So too the purchase of uniforms of personnel, signs, etc., as well as the franchise sites, if they are owned or controlled by the franchiser.\r\n\r\nFranchise agreements\u00a0carry no guarantees or warranties, and the franchisee has little or no recourse to legal intervention in the event of a dispute. Franchise contracts tend to be unilateral contracts in favor of the franchiser, who is generally protected from lawsuits from their franchisees because of the non-negotiable contracts that require franchisees to acknowledge, in effect, that they are buying the franchise knowing that there is risk, and that they have not been promised success or\u00a0profits\u00a0by the franchiser. Contracts are renewable at the sole option of the franchiser. Most franchisers require franchisees to sign agreements that mandate where and under what law any dispute would be litigated.\r\n\r\n<\/div>\r\n<\/div>\r\n
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      <\/h3>\r\n
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      GLOSSARY<\/h3>\r\n
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      Interest<\/strong><\/div>\r\n
      The price paid for obtaining, or price received for providing, money or goods in a credit transaction, calculated as a fraction of the amount or value of what was borrowed.\u00a0The price paid for obtaining, or price received for providing, money or goods in a credit transaction, calculated as a fraction of the amount of value of what was borrowed.\u00a0The price paid for obtaining or price received for providing money or goods in a credit transaction, calculated as a fraction of the amount or value of what was borrowed.\u00a0A great attention and concern from someone or something; intellectual curiosity.\r\n
      <\/div>\r\n<\/div>\r\n
      Licensing<\/strong><\/div>\r\n
      A business arrangement in which one company gives another company permission to manufacture its product for a specified payment.\r\n
      <\/div>\r\n<\/div>\r\n
      Trademark<\/strong><\/div>\r\n
      A word, symbol, or phrase used to identify a particular company's product and differentiate it from other companies' products.\u00a0A trademark, trade mark, or trade-mark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify for consumers that the products or services on or with which the trademark appears originate from a unique source, designated for a specific market. It also distinguishes its products or services from those of other entities.\u00a0A word, symbol, or phrase used to identify a particular company's product and to differentiate it from other companies' products.\r\n
      <\/div>\r\n<\/div>\r\n
      Business model<\/strong><\/div>\r\n
      The particular way in which a business organization ensures that it generates income, one that includes the choice of offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.\r\n
      <\/div>\r\n<\/div>\r\n
      Controlling<\/strong><\/div>\r\n
      The management function of checking progress against plans\u00a0to exercise influence over, to suggest or dictate the behavior of, oversee.\r\n
      <\/div>\r\n<\/div>\r\n
      Design<\/strong><\/div>\r\n
      To plan and carry out (a picture, work of art, construction etc. ).\r\n
      <\/div>\r\n<\/div>\r\n
      Distribution<\/strong><\/div>\r\n
      The process by which goods get to final consumers over a geographical market, including storing, selling, shipping, and advertising.\u00a0The set of relative likelihoods that a variable will have a value in a given interval. A probability distribution; the set of relative likelihoods that a variable will have a value in a given interval.\r\n
      <\/div>\r\n<\/div>\r\n
      Franchise agreement<\/strong><\/div>\r\n
      A legal, binding contract that authorizes a company to sell or distribute another's goods and services in a certain area.\r\n
      <\/div>\r\n<\/div>\r\n
      Good<\/strong><\/div>\r\n
      An object produced for market.\r\n
      <\/div>\r\n<\/div>\r\n
      Incentive<\/strong><\/div>\r\n
      Something that motivates, rouses, or encourages.\u00a0It is used to motivate employees for better performance by providing financial rewards. An anticipated reward or aversive event available in the environment.\u00a0Something that motivates an individual to perform an action.\r\n
      <\/div>\r\n<\/div>\r\n
      Investment<\/strong><\/div>\r\n
      A placement of capital in expectation of deriving income or profit from its use.\u00a0The expenditure of capital in expectation of deriving income or profit from its use.\r\n
      <\/div>\r\n<\/div>\r\n
      Liabilities<\/strong><\/div>\r\n
      Probable future sacrifices of economic benefits arising from present obligations to transfer assets or providing services as a result of past transactions or events.\u00a0An amount of money in a company that is owed to someone and has to be paid in the future, such as tax, debt, interest, and mortgage payments.\u00a0an obligation of an entity arising from past transactions or events, including any type of borrowing.\r\n
      <\/div>\r\n<\/div>\r\n
      Operation<\/strong><\/div>\r\n
      The method or practice by which actions are done.\u00a0A procedure for generating a value from one or more other values.\r\n
      <\/div>\r\n<\/div>\r\n
      Price<\/strong><\/div>\r\n
      The price is the amount a customer pays for the product.\u00a0The quantity of payment or compensation given by one party to another in return for goods or services.\u00a0The cost required to gain possession of something.\r\n
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      Profits<\/strong><\/div>\r\n
      Collective form of profit.\r\n
      <\/div>\r\n<\/div>\r\n
      Raw materials<\/strong><\/div>\r\n
      A raw material or feedstock is the basic material from which a good product is manufactured or made, frequently used with an extended meaning. For example, the term is used to denote material that came from nature and is in an unprocessed or minimally processed state; e.g., raw latex, iron ore, logs, crude oil or seawater.\u00a0A raw material is the basic material from which a product is manufactured or made.\u00a0Materials and components scheduled for use in making a product.\u00a0A raw material is the basic material from which a good product is manufactured or made, frequently used with an extended meaning.\r\n
      <\/div>\r\n<\/div>\r\n
      Risk<\/strong><\/div>\r\n
      The potential (conventionally negative) impact of an event, determined by combining the likelihood of the event occurring with the impact, should it occur.\u00a0The potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).\u00a0To incur risk [of something].\r\n
      <\/div>\r\n<\/div>\r\n
      Services<\/strong><\/div>\r\n
      That which is produced, then traded, bought or sold, then finally consumed and consists of an action or work.\r\n
      <\/div>\r\n<\/div>\r\n
      Standardization<\/strong><\/div>\r\n
      The process of setting certain norms or standards for a product with regard to shape, size, color, quantity, quality, weight etc\r\n
      <\/div>\r\n<\/div>\r\n
      Supplier<\/strong><\/div>\r\n
      One who supplies; a provider.<\/div>\r\n
      <\/div>\r\n
      Supply\u00a0provisions<\/strong><\/div>\r\n
      The amount of some product that producers are willing and able to sell at a given price, all other factors being held constant.\r\n
      <\/div>\r\n<\/div>\r\n<\/div>\r\n<\/section><\/div>\r\n<\/div>\r\n
      <\/div>","rendered":"
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      Franchising is the practice of licensing another firm’s business model as an operator.<\/h2>\n<\/div>\n
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      KEY\u00a0Points<\/h3>\n
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