Franchising entails the action of a company, mostly referred to as a parent company, to grant certain rights and privileges to either individuals or other formations in acquiring the parent company’s core business. In this case, these individuals or groups enter into license, distributorship or other form of agreements with the parent company to expand the parent company’s business. Considering that there are no limits to the number of franchisees a parent company should have, it is prudent to note that a parent company or the franchisor can have as many franchisees as possible depending on its ultimate aims and objectives.
The laws and regulations regarding franchising vary from country to country. These laws and regulations cover a general code of conduct, trade practices, dispute resolution and termination among other areas. Both parties in a franchise have their interests to protect and duties, for instance, a franchisor protects his trademark, controls the business concepts as well as ensuring that the franchisee is equipped with the necessary business knowledge. The franchisee on the other hand is involved in the retailing aspects of the enterprise and not in control of the strategic aspects of the business.
Many well-known and reputable companies like McDonalds, Baskin Robins, 7-eleven just to mention but a few have for long deployed franchising as a strategic business tool. One may argue that since these are well reputable companies controlling huge financial bases and assets, then it would serve them well if they undertook all the activities relating to their type of business by themselves as opposed to franchising. To some extent this may be true. Nevertheless, franchising serves a lot of advantages thereby making quiet an important business tool for large companies and enterprises.
While many businesses have had to close doors or merge all thanks to their very determined and unrelenting competitors, franchising offers some aspects of the business which improve their market power in the competition, as:
- the operations of the company are spread across many locations by the different franchisees and
- hence, the competitors are put to a heavy task of dealing with the rapidly growing and wide scope of operations.
Franchising serves as a strategic business tool for both the franchisor and franchisee leaving no doubt as to why this business strategy has been endorsed a great deal by the world’s leading companies and enterprises.