Franchising

Franchising has been used as method of carrying on a business for a very long time. Over the past 35 years there has been a boom of it in Australia and New Zealand. Economists say that about 20 per cent of retail sails in Australia come from franchised operations. For potential entrepreneurs, franchising is a very attractive way of entering the market and running a business.

The basis of a franchise is that one party-the franchisor-has a product, process, trade name, service or system. The franchisor signs an agreement with another party-the franchisee. This agreement allows the franchisee to use the system, or market the product, etc.

The franchisor, in return, is paid by the franchisee. If the franchise is well-established, the payment of the franchisee is higher. The capital required by a franchisee usually covers franchise free, stock, fittings, goodwill, promotion expenses and working capital.

There are 3 basic types of franchises:

· A product franchise: here the franchisee is to act as the outlet for a particular product, e.g. motor cars, spare parts, petroleum. Very often the franchisee has exclusive rights over a particular territory.

· A system franchise: in this form the franchisee has the right to conduct business according to a system developed by a franchisor, e.g., fast food, motels, health studios.

· A process franchise: under this method the franchisor supplies a critical ingredient or the know-how for a production process, e.g. soft drinks.

A particular franchise may involve a combination of these forms.

For a small business the franchise way of doing business offers several potential benefits, such as participating in a larger business, using expensive promotion and advertising developed by a larger business, using effective management systems of a larger business, etc.

But there are some disadvantages of a franchise too, such as the risk of the collapse of the franchisor, the fast that franchise will be closely controlled, the possibility of a fad, etc.

Entering into a franchise means paying a substantial sum of money, that is why it is necessary to investigate the franchisor thoroughly before any document is signed or obligations undertaken.

Exercise 7. Read the text once again, and express the contents of every passage in one sentence.

Exercise 8. Read the text and define which type of the franchise your company will belong to if you start a franchise business. Check your answer at the end of he chapter.

Coca-cola has a lot of plants all over the world producing the coca-cola concentrate – except for 1 top-secret ingredient, 7-x, which comes only from headquarters in Atlanta. To ensure uniformity in taste, a laboratory technicians in Atlanta frequently tastes the various concentrates made in France. Saudi Arabia, Mexico, Japan, the Philippines, and so on. Any deviation from the standard is rectified so that a person buying Coca-Cola anywhere in the world, whether Tanzania or Spokane, can be confident of getting identical leverage.

Exercise 9. You decided to start a franchise. Before signing the agreement, you ask the franchisor a few questions to check the reliability of the business. Think of 5 more questions to be answered by a franchisor and make up a dialogue:

· Is your product / service identified?

· Is it possible to obtain a copy of the agreement free of charge?

· Are certified statements of profitability available?

· Is your address a post office box?

· Do you use high pressure selling techniques?

· Who are people and companies you work with?

· What is your position in credit rating?

· Do you offer a training program?

Exercise 10. Read the conversation between 2 friends and choose the arguments they give for sole proprietorship and franchise.

Jane: Hello, Mike! I have not seen you for a long time. How have you been?

Mike: Hello, Jane! I am so glad to see you. You know, I have just started my own business – a cafe!

Jane: Oh, that is great. I know you have always been good at cooking. But why did you start a sole proprietorship?

Mike: You know, it is a great to have a cafe with my name on it, where I make decisions and where I control the profits.

Jane: It is good, but if I were you, I would start a franchise – a system franchise. In this form a franchisee can conduct business by a franchisor.

The control of entering the market is lower in this case.

Mike: Yes, but in this case I loose my independence. All franchisees work under close supervision. As you know, I don’t like to work under control.

Jane: Yes, I know you have been very independent since your childhood. But if you are a franchisee, you are supported by marketing arrangements of the franchisor, such as advertising, promotion and product recognition. You can not afford great advertising campaign yourself.

Mike: You are right. But my café is serving Siberian cuisine and many people in our city are fond of exotic food, so, I don’t need much money to advertise my cafe. It is very popular today and is attracting more and more customers.

Jane: I am glad to hear that. But if your business fails, you’ll have to declare personal bankruptcy. And in case of a franchise management system is very well-developed and it leads to a more efficient operation and the risk of failure is reduced.

Mike: But if your business is a franchise, than, here are some other risks, for example the collapse of the franchisor, or the risk of a fad.

Jane: Certainly, any business is risky, but I hope your business will be successful. I wish you good luck. Let's meet someday and discuss everything in detail.

Mike: With pleasure. I’ll call you one of these days. See you later.

Exercise 11. Discuss plans for starting your own business, using the ideas exposed in the conversation between Mike and Jane. Think of your own arguments.

Exercise 12. Write composition about your plans to start your own business.

Keys

Exercise 3. Franchise, franchisor, franchisee.

Exercise 8. A process franchise.

Date: 2015-01-02; view: 1123