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In the business world, there are many ways of getting into business. These entry areas vary depending on the type of the business. The interest of the businessperson is also a major factor. As such, many people wishing to get into business seek one of the many avenues that are open to them.
This includes business models such as sole proprietorship and business partnerships. A person can also enter into mergers or form a limited liability company among others. One of the most effective ways of getting into business is through franchising.
There is a conclusive argument that this is one of the most effective ways of getting into business. In the corporate world today, getting into an entirely new business is very difficult due to the many entry inhibitors facing the corporate world. These include difficulties in raising the necessary fees like business permits and the all-important capital.
There are also many other statutory requirements. In case of a partnership, such requirements as articles of association or memorandum of association may be one of the requirements that the state demands to authenticate any entry into partnership (Michael and Hitt, 2010).
In the case of a company, depending on whether it is Limited Liability Company or liability company, the entry requirement is a tiring task. So what is franchising? A franchise refers a privilege given to an individual or a group of people to be able to market or sell products or services of a certain enterprise within a certain location/locations.
In other words, franchising means the rights granted to a person or a group of people by a certain company to use its name or trademark in marketing and distributing its goods and services. In the today’s corporate world, there are popular franchises. The most famous are the McDonalds, domino’s pizza, subway etc.
Advantages of Franchising
There are many types of franchising. They have come with their unique characteristics and this depends on their suitability to the franchising party. Their different types could be the reasons it has been argued that franchising is the most efficient and innovative form of business yet devised to distribute products and services.
Because of the success of the franchising form of business in the food industry, many people have come to associate franchising with only fast food like the MacDonald and the domino’s pizza.
This is however not the case because a part from being a success in the fast food business, franchising has also been a success in other fields such as the finance automotive, cleaning and maintenance health etc.
In the introduction of this paper, we began by conclusively saying that franchising is a major growth area for business and as such, the most efficient and innovative form of business yet devised to distribute products and services.
In order for us to conclude this way, it is paramount about our reasoning that we look at how franchising work so that when we say that franchising is the major growth rate for business our utterance shall hold water.
It is from understanding the working of franchise shall we then come to appreciate the advantages and disadvantages of franchising (Noora et al. 2005).
In franchising, there are some important concepts that one has to understand. These are the franchisee and the franchisor. We ask ourselves, who are these? In clear terms, a franchisee is the individual who embarks on purchasing and consequently running a franchise.
On the other hand, a franchisor is the person from whom the franchisee buys the franchise. In order for the franchise to work, there are always some rules and regulations that the franchisee must adhere to. These in most of the time are the established rules of e.g. the company from whom the franchisee is buying the franchise (Scarborough, 2010).
In order for the franchisee to be fully been incorporated in the franchising company, payment of a certain fee called franchising royalty is necessary. In today’s corporate world, like mentioned earlier, franchising is one of the most fashionable ways of getting to do or enter into business.
It is quite popular in the marketplace. From the 1850s when Isaac singer invented his sawing machines and started selling licenses to entrepreneurs to be able to distribute his machines to date when you cannot walk many blocks without coming across a franchise, we realize that franchising has come to revolutionize the business scene.
It has come to help the individual entrepreneurs to be in business for themselves but actually not for themselves.
The ideas behind being in a franchise rather than trying other forms of entry into business such as buy out or starting an entirely new business lies on the fact that in franchise there is always already proven business formula and structure that is in place.
This therefore presents a high possibility of success for an individual opening a business than to the one who is getting into start up or other forms of business entry.
This is further proven by the fact that in franchise, the products and services that one wants to deal with are already in the market and are already established.a good example of this is for a person wanting to get into pizza business.he can choose to buy a franchise from the domino’s pizza.
His pizza business will perform well because the new entrant into the pizza business will meet an already established market (Beer, 1999).
This then saves the franchisee the problem of having to incur cost of introducing his products or services, cost that could include advertising and distribution.
The reason as to why this form of business is revolutionary in the corporate world is that, the corporate image and the awareness of the bland of the company selling the franchise is already there. A new entrant in the market then does not make expenditures in trying to establish his new bland.
This is because, the products or services are already known to the consumers, they continue purchasing the products or services since they are familiar with them. This is an evident advantage of franchising. It makes it appealing to franchise as they are saved the problem of convincing the consumers to buy their goods.
A person wanting to get into hotel and hospitality industry may take years before establishing his industry. However, buying a franchise of established hotels like Day Inn and Supper 8 will prove beneficial in establishing his hotel. (Christensen, 2006).
Most of the franchisees are new entrants into the corporate world. In most of the time, they have little or no experience in running the business they are starting. In other cases, they are merely equipped with only the theory from the school. In such a case, franchising becomes a useful tool in gaining some knowledge about the business.
This is because the franchisor in most of the time provides wide-range preparation and support to the franchisee. As such, this becomes a strategy beneficial to the franchisee since he is not faced with risks of making mistakes caused by doing guesswork in running the business.
In clearly analyzing franchising as an effective way of getting into business, we realize that in franchising a lot of useful time is saved. This is because the business model and the franchise company already is in place and thus the time the individual in establishing the model of a new business is saved could use that.
Because the franchisee gets into an already existing company, he is in a position to concentrate in the successful running of the business. Starting an entirely new business offering financial services may prove difficult due to the many logistics involved.
However, by choosing to buy a franchise from established firms like H&R Block will help the new entrants in establishing his business. This is because such a firm is already established. Therefore, it has curved its niche among the customers (Zutshi, 2010).
Because the franchise runs for a specific time and operates within a specific location, a franchisee can then aim at managing many of such locations.
In franchising, the entry and exit becomes another advantage that makes this form of business be considered as a major growth area in business. Franchise can last from five to thirty years. One can then chose short franchise so that if it does not work the franchisee can then chose to exit into other forms of business.
In addition to this, there are no laws that demand the profitability of the franchisor be displayed. This however could at times be listed in the franchise disclosure document (FDD).but like said earlier it is not necessary.
To a franchisee, this is an advantage because if the franchising company is not making profits, the franchisee can opt to quit from that franchise and seek for an alternative performing franchisor with little embarrassments. The franchisor offers national and international advertising.
This too including other support services is provided to the new entrants into the business world. Franchise brokers offers services that come in handy to help the franchisee to seek the most appropriate franchise.
Such a franchisee seeking to get into business can enlist the servicers of master franchisors who can then work to help the franchisee in obtaining rights to sub franchise in the location (Millmore, 2007).
Franchising has been seen as the most effective and innovative form of business devised to distribute products and service bases on the fact that franchising like explained here above is based on a proven idea. The franchisee is in a position to check and prove the success of The Company before committing resources.
In so doing, the franchisee can compare between different franchisors and then chose the best according to his interests. The availability of established and recognized brand names makes his entry into business easier.
As opposed to businesses such as start ups, buying a franchise proves to be helpful to the franchisee as he can enjoy the protected reputation of the franchisor. This legal and procedural protection includes legal departments set aside to handle legal issues such as lawsuits.
It also takes care of difficulties with the employees. Having the protection of the franchisor is an important factor that can keep the franchisee surviving in the corporate world as with it come the positive expectations that keep the customers loyal to the products or the services offered by the franchisee.
This benefit in addition to the already established body of legal protection is an important factor in the success of the new franchise (Bowles, 2011).
Getting into start up for example may prove very challenging. Before a start up establishes enough to command recognition by the customers, it may take many years of continued effort in advertising. This problem is however solved by getting into franchise.
In the today’s corporate world, people want a guarantee on the product and services they are purchasing. As such, recognition across the board (name, brand etc) gives the company assurance.
This is exactly what the company might be looking for. Name recognition in the corporate world is very important because it creates the confidence in the customers such that they always know that they will always be assured of the product or services they are looking for.
Franchising is aimed at risk minimization. To reduce this, the franchise investment enables the franchisees to thoroughly research on the franchisor before he commits any investment are made.
The franchisee is able to acquire detailed information from other franchisees and this enables the franchisee to try on various businesses before purchases it. Concerning the risks mitigation efforts of a franchise, therefore, we find that franchising reduces the risks associated with business considerably.
An example of this is getting in printing and postal services. This kind of business will require a lot of capital and knowledge on how to run the business. Committing resources to this kind of business without enough capital or information is a risky phenomenon. As such, buying franchise from firms like park mail will help save on such risks.
Because of the group purchasing ability provided by a number franchises, franchisees are able to procure commodities and stores supply at a comparatively lesser cost from the franchisor. This too serves to make the argument that franchising is a major growth area for business.
In franchising, a uniform system of operation is provided. The franchisee uses this factor to his advantage. As such, a uniform system of operation enables the consumers to acquire products and services of quality efficiently and at an effective cost.
This in turn brings the benefit of growing the purchasing ability and the customer brand loyalty. It also brings brand identification among the potential markets. The franchisee capitalizes on this factor to establish himself in the business (Hanson et al. 2011).
It has come to help the individual entrepreneurs to be in business for themselves but actually not for themselves. The ideas behind being in a franchise rather than trying other forms of entry into business such as buy out or starting an entirely new business lies on the fact that in franchise there is always already proven business formula and structure that is in place.
In this paper, I have looked at the factors that make franchise be considered as the major growth area in business. The above arguments have been made after a careful weighing of the shortcoming of franchising. The weighing of both the merits and the demerits of the franchise has left us with the weigh inclined to the merits.
The shortcoming that could challenge this form of business could be the fact that the initial cost of purchasing franchise is high. As such, the cost may be higher than one expects.
Franchising may come with detrimental strings attached. For example, the franchisee might be forced to buy products from the franchisor. This may then make the franchisee look a slave to the franchisor, as he cannot seek for other suppliers offering better deals.
The above argument lies on the fact that the franchise agreement has restrictions on how the business will be operated. In such a case therefore, the franchisee is in no position of playing effectively in the dynamic local market. In case the franchisor goes out of the market, the franchisee is left like an orphan.
It may take years to fully re-establish him in the business again as the franchisee fully depends on the success of the franchisor. This includes all the logistics involving the successful running of the business like advertising, legal processes, training etc (Carnal, 2007).
In franchising, another important factor worth noting, which could be detrimental to the running of the franchise, is the fact that all profits, which include a certain percentage of all the sales made, are shared with the franchisor. This sometimes is done to the benefit of the franchisor leading to low profits on the part of the franchisee.
On the other hand, a franchisee wishing to sell his franchise can only do so with the approval of the franchisor. This too is a demerit of franchising because, though the franchisee claims to own the business, he can do very little without the approval of the franchisor. A franchise is not flexible.
In conclusion, therefore, though demerits of franchising are there, it remains to be an effective way of getting into business. The various merits make this form of starting business be popular, unlike other forms like start up. It therefore turns out that franchising is a major growth area for business.
As seen in this paper its disadvantages compared to its demerits, in comparison with other types of businesses are many. As such, we can conclusively say that franchising is a revolutionary approach to business.
Effective strategies in this line of business can prove to be a benefit for new entrants in the business world and to established businesspersons wishing to venture into new areas or diversify in their current work.
We can then conclusively say that ,in the corporate world today, franchising is an effective and innovative form of business yet devised to distribute products and services and as such a major growth area for business.
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