Introduction
Franchising refers to an agreement between business organizations in which the franchisor establishes a contractual agreement with the franchisee, normally an already established and successful business, allowing the franchisee to sell and distribute its products for a fee. The franchisor, in this case is the person or business which owns the product while the franchisee is the person or business which distributes the franchised product on behalf of the franchisor.
Pinkberry Frozen Yogurt
Pinkberry Frozen Yoghurt has experienced tremendous growth over the years due to the enterprising activities it has engaged in and the level of customer loyalty it has been able to create due to its unique and quality products. Due to the success it has gathered in the United States with store projects underway in Dallas, Washington D. C., Orlando, Austin, Boston, Denver and Dallas among other cities it plans to expand its market to the international level through franchising with different companies in areas like the Middle East region. For example it has already signed such a deal with M. H. Alshaya Company which is a leading retailer in the region to distribute its products. The company has several stores in several parts of the region thereby offering it great strategic advantages.
Franchising in Ireland
Franchising as an industry in Ireland has witnessed tremendous growth and more people are being drawn into the country due to the success of the economy as they seek to expand their businesses. This offers a great opportunity for Pinkberry Yogurt both in terms of expanding its international market and as a business environment in relation to the industry. Ireland also has a franchise system that is composed of several entrepreneurs under the umbrella of the Irish franchise association. Though these group of franchisers work independently they complement each others duties and therefore come up as a force to reckon with and so far independent businesses have found it hard to compete with them.
Benefits of Franchising in Ireland to Pinkberry
Competitive Advantage: The fact that franchising has already established itself in Ireland as a force to reckon with offers Pinkberry Yogurt with a competitive advantage over other independent businesses operating in the provision of the same products (Levitt 2009, para. 10-12):
- Accountability: The fact that there is an umbrella governing body to the franchise industry works for the benefit of Pinkberry Yogurt as this means there are established rules governing the relationship between franchisors and franchisees and therefore consequences to the party going against the established rules. In case of breech of contractual obligations, the franchisees can be held accountable as per the provisions of these rules.
- Adaptability and Flexibility: Ireland’s franchising industry has been determined to be flexible and dynamic due to its ability to adapt to the changing demands of the market and peoples tastes and preferences. This means that Pinkberry Yogurt will benefit from this in that its franchisee will be able to adapt to these changes as well and better market its products.
- Infrastructure: Ireland’s infrastructure in terms of malls and other retail business establishments is well established and therefore providing franchisors with strategic positions in which their products can be advertised and made available to customers meaning that Pinkberry Yogurt will benefit from this. Their products will be made available in the right places and to the right people making it possible for their franchisee to make tremendous sales which will translate to greater profit margins for Pinkberry Yogurt.
- Cost: The franchisor benefits in that he does not have to incur capital or development costs as would have been the case if he was to establish his own business whether domestically or internationally. This is because he deals with a franchisee that has an already established business and in some cases a chain of businesses (Pride, Hughes & Kapoor 2008, p. 156). This means that the franchisor is left with more funds to invest in other areas such as advertising and production expansion. Pinkberry Yogurt will thus be able to benefit from the fact that it will not have to invest in its own establishments as Ireland has an already established franchising industry meaning that its franchisee has access to the benefits of this establishment. Pinkberry Yogurt will therefore save on such costs and invest them elsewhere, say in product establishment and new product innovation.
- Time: A franchise agreement saves the franchisor’s time as he does not waste time in developing his own business; he uses an already existing business. Pinkberry Yogurt will save time that it would otherwise have used to establish its own business and stores in Ireland and bypass the rules that are imposed on foreign investors in the country.
- Expansion: A franchise gives the franchisor the opportunity to expand his product market geographically and internationally with ease. This is because the franchisee is the one who is responsible for the dealing with legal and other issues related to the business especially in countries that have strict legal issues when it comes to establishing foreign owned businesses. A franchise agreement fro Pinkberry Yogurt will offer it with an opportunity to expand its product market geographically in different parts of the country thereby enlarging its customer and market base.
Benefits to the Franchisee
The Franchisee Pinkberry will be dealing with will also benefit severally in the following ways.
Ownership: The franchisee still remains as the owner of the business and gets to benefit from the franchisor’s advice, guidance, experience and expertise in case problems arise and also benefits from the franchisor’s connections in terms of advertising (Pride et al 2008, pp. 156) Therefore Pinkberry’s franchisee will maintain ownership of its business and benefit from the Yogurt company’s expertise and advice bases on the experience it has gains in the United States where the business was established and experienced major growth.
Goodwill: A franchisee gets the opportunity to distribute products of a well known company or business and instantly benefits from the goodwill of such a business as opposed to the large amounts of investment and time he would have had to use to create such goodwill as an independent business. Pinkberry Yogurt is well known in the United States and therefore has connections and networks that its Ireland franchisee can benefit from which can help the franchisee earn recognition in the country.
Disadvantages of Franchising
The franchisee is in most cases at a disadvantage since in as much as he retains ownership of the business; the franchisor has great control over different aspects of the business as well as its operations. This is as a result of the power a contract gives to the franchisor. In most cases this leads to a large number of contract disputes and court cases (Pride et al 2008, p. 157) in the case of the franchisor, he may have to deal with problems caused by the franchisee such as when the franchisee spoils the name of his brand product making it less appealing to the market and dropping sales and in effect profits.
Cost: The cost of establishing a franchise agreement is at times expensive in the long run for the franchisee as he has to buy the franchise incurring an initial cost and then continue paying management fees, a certain percent of the gross sales is also paid to the franchisor and profits are shared as well. There is also the risk of having to deal with incompetent franchisors that have very little knowledge of how a franchise works and what part he should play in terms of training, support, target marketing, advertising and research which burdens the franchisee unnecessarily.
Conclusion
Competition in the global market is becoming more and more complex by the day and it offers a number of dynamic opportunities for competitors willing to compete at this level. Franchising is one of these opportunities and so far it has proved a viable avenue for marketing products at an international level. It has a large number of benefits and therefore different companies should take advantage of the franchise industry.
Reference
Levitt, E. N. 2009. What’s so great about Franchising? [Online] Franchise Trade. (Online). Web.
Pride, M. W, Hughes, J. R, & Kapoor, J. R., 2008, Business. 10th Ed. Ohio: South Western Cengage Learning Publishers.