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Category: Business and Industry

Date Submitted: 09/24/2012 05:30 PM

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Advantages & Disadvantages of Franchising 

For a franchised network to be successful in the long term, both the 

franchisor and the franchisees must derive from the arrangement solid 

and enduring benefits which otherwise would not be readily available 

to them. Although the expectations of the expectations of the 

franchisor and all franchisees within a network tend to converge, 

their perceptions of the advantages to be gained from the arrangement 

will differ somewhat, as the following paragraphs show. 

Advantages form the franchisor's viewpoint 

An entrepreneur who considers the expansion of his business has 

various options open to him, including the establishment of branches, 

entering into joint venture agreement s, contracting with distributors 

- or setting up a network of franchisees. 

To set up branches or, to a lesser extent perhaps, enter into joint 

venture operations, would entail a large investment in infrastructure 

and working capital. Both options would also make huge demands on 

management time and have the potential to create HR problems as well. 

The appointment of distributors would address many of these problems, 

but control would be lost. 

A franchise network enables the entrepreneur to realize his expansion 

plans on the basis of an investment made by franchisees. Those 

franchisees, having made a substantial investment in their own 

businesses, can be relied upon to maximize market penetration and 

operational efficiencies on an ongoing basis, and to deal with 

emergencies as they arise. 

But while franchisees can be expected to finance and manage their own 

outlets, the franchisor retains overall control over the brand and its 

development in the widest sense of the word. As a result, expansion 

can proceed at a much faster pace than would otherwise be possible, 

enabling the franchisor to achieve national market penetration and 

increased market share whilst benefiting from the resulting...