Franchising Mirsoatov Khabibullo mm-98-group the meaning if franchising

Franchising

Mirsoatov Khabibullo

MM-98-GROUP

The meaning if franchising

• Franchising is an arrangement where franchisor (one party) grants or licenses some rights and authorities to franchisee (another party). Franchising is a well-known marketing strategy for business expansion. In return, the franchisee pays a one-time fee or commission to franchisor and some share of revenue.
• he word "franchise" is of Anglo-French derivation from franc, meaning free and is used both as a noun and as a (transitive) verb. For the franchisor, use of a franchise system is an alternative business growth strategy, compared to expansion through corporate owned outlets or "chain stores". Adopting a franchise system business growth strategy for the sale and distribution of goods and services minimizes the franchisor's capital investment and liability risk.

The history of franchising

• The boom in franchising did not take place until after World War II. Nevertheless, the rudiments of modern franchising date back to the Middle Ages when landowners made franchise-like agreements with tax collectors, who retained a percentage of the money they collected and turned the rest over.[3] The practice ended around 1562 but spread to other endeavors.For example, in 17th century England franchisees were granted the right to sponsor markets and fairs or operate ferries. There was little growth in franchising, though, until the mid-19th century, when it appeared in the United States for the first time.
• One of the first successful American franchising operations was started by an enterprising druggist named John S. Pemberton. In 1886, he concocted a beverage comprising sugar, molasses, spices, and cocaine. Pemberton licensed selected people to bottle and sell the drink, which was an early version of what is now known as Coca-Cola. His was one of the earliest—and most successful—franchising operations in the United States.

Advantages of franchising

• Franchising brings with it several advantages and disadvantages for firms looking to expand into new areas and foreign markets. The primary advantage is that the firm does not have to bear the development cost and risks of opening a foreign market on its own, as the Franchisee is typically responsible for those costs and risks, putting the onus on the Franchisee to build a profitable operation as quickly as possible. Through franchising, a firm has the potential of building a global presence quickly and also at a low cost and risk.

Disadvantages of franchising

• A primary disadvantage to franchising is quality control, as the franchisor wants the firm's brand name to convey a message to consumers about the quality and consistency of the firm's product. They want the consumer to experience the same quality regardless of location or franchise status. This can prove to be an issue with franchising, as a customer who had a bad experience at one franchise may assume that they will have the same experience at other locations with other services. Distance can make it difficult for firms to detect whether or not the franchises are of poor quality. One way around this disadvantage is to set up extra subsidiaries in each country or state in which the firm expands. This creates a smaller number of franchisees to oversee, which will reduce the quality control challenges.

Largest franchised chains

• 1. Subway (sandwiches and salads) | startup costs $84,300 – $258,300 (41,916 locations worldwide in 2015).
• 2. McDonald's | startup costs in 2010, $995,900 – $1,842,700 (36,368 Locations in 2015)
• 3. 7-Eleven Inc. (convenience stores) | startup costs in 2010 $40,500- $775,300, (56,439 locations in 2015)
• 4. Hampton Inns & Suites (midprice hotels) | startup costs in 2010 $3,716,000 – $15,148,800
• 5. Great Clips (hair salons) | startup costs in 2010 $109,000 – $203,000 (3,694 locations in

Largest franchised chains

• 6. H&R Block (tax preparation and now e-filing) | startup costs $26,427 – $84,094 (10,800 locations in 2015)
• 7. Dunkin' Donuts | startup costs in 2010 $537,750 – $1,765,300
• 8. Jani-King (commercial cleaning) | startup costs $11,400 – $35,050, (11,000 partners worldwide in 2004)
• 9. Servpro (insurance and disaster restoration and cleaning) | startup costs in 2010 $102,250 – $161,150
• 10. Mini Markets (convenience store and gas station) | startup costs in 2010 $1,835,823 – $7,615,065

Obligations of the parties

• Each party to a franchise has several interests to protect. The franchisor is involved in securing protection for the trademark, controlling the business concept and securing know-how. The franchisee is obligated to carry out the services for which the trademark has been made prominent or famous. There is a great deal of standardization required. The place of service has to bear the franchisor's signs, logos and trademark in a prominent place. The uniforms worn by the staff of the franchisee have to be of a particular design and color. The service has to be in accordance with the pattern followed by the franchisor in the successful franchise operations. Thus, franchisees are not in full control of the business, as they would be in retailing.
• A service can be successful if equipment and supplies are purchased at a fair price from the franchisor or sources recommended by the franchisor. A coffee brew, for example, can be readily identified by the trademark if its raw materials come from a particular supplier. If the franchisor requires purchase from her stores, it may come under anti-trust legislation or equivalent laws of other countries. So too the purchase things like uniforms of personnel and signs, as well as the franchise sites, if they are owned or controlled by the franchisor.
• The franchisee must carefully negotiate the license and must develop a marketing or business plan with the franchisor. The fees must be fully disclosed and there should not be any hidden fees. The start-up costs and working capital must be known before the license is granted. There must be assurance that additional licensees will not crowd the "territory" if the franchise is worked according to plan. The franchisee must be seen as an independent merchant. It must be protected by the franchisor from any trademark infringement by third parties. A franchise attorney is required to assist the franchisee during negotiations.

Franchising code of conduct

• On 1 January 2015, the old Franchising Code was repealed and replaced with a new Franchising Code of Conduct. The new Code applies to conduct on or after 1 January 2015.
• The new Code:
• introduces an obligation under the Code for parties to act in good faith in their dealings with one another
• introduces financial penalties and infringement notices for serious breaches of the Code
• requires franchisors to provide prospective franchisees with a short information sheet outlining the risks and rewards of franchising
• requires franchisors to provide greater transparency in the use of and accounting for money used for marketing and advertising and to set up a separate marketing fund for marketing and advertising fees
• requires additional disclosure about the ability of the franchisor and a franchisee to sell online
• prohibits franchisors from imposing significant capital expenditure except in limited circumstances.
• These are significant changes and it is important that franchisors, franchisees and potential franchises understand their rights and responsibilities under the Code.
• For further information about the changes to the Code, please see the updated Franchisor Compliance Manual and the Franchisee Manual.
• The Code explanatory materials are available from the Com Law website (link is external).
• New Zealand

THANK YOU FOR YOUR ATTENTION