Advantages And Disadvantages Of Franchising Commerce Essay

An arrangement for a continuing relationship in which one party a franchisor provides an accredited opportunity to another party the franchisee to do business using its trade name and offers assistance in organizing, training, producing, marketing and managing a good or service in adherence to certain specifications, in return for monetary exchange.

Franchising is a style of business which has a lot of different but same branches throughout the world .The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and in turn gains instant name and recognition, tried and tested products, standard infrastructural design and interior décor, detailed techniques in running and promoting the business, training of employees and on-going help in promoting and improving the product

A franchise is usually a main agreement between the franchise owners and the government.

Question 1 answers :

The advantages of franchising from the franchisee’s point of view are myriad, most important among them are: First, the franchisee can benefit from the widely recognised by the style of branding name of the franchisers around everywhere. When a franchiser is around ,it can only mean one thing that is the franchise is well known around and among people, reputed company with extensive customer base and immense brand name recognition. Brand equity is important so that the franchises can always gain the specific benefits from the main consumers awareness ,faithfulness and loyalty; on the other hand, it lessens competition during recession. The franchisee does not have to waste all the time, cost of expenditure and the effort in building up company goodwill and establish a famous brand name. A branded restaurant chain will maintain its sales and competitive power even in times of recession and huge competitivenesss will be around in the catering or cooking industry as the whole brands name is clearly widely well knowned and recognized and favoured by the people.

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Second, franchisee can have a lot of access to the main big kinds of business management skills which are rarely easy to get a grip on. The franchiser usually has important business skills like: production management, financial management and marketing management. This in turn, increases the possibility of success of the business. A franchisee is always populated in every part of the world as they are very well known for what so ever they do as in catering or multi level marketing and so on. The bigger the power of dependingness of the franchisor company, which definitely has the big organization globally, which has a bigger organization, proves beneficial to the franchisee company, because, the franchisor company has a proven business concept and a thriving operational profile.

Like the advantages, there are many disadvantages too as can be in any form of business, however in this context the disadvantages. The disadvantages to franchising are that the franchisor will lose control over certain aspects of the job.  The franchisor will also lose hands-on involvement with the individual operations and the franchisor will also be limited by contract to the actual changes which can and may incur in the franchise units operation structure.  The prerequisite to compensate the franchisee payment and it expenditure to the franchisor can be too large a sum (in some cases). The bigger and famous the brands name the larger the amount to be paid. Such

Second, all the goodwill accumulated by the franchisee in the local market will be transferred to the franchisor once the franchise contract expires or terminates. Years of hard work melts in moments with the transfer.

Third, the franchisee does not have much freedom in his business. It is necessary that he has to adhere to the standards, policies, procedures and functioning systems of the franchisor. Creativity in one’s own business is curtailed completely.

Fourth, corporate profit margin reduces because of payment of royalties and other associated levies.

Many entrepreneurs think that owning and running a franchise business guarantees more revenue, profit and returns; this is not always be the case, while it may be true for the short term but long term case studies show that starting your own business will be cheaper to run and pay off better than franchising.

Communication is one of the most important things between a franchiser and franchisee, when there is some sort of miscommunication the business is likely to fail. Which will end up costing the franchisee a lot of time effort and money just as it will the franchiser. Especially if the franchise is opened in a country overseas. The cost will automatically increase due to taxes imposed by respective governments.

As a franchisee you will not be able to operate your business to your fancy because the franchiser will already have some sort of business plan. Even though the franchisee may be better able to handle and organise the business but because they are tied to the brand they’re representing therefore makes business operations difficult.

Furthermore, if the franchisee isn’t able to uphold the franchiser’s image and standards, it will reflect poorly on the brand itself, which will then slow business down for both the franchiser and franchisee and in addition will make future entrepreneurs think poorly of the company and will lead them to not invest in the particular franchise as well.

The success of a franchise depends on both the franchisor and the franchisee, on the product and the business strategies. To run a successful franchise one has to study the market, the franchisor and the product carefully and judiciously.

Question 1 conclusion :

After doing my research, what I can conclude is that franchising is a great way to expand a business and spread the name of the franchiser far and wide. A lot of thought must go into owning and running a franchise and is not an easy job and it is a lot to consider. But if it is done the right way and is organised for example, if its operating system is being run smoothly, it will surely prosper . Many companies have become successful by opening their branches across the country and in some cases the world. These companies are not stopping to open their franchisors around the world because these franchisee knows very well that the market globally demands the franchisors to be around. These can only tell one thing is that franchisors are upcoming throughout the entire world and it will not stop blooming due to the fact of its importance around as all the researches shows.

Question 2 :

2. Identify one franchise property in your local market. discuss about the operation of it and how this property helps to improve the economic of your area.

Question 2 introduction :

In this modern era of globalization, a company’s operations segment is the unit that manages and supports the company. Employees take care of all of the background activities that keep a company running efficiently behind the scenes. Operations employees don’t usually come in direct contact with customers and end users, though they are responsible for helping to ensure that customers ultimately receive the product or service that the company promises. The operating cycle of a business is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods. If a company is a reseller, then the operating cycle does not include any time for production – it is simply the date from the initial cash outlay to the date of cash receipt from the customer. Companies don’t arbitrarily decide an operating cycle because it reflects how in reality business transactions progress from start to finish. The operating cycle is also referred to as the cash-conversion cycle, which is the length of time that a company takes to convert its inventory purchase to sales revenue. A typical operating cycle includes the days of inventory outstanding before sales, the days of accounts receivable outstanding before cash collection, and the days of accounts payable outstanding before cash payments. The operating cycle is useful for estimating the amount of working capital that a company will need in order to maintain or grow its business. A company with an extremely short operating cycle requires less cash, and so can still grow while selling at relatively small margins. Conversely, a business may have fat margins and yet still require additional financing to grow at even a modest pace, if its operating cycle is unusually long.

Question 2 answers :

The following are all factors that influence the duration of the operating cycle:

The extended payment terms to the company by its suppliers since the company can delay paying out cash. longer payment terms shorten the operating cycle.

The order fulfilment policy, since a higher assumed initial fulfilment rate increases the amount of inventory on hand, which increases the operating cycle.

The credit policy and related payment terms, since looser credit equates to a longer interval before customers pay, which extends the operating cycle.

Thus, several management decisions (or negotiated issues with business partners) can impact the operating cycle of a business.

McDonald’s is a great example of a franchise, many people have opened this chains of fast food all over their respective countries and to bring benefits to themselves and economies in which they’ve started this .Here are some of the factors of the famous fast food chain we visit frequently, McDonald’s.

Common Operations Units

Management is one of the most important operational part of a moving business. Management is responsible most of everything. The management would handle the production duties and make various and different strategic plans for the company to follow. The marketing unit is in charge of the side of how to attract the customers towards the companies .As in example ,the marketing unit would be the people who publish stuffs about the company in newspapers and magazines. The administrative unit of the company is in charge of ordering supplies, hiring employees, and managing communication within (and outside of) the firm. If you have a secretary to run your small office, this person commonly handles all of your administrative support activities.

Quality Management

Employees who work in operations have various kinds of responsibilities, but the most common and the most important job to handle is the quality management. All of the operational units in the business will have to keep an eye on the quality management. This is due to the fact that if quality management is not handled properly with an oderly manner, there could be a very bad image upon the companies which in the end would be blamed on the operational units.

Considerations

To have a functional and well-run operations unit, the company must be structured and its foundation must be strong in order to run like a well-oiled machine. Communication to and from the various operational units of the business is key because they all work together to help generate a profit for the company. This is especially true for a very small company — one cog in the wheel can jam up operations. There is usually as written operations procedure manual distributed among all the employees to clear out all the confusions. This helps a lot because then the employee doesn’t need to disturb the employers for any information but just directly go through the manual.

When a franchisee invests in a host country, the scale of the investment is likely to be very large and cause a lot of economic activity in whichever market it establishes itself in.

Improving the balance of payments – Inward investment will usually help a country’s balance of payments situation. The investment itself will be a direct flow of capital into the country and the investment is also likely to result in import substitution and export promotion. Export promotion comes due to the franchise using their production facility as a basis for exporting, while import substitution means that products previously imported may now be bought domestically.

Providing employment – FDI will usually result in employment benefits for the host country as most employees will be locally recruited. These benefits may be relatively greater given that governments will usually try to attract firms to areas where there is relatively high unemployment or a good labour supply.

Source of tax revenue – Profits of franchises will be subject to local taxes in most cases, which will provide a valuable source of revenue for the domestic government.

Technology transfer – Franchises will bring in the best technology and all the kinds of methods that would be new to the host country. In contrary ,by doing this method, the host country would learn a lot from all these kinds of techniques which are very valuable to them.

National reputation – The presence of any one of these franchises may bring out the best of the country and also improve the high status of the host country. This would be very good because all the other host countries which would see the difference, would definitely follow up with their own franchises

Question 2 conclusion :

Given all the information, a owning and running a franchise is a risky business as is with all business but people do so with government encouragement and because they think that running a franchise will guarantee a bigger or higher profit or income. This may not always be the case and it is often found that in the long run running an original business gives higher returns. Though all business have their pros and cons, franchising and running a franchise has with it a lot to consider and the proper decisions and actions must be taken in order for the business to succeed and prosper.