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Franchising has penetrated all the business globally as it has been a good idea for business men who are afraid to start their own business and take the risk of being entrepreneurs , for these business men they have to choose to join or track a successful business and make a "franchise an agreement whereby someone with a good idea for a business (the franchisor) sells the rights to use the business name and sell a product or service (the franchise) to others (the franchisee) in a given territory".(Nickels,McHugh,McHugh,2008)
Many business today operate under the franchising aspect as large percentage of business depend on franchising such as restaurants , coffee , services and car repairers, as the franchisor gives the right to the franchisee to carry out the trade mark of the product to the area in which the franchisee will operate in , for example Tim Horton the trade mark it's well known over CANDA so if some one walks inside a store out side the regional area of CANDA they will recognize the trade mark of Tim Horton . (Taimi Williamson)
Franchising is one of the most significant business all over the world as it offers products and services that reliable and convenient for all consumers locally and globally as it has some benefits and opposes , advantages and disadvantages.(Nickels,McHugh,McHugh,2008),
Advantages and Benefits.
1- Management and marketing assistance (for franchisee): a person who is franchising has a much bigger chance to succeed than a person who is starting a business as that person already has assistance from the franchisor as the brand is known and is already in the market the franchisors makes the promotions and chooses the location and gains assistance in the other operations.(Nickels,McHugh,McHugh,2008)
2- personal ownership (for franchisee): a person who is a franchisee is still the owner of his own store thus gaining the profit if he is a sole proprietor or sharing the profit if he is in a partnership, but still the rules and regulations of the franchisor are followed but the fact still remains that the franchisee is his own boss.(Nickels,McHugh,McHugh,2008)
3- nationally recognized name (for franchisee): if opening a franchised store such as Nike the franchisee is not opening a business that is newly introduced , the business is well known in different countries so the aspect of being introduced or passing through the recognition process is no problem since the brand is already known,(Nickels,McHugh,McHugh,2008)
4- Lower capital investment (for franchisor): by franchising if the franchisor wants to expand his business by opening new stores without facing the normal capital costs that are required, as a franchisor you can obligate the franchisee to pay initial costs for startups that include rent, inventory and staff for the store that the franchisee is going to open in the location chosen.(Azrin,2003)
5- Lower personnel requirement (for franchisor): instead of the franchisor being forced to recruit and hire the employees for the stores , the franchisor can rely on the franchisee to make these requirements , the franchisor puts the rules and regulations for the franchisee to flow while he leaves the rest to the franchisee to decide.(Azrin,2003)
6- Lower risk (for franchisor): the franchisor is the owner of the business but doesn't take all the risk if something happens in the other locations (areas where the franchisees are in ) , the franchisees who are more to take the responsibility for most of the risks that happen such as the risk that the store fails , law suits , fines and penalties while the franchisor's exposure to these risks is minimized.(Azrin,2003)
7- Low failure rate (for both) : the failure rate of franchising is less than the rate of other business , some experts stated that the failure of business to happen is eight times more than a franchising to fail , but the franchisor and the franchisee must be aware of the risks that might face them so as to not fail because nowadays weak franchises has entered the field.(Nickels,McHugh,McHugh,2008)
As there are advantage to franchising there are also disadvantages for franchising that might face both the franchisor and the franchisee.
Disadvantage and Opposes.
1- Large start-up costs: some franchises demand a high start up cost that might be difficult for franchisee to obtain thus for them it might be un affordable causing the franchisee to take loans from banks to afford the start up , some brand might cost high startups as in very large amount of money while some other brands might not be with high start up sots.(Nickels,McHugh,McHugh,2008))
2- Shared profit: since the franchisor is real business owner he often demand from the franchisee a share of the profit in addition to the fees fro the initial start up cost , franchisors call it royalty , for example" if a franchisor demand 10 percent royalty on a franchise's net sales , 10 cents of every dollar collected at the franchise ( before taxes and other expenses ) must be paid to the franchisor".(Nickels,McHugh,McHugh,2008)
3- Management regulation: in some franchises the management has it's way in being directives with rules and regulations as it puts rules and limitations for the franchisees making them feel like they are not their own boss , some franchising business set the rules that must be applied by the franchisee in the management assistance thus these rules must be followed by the franchisees.(Nickels,McHugh,McHugh,2008)
4- Coattail effects: the coattail effect is when the franchisor ' business is profitable and in the growth level then he faces a big problem when his franchisees are failing no matter how his business is profitable the franchisor must keep in mind that his business is at risk if his fellow franchisees are failing.(Nickels,McHugh,McHugh,2008)
5- Restrictions on selling : in the franchising business it is difficult for the franchisee to sell their companies or stores unless the franchisors approves with the new owner that he will follow their standards and apply to it , unlike any other business the franchisee can't sell because it's not a private business.(Nickels,McHugh,McHugh,2008)
6- Fraudulent Franchisors : some franchisors are large business franchisors and some are small business in the two cases the franchisees must be aware of the fraudulent that might face them from franchisors as some franchisees faced the problem that the franchisors delivered little or nothing of what they promised , some of the small companies might not apply or hide some prospective from franchisees.(Nickels,McHugh,McHugh,2008)
Types of franchising.
1- Globalization: as the world has emerged into a new level the fact became that globalization is how businesses are dealing with th
e world as a single market, for franchisors they are examining this fact on how to interact with several markets and exchange goods and services across borders, developing new ideas to match the needs of customers all around the global world (Alon, December 2004)
According to Levitt (1983) and Yip (1987) "suggested that the global commonalities driven by advances in technology have led to the standardization of products, manufacturing and institutions of trade and commerce", for many franchisors these ideas have embraced them to duplicate their business globally.(Alon,December 2004)
2- Internationalization : international franchising has some of the dimensions of globalization such as cross national trading , the exchange of ideas and the capital investments , it differentiate from global franchising in some other forms such as the distribution in the market , how the entry in the international market will be accomplished through licensing for the exporting , importing and foreign direct investment.(Alon,December 2004)
There are more than 63 percent of franchisors in the U.S seeking international franchising , it also indicates that there are 16 different international industries such as food , retailing , recreation and hotels seeking international franchising.(Alon, December 2004)
The international franchising has an economic impact on job creation , economic modernization , balance of payment , small business entrepreneurship and the tax base.(Alon, December 2004)
3- Local franchising : franchising has emerged in local countries and gave the entrepreneurs the courage to start their own business and franchise it locally , this has helped in providing employment and increasing productivity in the local regions. .(Alon,December 2004)
In my opinion franchising has encouraged lots of entrepreneurs to start franchising industries locally for example let's take an example in Egypt in of the major successful entrepreneurs is ( AMMO HOSNY) the fast food restaurant which first started as a store that sells fast food now it has increasingly expanded and has local branches in Egypt .
This proposal about the dissertation is focusing on the aspect of the franchising conflict on how to achieve standardization and uniformity and balance between the standardization and adoption.
The franchising of a business is related with the concept that if a franchisee is taking the franchisors business they must achieve the standards of the business such as for example if a person is franchising a bakery store the person must achieve the same cakes with the same recipes as the franchisor with out adding any other ingredients from him self or else he will not be franchising , the person must follow the rules and regulations of the franchisor using the same recipes and the same ingredients as the real business and he must be trained and instructed to follow in order to keep the quality of the product .(Taimi Williamson)
The major issue in standardization is that in some business tension is created between the franchisor who wants the standards of the business to be strictly followed and the franchisee who wants the business to adapt to the culture he is operating the business in for marketing satisfaction . (Cox,and Mason ,December 2007) .
Standardization and uniformity has always been the core stones of franchising the reasons are:
1- standardization means achieving cost minimization for both the franchisor and the franchisee in marketing and implementing
2- the standardization keeps the brand image maintained in front of the customers which makes consumers feel the same way toward the image of the brand. (Cox,and Mason ,December 2007)
Standardization Formats for any franchising business include the following:
Product and service: the unique features of the format of the franchising standards that are basically the concept of franchising, such as in a fast food business the menu that introduces the components which gives a competitive advantage in the market.
Benefits communicators: these are the things which create reliability and confidence to the quality of the product, such as in a fast food business standardization of clean uniforms indicates high quality.
System identifiers: these are the elements and units that bond the customer with the business, such as the trademark, name, logo, colors and uniforms.
Format facilitators: these are the rules and procedures of how the standardization should be implemented in order to have a successful franchising such as the equipments, layout and design. (Cox,and Mason ,December 2007)
The main tension happens in the franchising business between the standardization and the adaptation where the franchisors needs to implement the standardization for the franchisee to follow, in some local or other cultural environments it differs because there are some consumers which vary in level , taste , preference and socio-economic composition such as the age and income , the degree and type of the competition differs from one country to another , in each country or local environment the factors of production differ so some premises to implement the standardization formats are sufficient, adoption among the franchisee should happen in different local areas in order to compete with others the adoption should happen in.
1- The product mix variation
2- Pricing structure
3- Local marketing
4- Human relations practices
( Cox and Marson, December 2007)
Standardization makes customers "expects the same product or service in every location". (Fable and Dondrige, 1992,(Cox,and Mason ,December 2007)
Standardization makes customers" seek the common consumption experience that trade mark represents". (Michael, 2002,Cox,and Mason ,December 2007)
The nature of Standardization is that the franchisor implements the whole set of rules and outlets as a whole not specific staff which creates tension between standardization and adoption. (Kaufmann and Eroglu, 1999,Cox,and Mason ,December 2007)
When the business environment Become more competitive more innovations are needed from the franchisee in order to encounter any competition within the local environment to keep the system operating adoption is needed in some local areas to keep the competition going when there is new products and shifting in the level of consumer income thus purchasing is shifting so the standardization is not needed in this situations the adoption is what the franchisee need but the challenge is that the franchisor management is at risk when the franchisee quest for autonomy.
(Dant and Gundlach, 1999,Cox,and Mason ,December 2007)
The conflict is that standardizing with too much control is costly and creates problems with the motivational spirit of the franchisee how ever if the standardization is little controlled and to much autonomy is given then it may result in the loss of the cooperate identity and brand equity. (Dant and Gundlach, 1999)
Macdonaldization is the balance between standardization and adoption.
This proposal is to reach all the franchising business to implement their standardization such as MacDonald's that reached the balance of standardization and adoption.
MacDonald's reached the globalization market with a single message and satisfied the world with a single product , it reached cultures and societies with globalization (standards) and modernization (adoption), Macdonaldization as "an ever greater uniformity of life style, cultural symbols and transitional models of behavior.ââ‚¬Â (Alon,December 2004)
MacDonald's is found in over than 118 nations and the fact that Macdonaldization had a great impact on the culture of different countries is that it penetrated the Japanese market and the Indian market whether itââ‚¬â„¢s name was changed into Mos burger in Japan)or Nirula's in India , the fact still remains that MacDonald's adapted each culture's condition such as India by offering fast food chain restaurants which sell Mutton burgers because 80 % of the people in India are Hindus and don't eat meat, MacDonald's also penetrated the markets and cultures of the Arab world , the Asian world and the European world thus implementing Macdonaldization