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Entrepreneurship is recognized as an important factor in economic growth. It is seen as a function that involves exploitation of opportunities within the market. Entrepreneurship is centrally concentrated by understanding how opportunities came into existence by bringing in goods and services, how they are created, researched, who by and with the consequences. Entrepreneurship is defined as, 'a process activity. It generally involves the following inputs: an opportunity, one or more proactive individuals, an organizations context, risk, innovation and resources. It can produce the following outcomes: a new venture, new products or processes, profit or personal benefits and growth.' (Entrepreneurship, 4th ed). Entrepreneurs look for new opportunities i.e. when people see problems entrepreneurs instead see an opportunity. To gain the right entrepreneurial opportunities it is important to identify and select right opportunities for the new business. That is the most important ability of a successful entrepreneur. Opportunity is described in a range of events that begin to unfold and later become more developed over time. After doing appropriate market research i.e. identifying market needs and underemployed resources the next step is to come up with business concepts. If a gap in the market has been found the entrepreneur can than come up with a business plan which helps in achieving the opportunity of creating a new business. (Refer to appendix 1).
History of franchise
The origins of franchising occurred in 1815 when Albert Singer was producing sewing machines. With the increased demand and sales of the sewing machines, it became too costly to travel from one town to another in order to repair the sewing machines. Therefore Singer decided to set up a licensed network of engineers who would have all the stock available to repair a sewing machine. All the engineers were paid directly by customers as they were known as repairers of Singer's machine. Hence, a franchise business is discovered by Singer who was the first franchisor in the United States.
''A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol and an individual or group seeking the right to use that identification in a business.'' A franchisor is a person or a company that has established a successful business model from experience and is willing to allow another person, the license to carry on an independent business under the franchisor's brand or trade mark. On the other hand, a franchisee is a person who undertakes a Franchise Agreement given by the franchisor to have the right to carry on the franchisors business after paying a fee for it. (Understanding franchising).
A question may arise: are franchisees entrepreneurs? An entrepreneur is the person who came up with the idea of creating a business. Therefore the person who invented the franchise business is the entrepreneur. An entrepreneur is the original franchisor who took on all the risks to turn the business into a franchise. Therefore a franchisee is not an entrepreneur but an intrapreneur. The franchisee has been given the right to carry out the franchisors business hence, less risky as they play safer and take the guidance and leadership of the franchisor.
Intrapreneurship is a practice of developing a new venture within an existing business. It explores new opportunities and creates economic value. On the other hand entrepreneurship is the process of creating a new venture outside an existing business. Therefore this shows that a franchisor is an entrepreneur and the franchisee is an intrapreneur. Research shows why new opportunities may be discovered through entrepreneurships and why not through Intrapreneurships. This is due to high costs in setting up a business and the high levels of risk involved in investing in a new venture.
Below are some for the advantages for a franchise business which is compared with the entrepreneurial business. The risks and opportunities of a franchise business are compared to the risks and opportunities that the entrepreneur will face in the same situation as the franchise will be in.
Adv for franchise and dis for entrepreneur.
Buying a franchise business reduces the risk involved when investing capital to own a business. This is because an established brand has credibility with its customers. Established businesses which have a nationwide chain already have brand awareness which take a long time to build up. When a franchisor hands over the franchise agreement to the franchisee, the franchisee is protected by the state and International Franchise Association (IFA) to ensure that the franchisor is honourable and legitimate. Therefore this gives a franchisee a quick start of a business compared to an entrepreneur who starts an individual business and takes time to build up a brand name. Hence this is advantage to the franchisor as the businesses are growing and also an advantage to the franchisee as an opportunity exists which has been successful in the past. Being part of a franchise is a faster process for the franchisee as compared to an entrepreneur who starts from scratch to invest in a new venture. Therefore it is more risky.
Dis for entrepreneur and adv for franchise
For an entrepreneur, opportunity identification and evaluation is a difficult task. Opportunity identification is, 'the process by which an entrepreneur comes up with the opportunity for a new venture. (Entrepreneurship 5th ed). Identifying business opportunities could be done by asking consumers or business associates about what they think about the business idea. In the case of borrowing capital to start up a new venture, a clear business plan should be available to show the lender. Therefore this is more time consuming as all the initial research is meant to be done by the entrepreneur to bring up a successful business and also time consuming as the business plan prepared should be convincing to the lender.
On the other hand, for a franchisee or an intrapreneur the franchisor provides all the services to make the process of investing in a business quicker. This is because the research is done to identity the product or service which is profitable and successful; the franchisor gives start up assistance i.e. legal assistance is available to ensure the franchisor is not doing anything illegal, financial assistance is available and training. In the case of borrowing capital it is easier for the franchisee because the franchisor is available to show evidence that the franchise is a successful and profitable business. After signing the franchise agreement the franchisor can also offer administrative duties to be controlled, debt collection and running accounts. When the franchisor is involved in doing a lot of the franchisee's roles, this gives the franchisee an opportunity to develop and satisfy customers. Hence, investing in a franchise business is less risky than investing in a new venture.
Adv franchise and dis for entrepreneur
Franchise businesses have a benefit of choice. The franchisee needs less experience in the type of business that the franchise business is representing. Since the franchise business has its different ways to operate, the franchisor can provide appropriate training and knowledge that is essential in order to successfully work in the franchised concept. Therefore when considering to invest in a franchise business there is a wider choice available as compared to considering to investing as an independent entrepreneur. This would be a more risky process for the entrepreneur as compared to the franchise business. This is because the franchisee will accept the Franchise Agreement only if the business has been making profits i.e. if the business has been proven to be successful. And on the other hand the entrepreneur has to start up a business from scratch which is more risky and is not sure whether the business will be success or a failure.
Adv to franchise dis to entrepreneur
There is a burden of responsibility for the entrepreneur as all business functions are suppose to be managed by the entrepreneur i.e. finance, training, finding new opportunities and marketing. When marketing is concerned the entrepreneur will need to pay for a marketing strategy and also pay for all advertising expenses. In the case of a franchise business, the parent company will take the responsibility to handle all the training, marketing and advertising expenses. Therefore this will benefit all the franchise businesses. Hence this is an advantage to the franchisee as more time is available to increase sales. On the other hand, if the franchisee does not like a decision made at the parent company the franchisee can not change any decision due to the rules and regulations in the franchise agreement.
Below are some for the advantages for an entrepreneur which is compared with the franchise business. The risks and opportunities of an entrepreneurial business are compared to the risks and opportunities that the franchise will face in the same situation as the entrepreneur will be in.
Advantage for an entrepreneur and disadvantage to franchise
An entrepreneurial business or a franchise business will grow if they adopt new approaches to identity a number of different opportunities. After the organization has spotted an opportunity they might want to bring in the new opportunity to the organization in order to expand the business. For the entrepreneur to expand or implement a change, it is a quicker process if compared to a franchise business. If a change is made by an entrepreneurial business, the change is only made in one area where the business is located. Whereas in a franchise business, for a change to take place it will take a long time to be implemented as franchise businesses could be located in many different places in a country or all over the world. Hence, for a change to take place in a franchise it is more risky as the organization is not sure whether the change will satisfy customer needs in a different country since customers in a another country may not adopt to the new change. Therefore it is more expensive and time consuming for a franchise to implement change as compared to an entrepreneurial business. (pg 371, photocopy).
Adv for entrepreneur and dis for franchise
Being an entrepreneur, hence self employed there are benefits gained but at a cost of increased risk. A way to decrease the level of risk is by opening a small independent business so that it is possible to get experience in that particular field or sector. For example, an experienced mechanic may open a service station to get experience and see if it is enjoyable. Hence this will allow the entrepreneur to create an original product or servicing while operating in a familiar area that is enjoyable. The independence and freedom to make decisions is a major advantage for an entrepreneur. There is the freedom of control that is not achievable when working under someone. Hence, there is limited freedom of decision making for a franchisee.
Adv for entrepreneur and dis for franchise
Being an entrepreneur there is the advantage of working hard and in return earn the income that will be relative to the efforts put in the business to make it successful. The higher the efforts are, the higher the rewards will be which the market forces will decide as the company expands and becomes more profitable. In the case of a franchise business the board of directors and the company's financial budget will determine the salary even if one franchisee has worked so hard to bring up the business, all the franchisees will be paid the same salary. Therefore this is a major disadvantage to the franchisee as a lot of effort is put in but the result does not show it. On the other hand this is also determined by the size of the franchise business that is being controlled.
In conclusion, the main reason why there is a higher percentage of people buying a franchise system is because the franchisor has created a developed a successful business. Therefore the franchisee does not have to go through the risks of developing a new venture which would be started from scratch. This is an advantage for the franchisee but on the other hand the franchisee also has to consider the issues that an entrepreneur will also face. The issue is going through the decision process of whether to buy an existing business or start a new business. Thus, when investing in a franchise, it is possible to be the leader in the franchise but impossible to become the head of the whole franchise business hence less control. Whereas in becoming an entrepreneur, you are the head of the entire business and have all the control over the business. On the other hand this could be more risky compared to a franchise business. Overall, being part of a franchise gives a bigger choice of businesses to pick from and is less risky.
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