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Franchising

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  • 1. Franchising
  • 2. What is a Franchise?
    “A franchise operation is a contractualrelationship between the franchisorand franchiseein which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format and/or procedure owned or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his own resources.”
  • 3. Features
    • Legal and commercial arrangement
    • 4. Use of franchisor’s trade name, format, system and/or procedure under license
    • 5. Means to raise capital and expand quickly
    • 6. Assistance to franchisee
    • 7. Marketing, management, advertising, store design, standards specifications
    • 8. Payment by franchisee by way of royalty, licensee fee or other means
  • Types
  • 9. Product Distribution-Eg
    Produces the syrup concentrate
    Sells the syrup concentrate
    FRANCHISEE
    Produces the final drink
    Retail Stores
    Vending Machine Operators
    Restaurants & F&B Outlets
  • 10. Business Format- Eg.
    Subway Outlet- Australia
    Subway Outlet- France
  • 11. Advantages
    • Buying a name/reputation
    • 12. Established markets
    • 13. Technical/management assistance
    • 14. Standardized procedures
    • 15. Quality standards
    • 16. Selection of location
    • 17. Facility design
    • 18. Quicker cash flow
  • Disadvantages
    • Loss of independence
    • 19. High initial fees
    • 20. High royalties and advertising allowances
    • 21. Contractual restrictions
    • 22. Inapplicable advertising
    • 23. Termination clauses
    • 24. Unsuitable products
    • 25. Lack of competitive advantage
  • Franchisee’s Perspective
    • Proven operating location
    • 26. Credible top management
    • 27. Skilled field support staff
    • 28. A trade identity
    • 29. A proprietary operations manual
    • 30. Effective training programs
    • 31. Disclosure and offering documents
    • 32. Plans for advertising, marketing, PR and promotion
    • 33. A communications system
    • 34. Sufficient capital
  • Franchisor’s Perspective
    • Faster growth
    • 35. Lower capital requirements
    • 36. Motivation – franchisors are owners of the franchise
    • 37. Control of locations
    • 38. Revenue stream – franchise fees/royalties
    But…
    • Reduced control
    • 39. Profit sharing
    • 40. Greater commitment to operating support
  • Franchising important to SMEs?
    • Leveraging on a recognized brand name
    • 41. Enhancing business image
    • 42. Ensuring consistent quality
    • 43. Attaining higher productivity/better motivated staff
    • 44. Access to good locations
    • 45. Economies of scale
    • 46. Reducing risks of failure