Concept and participants of a franchising

Concept and participants of a franchising

Concept and participants of a franchising

The franchising (literally — “a preferential entrepreneurship”) is a form of partner communications and business cooperation.

The franchising is a form long business cooperation of several firms in case of which the company with the name, known in the market, (franchiser) resells the rights to it together with the production technology or sales of goods or service to the entities (franchisee), independent of it.

The essence of this form is that head, most often the company large, authoritative and rather known to consumers signs the contract with the small independent entity on provision to it an exclusive right on release of certain goods and their sale and also rendering services under trademark of this company.

The franchiser is the company which grants the license or transfers the trademark, a know-how and operating systems to right to use.

The franchisee is a person or the company which buys a possibility of training and the help during creation of business from the franchiser and pays a service payment (royalty) for use of the trademark, a know-how and the system of conducting works of the franchiser.

(Only arising) this form is convenient for small enterprises as the head company has an authority (the image is acquired), the consumer already got used to trademark and it isn’t necessary to spend money for advertising.

Franchising relations

The franchiser (the head company) signs contracts not with one, and with several small enterprises (operators) and thus creates an extensive network of trade and industrial enterprises which are depending on it. This dependence is determined by the agreement under which it is necessary to follow all rules of trade or production, up to trifles (uniform).

But also the franchiser undertakes to render a range of services — supply of equipment, raw materials, technology transfer, personnel training, services in accounting.

At the same time the franchisee acquires also the rights to use trademark, standards of servicing, corporate design and business reputation.

The franchise is a complete business system which the franchiser sells to the franchisee. As other name for similar system serves the franchising packet which usually includes benefits on conducting works and other important materials belonging to the franchiser.

Fran chasing relations can be profitable for both parties. The franchisee is interested in the maximum sales in case of the minimum costs. The franchisee shall conform to the rules of business on a franchise and participate in the promotion and marketing companies which are carried out by the franchiser. The franchiser with concentration works on that being in the lead in competitive struggle that it would be very difficult for one franchisee to make. The franchiser provides necessary support the franchisee could pay all attention to the daily transactions.

In case of this form the entity organizer provides to the partners (generally small enterprises) the license for independent conducting economic activity, but under the name of the entity organizer.

The last provides the experience and technology and undertakes implementation of advertising, deliveries and control (for example, the entity of fast servicing McDonald’s). At the same time the licensee of a franchise (user), remaining the independent entrepreneur, pays for use of a franchise to the licenser the charges determined by the agreement.

In addition to trademark, technology, advertizing the licensor of a franchize according to the agreement can provide financial resources (as the credit), the equipment (generally on the terms of leasing) and to render other services (training of personnel, increase in its qualification, consultation, etc.).

In the most general sense understand a method of sale of goods and services, development and gaining the market on the basis of cooperation of material and financial resources of small and large business as a franchizing.

Differentiate the following types of a franchizing:

  • franchising of services – many foreign firms create the centers through which they finance acquisition or lease of rooms in the large cities of the Russian Federation, train personnel, deliver the equipment and exercise control (McDonald’s);
  • the franchising of goods — is created by wide networks of sale and servicing. All sales firms use logos. Head offices provide with tools, spare parts, new-Hau, finance advertising.

The franchise gained distribution in the form of licensing in Russia to domestic entrepreneurs (licensees) by foreign firms (McDonald’s, “Basques of N Robbie not”, etc.). It is one of forms of attraction of foreign investments to Russia and a method of forming of the reliable partner and entrepreneur.

Use of a franchise is profitable to stabilization and development of economy because the franchize gives threefold effect:

  • the licensee can use the checked economic methods of the licenser;
  • the licenser lays the strong foundation for work of the company;
  • buyers trouble-free receive goods and services of guaranteed quality (“Monarch”, Ekonika — trade shoes).

However the franchise isn’t deprived of shortcomings: licensors try to limit independence of licensees as the franchise agreement is constituted by her seller, and he registers terms of agreement, favorable for himself (the choice of suppliers the seller of a franchise regulates, the distribution sphere of services in a franchise, etc. is limited).

Franchising history

The franchising as system arose in the XX century in the USA and originally served as means of sales increase of the products for manufacturers. Later the franchising was accepted by independent wholesale and retail firms for preserving competitiveness with retail chain stores of chain subordination of other firms. In the 30th years the oil companies which began to use a franchising for creation of network of fuel bus stations followed their example. If till this time the oil companies had only own trade enterprises, then for the short period the entities which obtained from them the license for sale on the system of a franchising that helped these companies to sustain economic downturn of the 30th years successfully became the main method of distribution of their products.

Most quickly the franchising developed in the USA in the 50-60th years in a legal situation of non-interference policy.

The greatest success in development of system brothers managed to achieve in the fifties the XX century Makdonaldam. Now the franchising McDonald’s system contains more than 14 thousand entities in the different countries of the world.

Today the franchising gained development more than in 70 industries of economy. The franchising is recognized in the world as the most progressive form of business and is widespread in foreign practice. The agreement of a franchising is independent object of legal regulation more than in 80 countries of the world.

In Russia the franchising gained the development with receipt on the market of such companies as “PizzaHut”, Kodak, “McDonald’s”, Coca-Cola, etc.

Main lines and features of a franchising

On the essence the franchising represents the system of relations consisting in paid transfer by one party (the firm having, as a rule, pronounced image and high reputation on commodity market and services) to other party (to firm or the individual business owner) the means of individualization of the made goods, the performed works or the rendered services (the trademark of servicing, the corporate style), technology of business and other commercial information which use by other party will promote growth and reliable fixing on commodity market and services. At the same time the transferring party undertakes to render assistance in business formation, to provide the technical and consulting assistance.
Sources of income of the franchiser

Become sources of income of the franchiser:

  • admission fees of new franchisees,
  • royalty (fixed payments or payments as percent from revenue or the profit of the franchisee),
  • markup on the delivered goods (materials),
  • discounts of wholesale suppliers,
  • award for matching of rooms and equipment for the franchisee,
  • leasing of the franchisee of buildings and equipment,
  • percent for the loan granted to participants of franchising system payment for managerial, consulting services,
  • marketing fees of the franchisee,
  • own outlets (entities) of the franchiser.

Sometimes, for the purpose of increase in appeal of the franchisee, the franchiser himself will organize an outlet, is convinced of its profitability and offers it to the franchisee.

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