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A Franchisee can be a one-person organization. Is this the primary objective of Franchising? Discuss.

Franchising is a legal arrangement between a dealer, which is generally a small set up of sole proprietorship, 2-3 person partnership or any other small business format, and a established organization which gives its name, technological know how, training and other support systems in exchange of predetermined royalty or some percentage of total sales to the latter. Franchising is a dynamic system of distributing goods and services which combines the entrepreneurial drive of a small set-up with the expertise and experience of the parent organization and the result is positive and onto the lines of success.

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Franchising is an arrangement whereby a supplier (franchiser) grants a dealer (franchisee) the right to sell products in exchange for some type of consideration. Thus Franchising is a business opportunity where the parent organization i.e. the franchiser grants the rights to the franchisee for the use of its brand name, trademark, and copyrights, for the distribution and sale of its product and services and in return from the franchisee receives a payment or royalty for the compliance of the quality standards. Franchising is a very fast growing business. It originated in United States; Singer Sewing Machine Company first used it during 1860's and now there are 718 franchise systems in operation in UK in the year 2004 which is up by 3% in 2003.

The logic behind its successful existence could be the replication of the successful experience of customer at one place for different places by the franchiser and assuming that it should do well, of course keeping in mind the demographical similarity or commonality of tastes and preference but then going for one's owned outlets may become cumbersome for the reasons of investments, manpower or operations hassles. Therefore franchising here is a best and most suited business format. The franchisee has to deal with those products and services that have already made their position in the market; the business operations and the norms are already set, so a smooth functioning from the very start is acknowledged.

The modern era of business world is earmarked with so much of complexities involved in its environment that every business has to justify its offerings of products and services because the customers' spending is limited and the avenues to spend are enormous. Thus for any business its brand image, quality of the product and services, timely availability of its set of offerings, advertising at the right time and at the right place, substitutes availability, man power, updated technology and systems becomes very important. In absence of any of these, the business may fail or get into the lines of minimal profits or losses. And that is why many new business close within the initial years of their working. Thus when initiating any business, one has to decide upon the right type of business format.

The entrepreneurs, who want to run their own business, want to be exposed to minimom risk, want to be a part of a already existing business which has proved to be commercially viable, want to function upon the set standards, for them 'franchising' is the right business format. Franchising is like joining a team with a basic aim of together building Company's image and sales. It is a sound investment where one can immediately gain experience of the parent organization in spite of its new entry. Mc Donald's, Benetton, Coca Cola, KFC, Super Drug, Body Shop, etc. are the best examples of such format.

The main objective of franchising is to use a person's resources to distribute and sell the products and services to the end consumer in name of the parent organization, i.e. franchiser. Through the resources and experience of the franchisee, the products and services are sold and distributed in the local market and this is all done under the franchiser's brand name. The franchiser in turn gives its expertise, experience and the brand name in the exchange of certain predetermined consideration.

The other objectives of franchising are to stimulate the franchisee to use the successful systems, operations and methods of franchiser in delivering the set of offerings to the consumers. The franchisee being a small business set-up cannot invest into much of research and developments. Thus to sustain in the competitive market the franchisee's can make a use of its parent organization's systems and methods. Another objective is to benefit the franchisee with the franchiser's advertising and the competitive experience. As an outlet with a nationally advertised brand name, the franchisee will already be assured of the customers. Franchising is also aimed at providing the franchisee with the financial and technical support in the time of crisis at a very little or no cost from the franchiser. In the long run of business there are times when there are fatal crisis at the end of franchisee but then being a dependent business, it can take help from franchiser and avoid failure. Another objective is that the franchisee can take training and development assistance from the franchiser. In this competitive era, to sustain in the market one needs to develop its man power by creating a learning organization, and for this franchisee can take assistance from the franchiser. Highly motivated work force leads to better and efficient results. Franchising is also aimed toward the franchisee using the invaluable brand name of the franchiser that induces better and a quicker distribution of products and services. Nationally recognized brands help in the securing the loyalty of the customers and thus better sales and company image. Another objective of franchising is expanding the distribution system, the production system and creating more outlets for its products and services. Without incurring the high costs related to constructing and operating owned outlets, the franchiser can increase its distribution, production and sales through franchising. And above all, creation of more growth opportunities for the franchiser and the franchisee both is the basic aim of franchising.

To substantiate the success of franchising format, several examples are illustrated below.

Mc Donald's is the most well known brand in the arena of burgers. Anyone who wants to go for a burger would stop by Mc Donald's to have the same. Mc Donald's is functioning in almost 122 countries all over the world. More than 70% of the Restaurants are owned and operated by independent and local business people. In the year 2004 it was accounted that from 30,000 restaurants 18000 restaurants are franchisees.

Ikea is household furnishing chain, which is based on franchising business format. Anybody who has to buy a furniture or crockery would like to go to Ikea and shop the same. It has stores over 31 countries.

Subway is the largest international sandwich franchisee. It has stores over 22500 locations in around 79 countries.The franchisees here are so satisfied that most of them are multi unit owners of sub way franchisee.

Superdrug is a largest regional drug store chain in mid south. Its franchise format has improved its chances of success in the market. It provides its franchisee with merchandises and other support services like site selection, marketing, operations management, finance etc.

Curves is a women-only fitness center. It is well-known and very fast growing franchisee. Curves is franchising since 1995. It has significant growth to its credit. In the year 2000, the total numbers of its franchisee were 1341 that has grown to 8009 in the year 2004.

Organizations cannot cope with the increasing complexities in the business environment from their internal resources and competencies only. They need to jointly develop with other organizations for resource sharing, finance and market accessibilities, development of new strategies, sharing of skills and expertise etc. Franchising is also a type of strategic alliance aimed at joint development. But it is different from other types of alliances. For example: -

Joint ventures are the formal arrangements of the organizations that remain independent and tend to create a new organization that they jointly own and share its assets. Whereas in franchising the franchiser grants the rights to franchisee to use its name, systems etc. and the ownership and the assets are owned and managed by them independent of each other.

Consortia is another type of alliance where two or more organizations get together in a joint venture but that is focused on some particular venture like a construction project or any other civil engineering project while franchising is not limited to any particular project, it is a continuous kind of a business format.

Networks are yet another type of alliance where two or more organizations join hands without any formal bindings on them. They come together for the purpose of mutual benefits and understanding, while franchising is very distinctive from this type as there is a formal and legal arrangement between the organizations and they come together mainly for business i.e. more sales, increased profitability and company image.

Licensing is another type aimed at joint development, herein license is issued by one organization to the other one to carry out some activity that is generally not allowed to common masses. It is common in science-based industries where right to manufacture any patent product is given in exchange of license fee. While in franchising there is nothing like a license but then the franchisee has to give royalty or any other consideration to use franchisers name and systems.

Sub-contracting is another form of alliance, which is done by a company sub contracting a particular type of process to the other company for example marketing of any particular product. While in franchising all the processes are owned and managed by the franchisee. It is a complete business activity rather than a part of it.

Like every coin has two sides, same way franchising has merits as well as demerits. Thus one has to weigh both merits and demerits of the franchising. Franchising offers many merits to the franchiser as well as franchisee. They are:

The basic advantage of franchising is the franchisee gets the big name of the franchiser. The nationally advertised brand name induces franchisee to get the assured customers like Mc Donald's, Super Drug, Body Shop, Sub way etc. The brand image helps the franchisee in retaining the loyalty of its customers.

Low start up costs as compared to other business formats. The business could be initiated with limited capital and further funds could be obtained for further improvements from the franchiser.

Saves time, energy and money in publicity and advertising. The franchisee need not invest most into advertising the product nationally as the franchiser is already doing that. Sometimes the franchisee even receives the advertising material for local promotion of the brand.

Working in established markets which the franchiser has already created through its brand image, and through the use of proven systems franchisee can achieve a great deal of success.

The training program to the work force of the franchisee by the franchiser stimulates them to yield better and efficient results. For example Mc Donald's trains its franchisees at Hamburger University in Oak Brook, Illinois.

The franchiser provides the franchisee with the knowledge of accounting systems, inventory control systems, and other support systems, which in turn improves the working of the franchisee and thus better results.

Franchising tends to define the territorial aspects as well. Thus the franchiser gets the proper and adequate distribution of its products in the defined territories of the franchise.

For the franchiser more capital is available to expand the business, more outlets could be now maintained with proper following of set norms and policies.

As there are so many advantages of franchising, the franchisee and the franchiser retain their trust and reliability in each other and thus can produce better results together. Yet there are some demerits of this business format as well. They are:

The start up and initial fees charged by the franchisers is much more which leaves the franchisee with less of working capital in the initial phase and this is not all, the continuous fees in terms of royalty creates a burden on the franchisee which in turn hampers his working.

The entrepreneurial creativity and activity of the franchisee is restricted. As the franchiser predetermines all the policies and procedures, the franchisee is earmarked to just follow the set of policy matters provided by the franchiser. Thus the creativity and risk taking entrepreneurial activities are restricted.

The plans of the franchisee and that of the franchiser must coincide. Although the franchiser may dictate the aspects of business and thus restrict the independence of the franchisee, still the planning of both the parties should fall into one line.

The franchising could fail, if the franchiser makes some unjust decision. The franchisee has no actual control over the business; it carries out business activities as per the decisions of the franchiser. Thus if the franchiser attempts to make a bad decision, it will ruin the franchising as a whole.

Henceforth from the above essay we can conclude that the success of franchising merely depends upon the synergy between the franchiser and the franchisee. The franchisee can be a one-person organization that implies to a sole proprietorship or 2-3 partnerships or any other small business format. Yet the primary objectives of franchising lies in using the skills, strategy and resources of this one-person organization and deliver its set of offerings i.e. the products and services to the target market under the name of franchiser. The franchiser in return expects consideration that could be in the form of royalty, some percentage of sales turnovers, advertising fees etc. In franchising the stake involved of the franchisee and the franchiser are very high. So this is assumed that the franchisee will slog hard to make it a success which in turn assures success to the parent organization i.e. franchiser as well. The franchiser also tends to make various attempts in order to make franchising a success, like it provides its franchisee with the technical know-how, various training and development programs, if required financial accessibility, operations and other support systems and above all proper guidance.

Therefore, Franchisee that can be a one-person organization can build up a successful alliance with the franchiser, provided, together they make efforts for fulfilllling the objectives of franchising making it a successful business format.

Bibliography

Dibb, Simkin, Pride, Ferrell, 'Marketing concepts and strategies', 2001 Edition, page 432

Gerry Johnson and Kevan Scholes, 'Exploring Corporate Strategy', 2002 Edition, page 380

Dibb, Simkin, Pride, Ferrell, 'Marketing concepts and strategies', 2001 Edition, page 432

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