Franchising

Franchising For DummiesFranchising is a strategy employed mainly by service companies. The advantages of franchising are similar to those of licensing. The franchiser does not bear the development costs and risks of commencing the operations in a foreign market on its own since the franchisee typically assumes those costs and risks. Thus, a service company can build up a global presence quickly and at a low cost, using a franchising strategy. The disadvantages, however, are less prominent than in the case of licensing. Since franchising is a strategy used by service companies, a franchiser need not coordinate manufacturing activities in order to realise experience- curve effects and location advantages. McDonald Restaurants have entered India through the franchising and so is Kentucky Fried Chicken of US.

A major disadvantage of franchising is the lack of quality control. A basic notion of franchising arrangements is that the company’s brand name conveys a message of quality to the consumers. The geographic distance from the franchisees and the large number of franchisees make it difficult for the franchiser to maintain quality and hence quality problems generally persevere. To overcome this handicap, companies set up a subsidiary, which is wholly owned or a joint venture with a foreign partner in each country and region in which they plan to operate. Closeness and the limited number of independent franchisees to be monitored reduce the problem of quality control. This type of arrangement is well accepted in franchising.