franchising author: alpana trehan chapter-13 © 2011, dreamtech press :: chapter 13 1

11
FRANCHISING AUTHOR: ALPANA TREHAN CHAPTER-13 © 2011, Dreamtech Press :: Chapter 13 1

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Page 1: FRANCHISING AUTHOR: ALPANA TREHAN CHAPTER-13 © 2011, Dreamtech Press :: Chapter 13 1

1

FRANCHISING

AUTHOR: ALPANA TREHAN

CHAPTER-13

© 2011, Dreamtech Press :: Chapter 13

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A contractual relationship between the franchisor and the franchisee in which the franchisor off ers 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 or procedure owned by or controlled by the franchisor, and in which the franchisee has made or will make a substantial capital investment in his business from his own resources. ---The International Franchise Association

DEFINE FRANCHISING

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• A type of franchise in which a franchisor grants a right or authority to the franchisee to distribute the products of the franchisor.

Product Distribution Franchises

• The most popular type of franchise where the franchisor provides a method to the franchisee to operate the business by using the trademark and logo of the franchisor.

Business Format Franchises

• A type of franchise in which the franchisor grants a right to the franchisee to manufacture and sell its products using the trademark of the franchisor.

Manufacturing Franchises

TYPES OF FRANCHISING

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1• Generating a franchising business plan

2• Seeking professional advice

3• Selecting a location

4• Conducting Intellectual Property(IP) audit

5• Creating franchising documents

6• Initiating the advertising strategy

7• Building up a training team

STEPS OF FRANCHISING A BUSINESS

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High CompetitionTechnologyCustomers’ TastesLegal EnvironmentCultural FactorsRelationship between the Franchisor and Franchisee

FACTORS INFLUENCING FRANCHISING

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Advantages: Enables the franchisor to expand his/her business quickly by

receiving ongoing royalties Helps the franchisor to develop more effi cient and innovative

policies Provides initial support, such as training, financing, and

operational, and management assistance, to franchisees

Disadvantages: Makes it diffi cult for the franchisor to manage franchisees

due to increasing number of franchises Involves the chances of friction between two parties due to

payments Make the franchisee reluctant to perform effi ciently as he/she

is always directed by the franchisor

ADVANTAGES AND DISADVANTAGES OF FRANCHISING

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1• Making regular visits at the franchisor’s outlet by franchisee before

making the franchise agreement

2• Consulting a franchise attorney for reviewing the terms and

conditions of the franchise agreement

3• Comparing the actual status of the franchisor with what mentioned

in the agreement

4• Signing the franchise agreement, if everything is smooth at this

point

5• Attending training sessions and receiving guidance given by the

franchisor

6• Starting the franchise business at the decided location

STEPS OF PURCHASING A FRANCHISE

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Initial Fees Refers to the initial fees paid by a franchisee to the franchisor

to purchase a franchise Variable Costs

Indicates the cost paid for purchasing land and buildings, construction and renovation, and getting licenses

Royalty Fees Refers to ongoing amount of money paid by the franchisee to

the franchisor for using the trademark of the franchisorPromotional Expenses

Refers to cost involved in advertising and promoting the brand Other Additional Expenses

Refers to expenses involved in other franchising activities, such as training, computer assistance, and support services

COST STRUCTURE OF FRANCHISING

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The Indian Contract Act, 1872 Governs the contractual relationship between the franchisor and the

franchisee Monopolies and Restrictive Trade Practices(MRTP) Act, 1969

Regulates the agreement related to restricted trade practices Consumer Protection (CP) Act, 1986

Provides remedial measures to consumers in case of any defective products

Competition Act, 2002 Prevents the adverse impact of competition in India with respect to

product, services, storage, and distribution of product Trademark Act, 1999

Refers to the act enacted for the registration of trademark for any franchising business

IP Rights Prevents the misuse of franchisor’s IP, such as copyright, trademarks,

patents, and trade secrets

LEGAL ASPECTS OF FRANCHISING

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Franchising has immense scope in developing countries, such as India, as it fastest and easiest method of expanding a business.

It is based on a sound principles of excellent and regular quality associated with a brand name of any product.

With advent of technology, Internet, telecommunications, and increased level of knowledge of individuals, franchising is expected to be a dynamic business medium in forthcoming years.

Today, customers are more comfortable to purchase products through the Internet.

FUTURE PROSPECTS OF FRANCHISING

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Franchising refers to a business expansion method in which an enterprise (franchisor) grants rights to another enterprise (franchisee) to practice its business philosophy in exchange of a certain amount of royalty.

The governments of all the countries have enacted specific laws and acts regarding franchising a business.

The process of franchising initiates with the formulation of a franchising agreement.

RECAP

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