Franchising: Advantages and Examples of Successful Franchisees

This essay discusses the advantages of franchising a business and provides examples of successful franchisees in various sectors. It also highlights the criteria and challenges of franchising.

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Introduction
Franchising is identified as an established business expansion strategy which has proven
to deliver significant growth along with an arguably reduced risk. Some striking examples of
franchising are McDonalds, KFC, Singer and Coca-Cola (Hoffman, Munemo and Watson
2014,pp. 5-8). Sunde and Siebert (2014) have noted that generally of franchising organisation
licenses its trademarks copyright skills expertise along with established business model to
franchisees. These franchisees tend to adopt that business model which includes the brand and
then change to penetrate into new markets. Franchising is regarded as a long-term collaboration
and companies who intend to have a robust position in the industry must identify the true
attributes of the collaboration along with the accountabilities of each partner in the business.
Franchising further facilitates businesses to extend their operations without disseminating
managerial resources across several business units. According to Burns (2016, pp.270-273), a
business owner may have the intention to retain his or her own operations within the small all
industry and indulge into limited business operations. Authors have noted that executive business
operations over few Limited outlets show a propensity to consume business resources. The
following essay when analyze the effectiveness of franchising a business by shedding light on its
advantages and examples of franchisees which have been successful in their individual sectors.
Discussion
Franchising has contributed substantial attraction for expanding business into overseas
markets specifically those which draw divergences as most International markets are two
different choices home market (Ganebnykh et al. 2017,pp. 08082). By using indigenous
franchisees franchisor is tapping into to local business knowledge which tends to prove the

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business capacity to obtain local population. However, Ozkan-Canbolat, Bas and Cafri (2014)
have noted that the cost of expansion for the franchisor is usually restricted to the cost of
franchise recruitment knowledge development training and assistance before the expansion.
Furthermore, Sokolinskaya and Kupriyanova (201) have claimed that franchisees in order to
invest their individual equity as well as borrowed financial resources in equipments, fixtures,
fittings, property, inventory as well as the working capital essential to establish franchise unit.
While understanding the meaning of franchise network, it is important to shed light on
one of the renowned fast-food restaurants across the world that is McDonald's. Reports of
Krueger and Ashenfelter (2018) have noted that Mc Donald’s executes its business operations on
the market as one of the franchise icons. Thus, the fast food enterprise has been recognised as a
leader amongst its rivals in the market, even though with well-established and renowned
franchise brands. However by purchasing the franchise license an entrepreneur decides to
conduct business at individual’s risk, but under the trademark of the franchisor. According to
Silva et al. (2016), deciding to operate under a renowned brand, any entrepreneur aims on
strategically ascertaining additional customers and drastically reducing the risk of bankruptcy. It
is imperative to note that the key accountability of the franchisor must rely on licensing the brand
and further assure the shift of knowledge on executing the business on a permanent basis
throughout the period of the agreement. Drawing relevance to this, the major liability of the
franchisee is to follow regular network-wide regulations for executing business operations and
paying franchise fees (Hardaker 2018,pp.225).
There are mounting evidences of principles which are essential to take into account while
explaining franchise. At this juncture, both parties are required to obtain knowledge of these
standards and follow them systematically (Krueger and Ashenfelter 2018,pp. 7-10). However, it

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is important to shed light on some of the benefits and advantages of franchising a business.
Structure of franchise can certainly be striking option for local and global business organisations.
On the other hand, the number of advantages it is often a striking option looking to start for
business expansion regardless of the risks of financial loss. Franchise offers a legal as well as
institutional structure thus allowing detailed regulation over the marketing and operational
programs of the business unit. According to Dada, Jack and George (2016), if an entrepreneur is
of the supposition that it is challenging for each unit to achieve desired goals and follow
suggested marketing as well as operational strategies, at this juncture, franchising serves as one
of the robust methods of accomplishing the particular objective.
In the process of franchising, the franchise model typically incorporates costly franchisee
input along with innovative participation by franchisees. According to authors, as all of the
participants are recognized as vital part of a single “system” with a general identity, franchisees
show higher propensity to contribute to the efforts of expanding the business with proper
operation of the entire enterprise. Comprehensive studies of Brookes, Altinay and Aktas (2015)
have claimed that through effective franchising, companies are able to produce new ideas along
with alerting the franchisor regarding cases of operational non-compliance issues created by
other franchisees in the systems. Nonetheless, aligned to this area of advantage is a notion which
tends to develop amongst franchisees, while taking into consideration needs and demands of
consumers belonging to comparable sections. Thus, as per the view of author, franchise if being
efficiently directed and managed can develop a sense of collaboration and positive partnership
which can benefit the entire system in the future. Sokolinskaya and Kupriyanova (2015) have
cited the example of famous retailer of the UK, Tesco which has proficiently taken franchise
route in global market. Reports of authors have mentioned that Tesco has extended its chain of

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franchise convenience stores after a successful trail in South Korea. Tesco is recognized as one
of the successful retailers which have been maintaining a robust position in franchising. The
supermarket has opened around 25 franchise convenience stores in the group's major market
exterior to the United Kingdom and the trial has observed the retailer as well as franchisees share
the cost of opening the stores in addition to subsequent returns. Such an expansion has been
considered as a major move in strategy for the Tesco group (Kulke and Suwala 2016). However,
the company initially faced challenges while expanding its outlets in South Korea due to the
resistance from customers belonging to communities who developed a feeling of apprehension as
they believed that the arrival of international brands like Tesco will limit the business of small
retailers in South Korea. As per reports of Hardaker (2018), in South Korea franchisees have put
up 20 pc of the resources necessary to construct the new convenience stores, with Tesco
providing the remainder. However, authors have noted that the Tesco’s international head did not
reveal information regarding the way the company will divide the incomes and revenues with its
franchisees. However, it has been understood that Tesco has proficiently assured franchisees a
minimum income.
On the other hand, due to the investment in the expansion of outlets is in general made by
franchisees; a franchisor shows the competence to operate with not many fixed assets other than
the outlets which is personally owned (Henrekson and Sanandaji 2015,pp.58). Thus, while its
revenue from franchised outlets which mainly includes fees and product sales to franchisees is
considerably lower than it would be from owned outlets, an elevated proportion of the revenue is
profit and that profit is generated with a lesser capital venture, resulting in a potentially elevated
rate of return on invested resources. Moreover, with the major advantages related to franchisee
capital investment, authors have noted that franchising provides benefits in the form of personal

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satisfaction (Kulke and Suwala 2016,pp.187-200). Such level of contentment relies on the fact
that some network founders will receive from teaching and supporting others to profitably
establish as well as control a business that the network founder visualized and developed.
However, Silva et al. (2016) have claimed that not all entrepreneurs will take into account such
benefits as highly crucial. According to Dada, Jack and George (2016), founders of majority of
franchise businesses which have been productively developed into regional as well as national
networks would agree that there is immense contentment to be engaged to individuals who are
aiming to establish building businesses as well as aiding the franchisor to develop as a successful
business.
On the contrary, franchise regulations in a number of states make conform to the
circumstances whereby a franchisor tends to cease or refuse to renew a franchise agreement.
Authors have noted that although generally not averting franchisors from achieving cessation or
non-renewal, these regulations chiefly comprises a range of technical requirements which are
highly essential to be complied with. According to Gheribi (2017), these requirements mainly
incorporate provisions for objective standards intended for system compliance as well as
monetary performance in support of termination or recuperation of restricted territories
predominantly important. On the other hand, commercials, fliers, flip charts, video tapes which
are offering the franchise but not retail endorsements are often not cleared on prior basis with
state agencies and fail to contain revenue claims (Gerhardt, Hazen and Lewis 2014,pp-271). As a
result, information on the subject of potential financial results on behalf of operating units is only
offered in a prescribed document attached to the UFOC, leading to restricted financial
transactions.

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Furthermore, well-established business enterprises like Aldi have been engaged to
franchising its business in order to offer substantial avenues to small entrepreneurs across the
world. Reports of Sokolinskaya and Kupriyanova (2015) have revealed that Aldi has been
proficiently acquiring a considerable share of Australia’s grocery shoppers. Through such a
business expansion, Aldi’s suppliers have been informed of the determined expansion plan of the
business enterprise. Authors have mentioned that several newly established stores have been
involved in the eastern states with the franchising plan of Aldi in 2016, which involves the
opening of around 40 stores in South as well as Western Australia. Such a strategy is not only
regarded as an unprecedented growth, but also chiefly offered significant accessibility to virgin
catchments and for that reason offered a major opportunity. Thus, with Aldi’s franchising
strategy, small retailers of South and Western Australia have been receiving significant
opportunities (Ozkan-Canbolat, Bas and Cafri 2014,pp.77-87). Additionally, great number of
suppliers along with an increasing number of customers has been able to acquire access to the
great value range of products offered by Aldi.
On the other hand, franchisors in recent times have been mainly indulged in providing
franchises to practised and experienced employees and in that way lessen the "dead end job"
condition by inspiring workers to accomplish their utmost potential management level.
According to Sunde and Siebert (2014), the significant prospects to achieve a franchise possibly
avert the failure of experienced managers to opponents. Experienced workforce recurrently
develops prolific franchise owners. Ganebnykh et al. (2017) have mentioned that franchisors like
Aldi, Tesco offer extraordinary incentives to their workers, for instance credits toward the
acquisition of a franchise earned during service, less initial franchise cost in addition to financing
of an worker’s savings in order to develop his or her franchised trade.

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The fundamental concept of a franchise relies on the fact that business opportunity
sponsor supporting an investor in order to establish a workable trade. For that reason, financing
is seen as a highly integral aspect of the expansion of a new business. According to the British
Franchise Association, including the cost of franchise fees, functioning funds, stock and
equipment in addition to the average cost of setting up a franchise business is around
£42,200 with around 6 months to establish the same (Kulke and Suwala 2016,188-200).
However, in certain cases, any business executive can have the propensity to see franchise fees
less than $20,000. These franchises with lesser franchise costs are usually related to domestic or
family or mobile franchises. At this juncture, Mo (2015) has noted that commercial banks have
conventionally based their credit decisions on the accessibility of solid asset deposit. While on
the other hand, nonbank lenders with insurance corporations as well as leasing agencies have the
tendency to base their credit assessments on anticipated cash flow.
Conclusion
Hence to conclude, regardless of the benefits and scopes of expanding a business through
franchising, it has certain disadvantages which cannot be disregarded. It has been noted that
flourishing businesses with appropriate theories and strategies have often failed to successfully
franchise. As a result, business enterprises must accomplish certain criteria before embarking on
the franchise route. Furthermore, although they have accomplished the desired criteria, potential
franchisors must exhibit utmost readiness to invest financial resources and time in the successful
development of the franchise system.

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