Franchising: Advantages, Disadvantages, and Challenges

FRANCHISING

FRANCHISING 1
Table of Contents
Introduction...........................................................................................................................................2
Advantages of a franchise......................................................................................................................2
Disadvantages of a Franchisee...............................................................................................................3
Being a franchise instead of an independent owner...............................................................................4
Buying a Franchisee..............................................................................................................................6
Impact of future developments on the Franchisee.................................................................................7
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10

FRANCHISING 2
Introduction
Franchising can be defined as a form of business where a franchisor (an individual or
a company who own a franchise system) allows a franchisee by granting a license, the right
to use the brand name and operating system of franchisers for the payment of an initial
franchise fee. In return, the franchisor receives a share of the income of franchisee which is
also known as royalty. The license to use the brand name is contractual and for a fixed
period. Franchisee provides a well-established brand name and resources to use without
making any efforts related to the marketing of the product. It is different from an independent
business in term of both, negative and positive manner (Adezia, Azizi & Marissa, 2017). This
report describes the main problems, which can be associated while shifting from an
independent business to the franchise. It would also explain the legal and financial challenges
and obligations along with the impact of future developments on a franchise. All information
has been collected from the authenticated sources and website of a well-known franchisor
Dominos, for which a franchise has been proposed to purchase. In the end, a conclusion has
been drawn to provide an overview to the report and to summarize the main findings of the
entire study.
As food industry is one of the fastest growing industry in all over the world, any
investment made in this industry can never fail if it is done after analyzing the customers and
the market conditions. This report shows the difference between an independent business and
running a franchisee outlet along with the advantages and disadvantages for the person who is
going to invest in it.
Advantages of a franchise
A franchise is surely an appealing option in form of a business structure. It is a better
choice for those looking for a good business without taking risks on their own.
An established business: A franchise provides the benefits of operating under the name of a
well-established business. The brand, ideas and operating functions and techniques are
already tested and tried and are in a state to be implemented repeatedly at new locations.
A known brand: Operating under the control of a franchise allows a franchise to take benefit
of the already established brand of the company. This indicates that there would be far less
cost and work involved in trying to build and establish on the brand of the business. It will

FRANCHISING 3
already be trusted and known by the customers and therefore it is required to be produced a
steady stream for the customers loyal to the brand. It also involves advantage of the registered
trademark, which ultimately affects the cost invested by the owner (Alpeza, Erceg &
Oberman, 2015).
Simpler Business Financing: One more advantage of a franchise is the fact that acquiring
the fiancé for business becomes generally easier. Investors prefer to invest in a business with
secure brand name, established network and efficient support structure. In some occurrences,
finance can be acquired for the franchisor to make the more simple life of the new business
(Baresa, Ivanovic & Bogdan, 2017).
Business Relationships: The franchise can also enjoy the advantages and benefits of the
various business relationships established by the franchisor. The person who is taking
franchise would not need to incur any extra cost of advertisers and marketing teams.
Managing suppliers would also become easy because of already established terms and
conditions (Buljubasic & Boric, 2014).
Support and Security: Resource Acquisition theory of franchising states that, Franchises
offers the benefits of a security and support system. Franchisors tend to offer support services
like training schemes, management of accounts, advertising and campaign, sales, marketing
and more. The cost of this service is often included in the franchise fee (Varotto & Neto ,
2013).
High Profit: If the franchise is taken from a successful and well-known brand, then it tends
to attract a large number of customers in comparison to a local shop. Especially in the food
industry, customers prefer to choose the best and hygienic food for themselves. Dominos is
providing its services in form of hygienic food products from a very long time and thus, there
are more chances to attract the customers (Dada & Watson, 2013).
Disadvantages of a Franchisee
Similar to any other business model, the franchise business model also has some
major disadvantages which are required to be considered before making an investment in a
franchise. These disadvantages can be understood as follows:
No Control: As per the agency theory of franchising, the very first and most important
disadvantage of a franchise is that the franchise has less or no control over the business