Report: Franchising System Choice and Competitive Advantage Analysis

This report provides a critical analysis of franchising systems, focusing on the choice between area development franchising (ADF) and incremental franchising (IF) within the context of multi-unit franchising (MUF). The study examines the advantages of each system, considering factors like cost reduction, economies of scale, and learning economies. The report also explores the role of cost leadership and differentiation strategies in achieving a competitive advantage within a franchising model. Through a review of existing literature and practical application, the report argues that ADF is generally more effective than IF for multi-unit businesses due to its potential for lower costs and enhanced brand awareness. The conclusion emphasizes the benefits of ADF in fostering business growth and achieving a stronger competitive position in the market, including a discussion of how cost leadership can contribute to a competitive edge. The report incorporates academic sources and a given article to support its arguments and offers insights into strategic decision-making for franchisors.

Journal Article critique

Executive Summary
The study initiates to conducting a critical analysis over the area of determining the use
of different franchising systems involving area development franchising or incremental
franchising within multi-unit franchising. The study initiates the effective role of franchising in
economies of scale, reducing the transaction cost reduction of monitoring cost and economies of
learning and the connected bargaining power. The analysis also determined that, asymmetrical
cost has direct impact over franchisor and franchisees. Therefore, in the case of franchisor related
to multi unit franchising it is effective in managing the cost from the scale economies, assisting
high cost from effective bargaining power and equal cost through standardisation and learning
economies. In the aspect to multi unite franchising comparison among area development
franchising and incremental franchising has analysed that, ADF is termed to be the most
effective than incremental franchising as it yields lower cost through the scale economies and
learning economies for the whole system. In addition to this, suitable discussion about the cost
leadership and differentiation method are also developed to make suitable selection for the
franchising system to attain growth and success. The section of conclusion has stated the
recognition of area development franchising and how it generates benefits for the business to
attain higher competitive edge.

Table of Contents
Executive Summary ........................................................................................................................2
Introduction .....................................................................................................................................1
Main Body ......................................................................................................................................1
Conclusion ......................................................................................................................................3
References........................................................................................................................................4

Introduction
In today's modern and competitive business era, the primary intention of each small as
well as large business enterprises is to attaining higher growth and success via implementing the
suitable business strategy. Therefore, franchising has become a most preferred business aspect to
accelerate the development services and the trade of the business. However, franchising mainly
permits the franchisors to manage the resources for the intention to develop a wide chain which
operates at continuous basis and also reduce the agency issues which are incorporate with
operating a wide network of decentralized production Sztorc, (2017). The strategy of franchising
is imperative for the businesses as it attracting the individual or the businesses to take a quick
start and attain growth and success. The present study contains a detailed analysis over the aspect
of using suitable franchising system from incremental franchising system or area development
franchising within the context of multi unit franchising system. Furthermore, the study also
explains the effective use of cost strategy from cost leadership or differentiation within the
implementation of franchising.
Main Body
Multiform of franchising
The primary intention for businesses, now a day's is to attain higher competitive edge for
attaining higher profitability, thus, SEID (2020), has stated that, a multi-unit franchising is
defined as one here the franchisee operates and owns more than one unit, traditionally in the
same general region. Therefore, this is the most effective aspect for the businesses to attain
growth and also provide opportunities to the individual's to start with quick development. The
multi-unit franchising is encompasses over two aspects i.e. area development franchising and the
incremental franchising. The key purpose of implementing franchising is to attain quick growth
and the development of franchising is encompasses over two aspects like resources perspectives
and the agencies theories. Within the former perspective, franchising is a way to gather scarce,
critical and the bundled aspects for the development. Therefore, the sources basically involves
managerial talent, financial capital and the local idea rendered through the franchisees. On the
contrary the agency analysis has been stated that franchising can aid the business to develop
effectively through mitigating the rate at which accessing increasing cost within the operations
of the business. The growth of multi-unit franchising is encompasses over ADF and IF, Thus,
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Daszkowski (2020), has stated that the area development franchising is defined as the franchisee
which is having the right to expand a region through either appointing sub franchisees and
accessed outlets. On the other hand incremental franchising is defined as the sequential awarded
multi unites without a prior commitment for multiple awards. In the context to this specific
analysis, area development strategy has been applied as it is effective for multi unit business and
helps the multi-unit-franchise to attain higher growth and success. Therefore, this approach is
more effective in minimising the cost than the incremental franchising and also provide suitable
support to multi-unit franchising business.
For bridging the gap in the previous explanation through exploring the efficacy of
assorted aspects of franchising for developing the competitive edge. Crocco (2018), has stated
that, area development franchising is a similar form of multi unit franchising and this franchising
is significant involves a wider number of units which are incorporating over a wider territorial
area. This aspect of franchising is more valuable in incremental franchising as it support the
businesses to providing opportunity to enhance the brand awareness within the selected location
and also support in cutting down the extra cost via managing operations effectively. Although,
the expansion of business via ADF(Area development Franchising) is more effective than
IF(Incremental franchising). Thus, the incremental franchising basically arises when a franchisor
allows a single unit franchising to explore of expand their operations. Basically, in this the
official right is granted to the the businesses who are proved themselves within the market. In
this the expansion is mainly provided sequentially, without attaining approval from an exclusive
territory of franchising. On the other hand, the ADF is imperative in granting the right to the
businesses to open outlets or stores within an exclusive territory as per the time scale. The area
development franchising mainly appoints managers to operate single unite and access a mini
chains which often resembles a small local company owned chain.
Effective Cost strategy for attaining competitive advantage
Attainment of competitive advantage is crucial for business organisation as it provide
opportunities to expand their business at global level. Thus, it is significant for business
organisation to analysis the market before expanding. As it become more beneficial for company
in attaining competitive benefit in market place In context to franchising, it is one of the most
preferred organisation that includes resources to develop or create large chain as it also allow
franchisees to start a business for accomplishing their competitive edge. For attaining the same, it
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is crucial for franchisors to focus on gaining attaining competitive advantage as compare to
others so that they can easily attain higher success at market place. As per the Michael Porter
(1980), cost leadership and differentiation are two effective generic approaches that help
company in attaining competitive edge. In relation to this, franchisor implement cost leadership
as it focus on the cost controls as its potential source is economics of scales. Thus, Huebsch, R.,
(2019) cost leadership is consider as an effective cost strategy in which company having the
lower cost of operations. As it is a part of marketing strategy that effective for attaining market
share and at the same time also capture customers attention by providing them quality services at
an affordable cost. As, the main focus of franchisor is to reduce their production cost that may
assist in improving the possibilities of attainment of competitive edge from its competitors at
market place.
Conclusion
As per the analysis of the project it has been concluded that, in the modern era, the
significant obligation of the businesses is to attain higher growth and success and for this they
are basically concern over implementing most suitable strategy. Therefore, the study has stated
that, multi unit franchising is an important tool for the businesses to attain growth and success
and for this ADF is more applicable than IF. Area development strategy is valuable for the
businesses which are deals in multi unit aspects as it provides a wider opportunity to the
bushinesses to enhance their brand recognition and attain more and more benefits through
increasing the performance of the business. Therefore, area development franchising is also
valuable for the business in lowering down the cost and enhance the operations of the business
effectively under a specific territory, as in this businesses are growing within a single name and
also provides opportunity to the individual and the businesses to attain quick growth and
development within market. In addition of this, cost leadership is also consider as an effective
cost strategy that implement by the company with the aim of attainment of competitive
advantage from its competitors by reducing their operational and production cost. This can be
beneficial for franchising to develop their business activities and also increasing the possibilities
of accomplishment of higher competitive advantage. With the use of cost leadership strategy
business can easily grab customers attention by providing them quality products and services at a
lower cost.
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References
Books and Journals
Sztorc, M., 2017. Franchising as a Model of Business and Hotel Development in the Process of
Market Globalization. BUSINESS AND NON-PROFIT ORGANIZATIONS FACING
INCREASED COMPETITION AND GROWING CUSTOMERS’DEMANDS.
Kharub, M., Mor, R.S. and Sharma, R., 2019. The relationship between cost leadership
competitive strategy and firm performance. Journal of Manufacturing Technology
Management.
Krzeminska, A. and Zeyen, A., 2017. A stewardship cost perspective on the governance of
delegation relationships: The case of social franchising. Nonprofit and Voluntary Sector
Quarterly. 46(1). pp.71-91.
Sun, K.A. and Lee, S., 2019. Competitive advantages of franchising firms and the moderating
role of organizational characteristics: Evidence from the restaurant industry.
International Journal of Hospitality Management. 77. pp.281-289.
Online
Huebsch, R., 2019. Cost Leadership & Competitive Advantage. [Online]. Available
through:<https://smallbusiness.chron.com/cost-leadership-competitive-advantage-
35159.html>.
Seid, A., 2020. Understanding and Investing in a Multi-Unit Franchise. [Online]. Available
through:<https://www.thebalancesmb.com/multi-unit-franchise-1350579>.
Daszkowski, D., 2020. What Is a Franchise Area Developer?. [Online]. Available
through:<https://www.thebalancesmb.com/what-is-an-area-developer-1350406>.
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