Unformatted text preview: 8/14/2018 Reading: Franchising | International Business International Business
Module 13: How do you get from “Here” to “There” … Strategies for Entering
Foreign Markets Reading: Franchising 1/7 8/14/2018 Reading: Franchising | International Business Franchising is the practice of licensing another
rm’s business model as an operator.
KEY POINTS Essentially, and in terms of distribution, the franchiser is
a supplier who allows an operator, or a franchisee, to
use the supplier’s trademark and distribute the
supplier’s goods. In return, the operator pays the
supplier a fee.
Thirty three countries, including the United States,
China, and Australia, have laws that explicitly
regulate franchising, with the majority of all other
countries having laws which have a direct or indirect
impact on franchising.
Franchise agreements carry no guarantees or
warranties, and the franchisee has little or no recourse
to legal intervention in the event of a dispute. Terms Franchisee: A holder of a franchise; a person who is granted a
franchise.
Franchising: The establishment, granting, or use of a franchise.
Franchise: The authorization granted by a company to sell or
distribute its goods or services in a certain area.
Franchiser: A franchisor, a company which or person who grants
franchises.
Franchising is the practice of using another rm’s successful business
model. For the franchiser, the franchise is an alternative to building
“chain stores” to distribute goods that avoids the investments and 2/7 8/14/2018 Reading: Franchising | International Business liability of a chain. The franchiser’s success depends on the success of
the franchisees. The franchisee is said to have a greater incentive than a
direct employee because he or she has a direct stake in the business.
Essentially, and in terms of distribution, the franchiser is a supplier who
allows an operator, or a franchisee, to use the supplier’s trademark and
distribute the supplier’s goods. In return, the operator pays the supplier a
fee. Subway Franchise – Russia
There are over 22,000 Subway restaurant franchises
worldwide.
In short, in terms of distribution, the franchiser is a supplier who allows
an operator, or a franchisee, to use the supplier’s trademark and
distribute the supplier’s goods. In return, the operator pays the supplier a
fee.
Each party to a franchise has several interests to protect. The franchiser
is involved in securing protection for the trademark, controlling the
business concept, and securing know how. The franchisee is obligated
to carry out the services for which the trademark has been made
prominent or famous. There is a great deal of standardization required.
The place of service has to bear the franchiser’s signs, logos, and
trademark in a prominent place. The uniforms worn by the sta of the
franchisee have to be of a particular design and color. The service has to
be in accordance with the pattern followed by the franchiser in the
successful franchiseoperations. Thus, franchisees are not in full control
of the business, as they would be in retailing.
A service can be successful if equipment and supplies are purchased at
a fair pricefrom the franchiser or sources recommended by the
franchiser. A co ee brew, for example, can be readily identi ed by the
trademark if its raw materials come from a particular supplier. If the
franchiser requires purchase from his stores, it may come under antitrust legislation or equivalent laws of other countries. So too the 3/7 8/14/2018 Reading: Franchising | International Business purchase of uniforms of personnel, signs, etc., as well as the franchise
sites, if they are owned or controlled by the franchiser.
Franchise agreements carry no guarantees or warranties, and the
franchisee has little or no recourse to legal intervention in the event of a
dispute. Franchise contracts tend to be unilateral contracts in favor of
the franchiser, who is generally protected from lawsuits from their
franchisees because of the non-negotiable contracts that require
franchisees to acknowledge, in e ect, that they are buying the franchise
knowing that there is risk, and that they have not been promised
success or pro ts by the franchiser. Contracts are renewable at the sole
option of the franchiser. Most franchisers require franchisees to sign
agreements that mandate where and under what law any dispute would
be litigated. GLOSSARY Interest The price paid for obtaining, or price received for providing,
money or goods in a credit transaction, calculated as a fraction
of the amount or value of what was borrowed. The price paid
for obtaining, or price received for providing, money or goods
in a credit transaction, calculated as a fraction of the amount of
value of what was borrowed. The price paid for obtaining or
price received for providing money or goods in a credit
transaction, calculated as a fraction of the amount or value of
what was borrowed. A great attention and concern from
someone or something; intellectual curiosity.
Licensing A business arrangement in which one company gives another
company permission to manufacture its product for a speci ed
payment.
Trademark A word, symbol, or phrase used to identify a particular
company’s product and di erentiate it from other companies’
products. A trademark, trade mark, or trade-mark is a 4/7 8/14/2018 Reading: Franchising | International Business distinctive sign or indicator used by an individual, business
organization, or other legal entity to identify for consumers that
the products or services on or with which the trademark
appears originate from a unique source, designated for a
speci c market. It also distinguishes its products or services
from those of other entities. A word, symbol, or phrase used to
identify a particular company’s product and to di erentiate it
from other companies’ products.
Business model The particular way in which a business organization ensures
that it generates income, one that includes the choice of
o erings, strategies, infrastructure, organizational structures,
trading practices, and operational processes and policies.
Controlling The management function of checking progress against
plans to exercise in uence over, to suggest or dictate the
behavior of, oversee.
Design To plan and carry out (a picture, work of art, construction etc. ).
Distribution The process by which goods get to nal consumers over a
geographical market, including storing, selling, shipping, and
advertising. The set of relative likelihoods that a variable will
have a value in a given interval. A probability distribution; the
set of relative likelihoods that a variable will have a value in a
given interval.
Franchise agreement A legal, binding contract that authorizes a company to sell or
distribute another’s goods and services in a certain area.
Good An object produced for market.
Incentive Something that motivates, rouses, or encourages. It is used to
motivate employees for better performance by providing
nancial rewards. An anticipated reward or aversive event
available in the environment. Something that motivates an
individual to perform an action. 5/7 8/14/2018 Reading: Franchising | International Business Investment A placement of capital in expectation of deriving income or
pro t from its use. The expenditure of capital in expectation of
deriving income or pro t from its use.
Liabilities Probable future sacri ces of economic bene ts arising from
present obligations to transfer assets or providing services as
a result of past transactions or events. An amount of money in
a company that is owed to someone and has to be paid in the
future, such as tax, debt, interest, and mortgage payments. an
obligation of an entity arising from past transactions or events,
including any type of borrowing.
Operation The method or practice by which actions are done. A
procedure for generating a value from one or more other
values.
Price The price is the amount a customer pays for the product. The
quantity of payment or compensation given by one party to
another in return for goods or services. The cost required to
gain possession of something.
Pro ts Collective form of pro t.
Raw materials A raw material or feedstock is the basic material from which a
good product is manufactured or made, frequently used with
an extended meaning. For example, the term is used to denote
material that came from nature and is in an unprocessed or
minimally processed state; e.g., raw latex, iron ore, logs, crude
oil or seawater. A raw material is the basic material from which
a product is manufactured or made. Materials and components
scheduled for use in making a product. A raw material is the
basic material from which a good product is manufactured or
made, frequently used with an extended meaning.
Risk The potential (conventionally negative) impact of an event,
determined by combining the likelihood of the event occurring 6/7 8/14/2018 Reading: Franchising | International Business with the impact, should it occur. The potential that a chosen
action or activity (including the choice of inaction) will lead to a
loss (an undesirable outcome). To incur risk [of something].
Services That which is produced, then traded, bought or sold, then
nally consumed and consists of an action or work.
Standardization The process of setting certain norms or standards for a
product with regard to shape, size, color, quantity, quality,
weight etc
Supplier One who supplies; a provider.
Supply provisions The amount of some product that producers are willing and
able to sell at a given price, all other factors being held
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