Lecture Eight - L AW 525 L aw of t he M ar ket place Class...

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LAW 525 – Law of the Marketplace Class Eight Monday, October 21, 2008 Dr. Kernaghan Webb Department of Law and Business Ted Rogers School of Management Ryerson University
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Last class Discriminatory Business Practices Sample Multiple Choice Question Sample True/False Question Next Class Preparations
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This class – Franchises What are franchises? What level of government regulates franchises? How are franchises regulated? What risk management strategies can businesses use to address franchising issues?
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Franchises and the Law Ontario Arthur Wishart Act (Franchise Disclosure), 2000 Government Information sheet Franchising Law in Canada excerpt Points case 2 for 1 Subs case Applicable federal law
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The franchising phenomenon Has become an increasingly popular retail business form 48% of all Canadian retail and service dollars spent by consumers More 1100 franchise systems in Canada (“Franchising in Canada” -- FIC) Offers franchisee a “turnkey” approach to running a business (benefit from pre- determined approach and brand name) One statistic: franchisee has 80% chance of success, while non-franchisee has 80% chance of failure within five years (FIC)
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What is franchising? Non-technical definition: a marketing technique whereby franchisor supplies product or service to franchisee who in turn makes it available to the public “product distribution/producer and trade name” franchising, which is basically hands off (75% of total) “business format franchising” – total turnkey package for franchisee – more recent innovation Single unit vs. master franchisee
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Franchising -- benefits From franchisor’s point of view: Rapid growth with relatively low capital Operational duties carried out by franchisees with relatively little head office employee supervision Franchisee’s more motivated than conventional managerial situation because they are owners Enhanced ability to compete against larger companies Potentially more long term stability than with managers
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Franchising - risks From franchisor’s point of view: Franchisee an independent businessman, can’t be fired as easily as manager May be short and long term conflicts on profit objectives Franchisee may try to implement his/her own ideas that vary from formula Developing overall package is significant investment Profits to franchisor may be lower than if franchisor owned stores
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Franchising -- benefits From franchisee’s point of view: Potentially walking into arrangement which has already proven to be successful Franchisee benefits from guidance of franchisor
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