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Franchise Business Consultancy Rs. 1999/-


Franchising is a form of marketing and distribution in which the owner of a business system (the franchisor) grants to an individual or group of individuals (the franchisee) the right to run a business selling a product or providing a service using the franchisor's business system.

Franchisees are also given permission to use the franchisor's branding, trademarks, and identifying marks under specified guidelines. It is important for anyone deciding to start a business by becoming a franchisee to remember that in franchising the franchisee is bound to a partnership agreement with the franchisor for a defined period of time (some exceptions do exist).

Franchising as we know it today is widely believed to have originated with Isaac Singer in the 1850s. After Singer invented his sewing machine he encountered two main problems when introducing it to the marketplace. The first was that customers needed to be taught how to use the new invention before they would buy it. The second was that Singer did not have enough capital to manufacture his machine in large numbers.

In response, Singer, along with business partners, came up with the idea of selling the rights to sell the sewing machines as well as train those who bought one to local business people across the country (and eventually internationally).

Once he employed this system, Singer’s enterprise expanded rapidly. The royalties earned from the license rights helped offset manufacturing costs and, because each franchise was self-financed, Singer Manufacturing Company was able to tap into the entrepreneurial attributes and local market knowledge of the franchisees to help Singer become more successful than he could have by himself.

The tipping point for franchising came in the 1950s. In 1954, Ray Kroc, a successful business man from Illinois, saw the potential in franchising a successful southern California hamburger stand owned by a couple of brothers. This restaurant chain, McDonald’s, is perhaps the most well-known example of franchising in the world. Kroc has drawn comparisons to auto maker Henry Ford for bringing an assembly line-like concept to the fast food industry through his belief that customers of McDonald’s should have an idea of what to expect wherever in the world they may be.

When asked, the majority of people when asked for a commonly known franchise would name a fast food franchise most often. However, franchising is extremely diverse. Name a product or service from ATMs to yogurt and there’s likely a franchise industry for it.

While franchising is a staple of the American business landscape, the merits of franchising have not been ignored abroad. It is steadily increasing its footprint in numerous other countries. This is especially true in emerging markets such as China, India, Russia, Brazil and the Middle East among others.

Elements of the franchise model has also been woven into the fabric several other industries. For example, Coca-Cola was able to expand throughout the United States by shifting the burden of manufacturing, storing and distributing its product to local business people who acquired bottling rights. Car manufacturers who had been spending enormous amounts of capital tooling their assembly lines found they could develop retail distribution networks using capital provided by independent dealers. Oil companies such as Standard Oil and Texaco also started granting franchises to convenience stores and repair mechanics across the U.S. to efficiently expand their reach.

The Myth of Guaranteed Success

No business method or industry sector can guarantee success, and franchising is no exception. If a franchise system has a proven product or service with a well-recognized brand combined with hard-working, well-financed franchisees, the chances of success are very high — but never a 100 percent given. If, on the other hand, the franchise system is under-funded with an ill-conceived business plan that has not been tested properly, and franchisees have been poorly recruited or trained, failure is likely.

Due diligence is key in making the right decision for you. Seek the advice of seasoned franchise professionals and ask questions until you are confident in your decision. Remember, it is your investment that is at stake. More information about finding the most profitable franchise for you can be found here.

Franchising Defined

Many people feel as though they have an understanding of the concept of franchising. However, do you really know what franchising is? Can you define it? (And no, saying fast food chains doesn’t count.)

As it relates to business, Merriam-Webster defines a franchise as: “the right or license granted to an individual or group to market a company's goods or services in a particular territory.” While a good definition, it doesn’t exactly touch on many of the nuances involved in franchising.

The definition for franchising given by the International Franchise Association (IFA) gives more detail, stating that a franchise is:

“A contractual relationship between the franchisor and the franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format or procedure owned by or controlled by the franchisor, and in which the franchisee has made or will make a substantial capital investment in his business from his own resources.”

Individual franchises are part of a brand’s ecosystem, a network that is a pooling of resources and capabilities.

In a franchise business setup, the franchisees of a brand gain access to the franchisor’s know-how and experience of its business system in exchange for their money and personal labor. This way, franchisees who want to own a business can shorten the learning curve that comes with starting a business. It’s also a way for franchisees to avoid spending a significant portion of the time and money that typically comes along with developing a business idea.

On the other end of the deal, by licensing out its business methods and pledging support to franchisees, the franchisor allows itself the opportunity to expand into areas it may have had difficulty expanding to without the extra money and manpower.

There are three main types of franchises.

• Most franchises fall under the business format type where the franchisor licenses a business format, operating system, and trademark rights to its franchisees.

• The second type of franchise is product distribution, which is more of a supplier-dealer setup. The franchisor grants the franchisee permission to sell or distribute a product using their logo, trademarks and trade name, but typically does not provide an operating system to run the business with.

• The third is manufacturing, where the franchisor permits the franchisee to manufacture their products (e.g. clothing) and sell them under its trademarks.

When the purchase of a franchise is made, the franchisee is required to comply with strict guidelines and rules regarding the operation of the business. These guidelines are in place to maintain brand consistency.

In addition, fees are collected regularly for as long as the franchisee owns the franchise. In exchange for these payments, the franchisee will receive continued support such as marketing assistance and ongoing training opportunities.

In addition, fees are collected regularly for as long as the franchisee owns the franchise. In exchange for these payments, the franchisee will receive continued support such as marketing assistance and ongoing training opportunities.

Not only is it used in many different industries and sectors, but elements of franchising are becoming a feature in many areas of business. For example, car manufacturers who had been spending enormous amounts of money building up centralized assembly lines found they could more efficiently build and sell their cars by developing networks for manufacturing and retail distribution in different areas using capital provided by independent dealers.