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FRANCHISING AUTHOR: ALPANA TREHAN CHAPTER-13 © 2011, Dreamtech Press :: Chapter 13 1
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. --- The International Franchise Association DEFINE FRANCHISING © 2011, Dreamtech Press :: Chapter 13 2
A type of franchise in which a franchisor grants a right or authority to the franchisee to distribute the products of the franchisor. Product Distribution Franchises The most popular type of franchise where the franchisor provides a method to the franchisee to operate the business by using the trademark and logo of the franchisor. Business Format Franchises A type of franchise in which the franchisor grants a right to the franchisee to manufacture and sell its products using the trademark of the franchisor. Manufacturing Franchises TYPES OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 3
1 Generating a franchising business plan 2 Seeking professional advice 3 Selecting a location 4 Conducting Intellectual Property(IP) audit 5 Creating franchising documents 6 Initiating the advertising strategy 7 Building up a training team STEPS OF FRANCHISING A BUSINESS © 2011, Dreamtech Press :: Chapter 13 4
High Competition Technology Customers’ Tastes Legal Environment Cultural Factors Relationship between the Franchisor and Franchisee FACTORS INFLUENCING FRANCHISING © 2011, Dreamtech Press :: Chapter 13 5
Advantages: Enables the franchisor to expand his/her business quickly by receiving ongoing royalties Helps the franchisor to develop more efficient and innovative policies Provides initial support, such as training, financing, and operational, and management assistance, to franchisees Disadvantages: Makes it difficult for the franchisor to manage franchisees due to increasing number of franchises Involves the chances of friction between two parties due to payments Make the franchisee reluctant to perform efficiently as he/she is always directed by the franchisor ADVANTAGES AND DISADVANTAGES OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 6
1 Making regular visits at the franchisor’s outlet by franchisee before making the franchise agreement 2 Consulting a franchise attorney for reviewing the terms and conditions of the franchise agreement 3 Comparing the actual status of the franchisor with what mentioned in the agreement 4 Signing the franchise agreement, if everything is smooth at this point 5 Attending training sessions and receiving guidance given by the franchisor 6 Starting the franchise business at the decided location STEPS OF PURCHASING A FRANCHISE © 2011, Dreamtech Press :: Chapter 13 7
Initial Fees Refers to the initial fees paid by a franchisee to the franchisor to purchase a franchise Variable Costs Indicates the cost paid for purchasing land and buildings, construction and renovation, and getting licenses Royalty Fees Refers to ongoing amount of money paid by the franchisee to the franchisor for using the trademark of the franchisor Promotional Expenses Refers to cost involved in advertising and promoting the brand Other Additional Expenses Refers to expenses involved in other franchising activities, such as training, computer assistance, and support services COST STRUCTURE OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 8
The Indian Contract Act, 1872 Governs the contractual relationship between the franchisor and the franchisee Monopolies and Restrictive Trade Practices(MRTP) Act, 1969 Regulates the agreement related to restricted trade practices Consumer Protection (CP) Act, 1986 Provides remedial measures to consumers in case of any defective products Competition Act, 2002 Prevents the adverse impact of competition in India with respect to product, services, storage, and distribution of product Trademark Act, 1999 Refers to the act enacted for the registration of trademark for any franchising business IP Rights Prevents the misuse of franchisor’s IP, such as copyright, trademarks, patents, and trade secrets LEGAL ASPECTS OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 9
Franchising has immense scope in developing countries, such as India, as it fastest and easiest method of expanding a business. It is based on a sound principles of excellent and regular quality associated with a brand name of any product. With advent of technology, Internet, telecommunications, and increased level of knowledge of individuals, franchising is expected to be a dynamic business medium in forthcoming years. Today, customers are more comfortable to purchase products through the Internet. FUTURE PROSPECTS OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 10
Franchising refers to a business expansion method in which an enterprise (franchisor) grants rights to another enterprise (franchisee) to practice its business philosophy in exchange of a certain amount of royalty. The governments of all the countries have enacted specific laws and acts regarding franchising a business. The process of franchising initiates with the formulation of a franchising agreement. RECAP © 2011, Dreamtech Press :: Chapter 13 11
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