FRANCHISING

Franchising dates back to 1850s, when Isaac Singer made improvements in the existing model of the sewing machine and wanted to increase the distribution network of the sewing machine.His efforts though unsuccessful in the long run, was among the first franchising efforts in US and later it became successful .Franchising is the license granted by the company to an individual or a firm to operate a retail outlet, food or drug outlet where the franchisee agrees to use the franchisor's name, products, services, selling, distribution, promotion and display methods and all other company support.Mc Donalds, Midas and Holiday Inn are all examples of franchise operations.Franchising is the arrangement between franchisor and franchisee where the franchisee uses the company name of the franchisor and provide specified business services in exchange for a fee. the franchisee fee is the initial purchase reqiurement plus an ongoing percentage of gross sales.As practiced in retailing, by using a business network concept, franchising offers franchisees the advantage of starting a new business with a proven trademark and the formula of doing business.The franchisor is also able to build a captive distribution network with very little or no financial commitment.The disadvantages of franchising is that the franchisee will have loss of control.While they gain the use of a system, assistance,trademark etc, they have to follow the system and get approval of changes with the franchisor.Another problem is that the frachisor/franchisee relationship can give rise to litigation if either side is incompetent.For example:An incompetent franchisee can destroy the public's goodwill of the franchisor's brand by providing inferior goods and series. On the other hand, an incompetent franchisor can destroy the franchisee by not promoting their brand properly or by squeesing too aggressively to make profits in their business.So, the idea brhind franchising is to let independent operators to use the same name, logo, supplies and even the building design in exchange for a franchisee fee.