What is franchising?

What is franchising?

Franchising has a complex nature

It proved to be a winning concept for the construction of inter-company relationships for a rapid expansion of domestic and international market of certain goods and services. From a marketing perspective it is market-based method for the sale of business services to independent normally small companies that have capital but lack business experience. It also represents the distribution channel.

In terms of management it is a hybrid form, which is located between the two extreme options - vertical integration and inter-company transactions between fully independent companies.

Although counterparties to the transaction are independent, which conclude transactions with each other are in the nature of internal operations.

From the perspective of international business franchising is a method of entering the international market, corresponding to the third stage of the process of internationalization of the business after the classic licensing agreement and before the establishment of joint ventures. When it combines a successful combination of lower - risk characteristic of distribution, commissions and agency operations and precise control characteristic of mixed companies.

From the standpoint of commercial law is a bilateral treaty in which the franchisor grants a license or permit the realization of a business by the franchisee under the name and brand of the franchisor and use of services provided by the franchisor methods.

It is clear that franchising is a complex system that in theory and practice will generally accepted definition. This is largely determined by the fact that the means for shaping the franchising systems at national and international level are very diverse. A very detailed and accurate description of franchising is given by the German franchising Union (Deutcher Franchise Verband - DFV) as follows:

Franchising is the sales basis, organized on the basis of vertical cooperation between undertakings - independent legal entities through the conclusion between them of long-term civil - legal contracts. System participates in the market as a single entity and is characterized by a program to separate the activities included in it between entities under a single management and control by the franchisor now. It provides franchise package including the concept of supply, organization and marketing, intellectual property rights and measures for qualification. Franchisees in turn undertake to support the consistent and active franchisor and to improve the information provided to them by its concept. They act on their behalf and at his own expense, provide labor, capital and information and acquire the right to use the franchise package in return for payment to the franchisor.

Although descriptive, this definition includes four main elements of franchising, which can be represented as follows:

  • franchising is a system for organizing the sale of goods and / or services.
  • franchisor provides franchisees the right to use a fee, called a franchise package.
  • franchisees are independent legal entities and autonomous organization - business units.
  • franchisor controls the operation of the franchise system.

Franchising has a complex nature. It proved to be a winning type of business.

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