Franchise Glossary

Franchising - Definition

Franchising is a sales form that is based on independent companies working closely together on a long-term basis. Goods can be marketed via franchising as well as services and different kinds of technology. One special feature of franchising is the partnership between the franchisor and his franchisees. With franchising, a franchisee purchases the right from a franchisor to use a specific business concept. In the world of franchising, this generally also means the use of company, product or brand names. Besides this, the agreement between a franchisor and a franchisee generally also involves franchisor support and assistance. Franchising, however, does not only mean that franchisees are given rights – it also involves a number of obligations towards the franchisor. These rights and obligations are stipulated in the franchise agreement.

The term “franchising” originates from the French language

The word “franchising” originates from the French language and was first used in the Middle Ages to mean exemption from taxes or customs duty. Today’s meaning of franchising, i.e. to purchase certain rights to use a business concept, was first used during the 19th Century. However, franchising first really made an impact in the 20th Century with the growth and success of well-known names such as Coca-Cola or McDonald's.

An increased range of services within franchising

As modern franchising developed, so more and more franchisors decided to extend their franchise opportunity to include central services in order to make the copying of a business concept more likely to be a success. Nowadays, franchisor support ranges from looking for a suitable location and financing to providing on-going further training courses and, for example, taking over accountancy work.

Franchising: one of the most successful sales forms

Franchising has become one of the most successful sales channels and, in the best case scenario, can mean many advantages for both the franchisor and the franchisees especially when it comes to a business’ success. However, franchising also means restrictions in other areas, for example, entrepreneurial freedom which some may consider to be a disadvantage.

Franchising is continuing to grow

Franchising is continuing to gain ground in Europe but is, as yet, not even close to the market share found in the USA where franchising effectively came into being. International companies continue to use franchising to expand onto foreign markets, especially onto markets in Eastern Europe. Franchising generally offers those wishing to start up a business greater security than if they started up on their own. This is, however, only true if franchising also adheres to all the business start-up rules.

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