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
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
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
Franchising is continuing to grow
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.