Franchising: Business Formula of the 21st Century

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FRANCHISING: BUSINESS FORMULA OF THE 21st CENTURY

ABSTRACT

The major purpose of the present research report is to present and analyze franchising as an alternative growth strategy for tourism enterprises that combines a variety of products, services and corporate strategies. Special emphasis is laid on the essential characteristics of franchising as a specific business model for company growth and development. With a view to its specific features, franchising is considered to be one of the most successful business formats in the XXI-st century. The focus is put on the role of the so-called ‘responsible franchising’, which is providing added value to the franchisees by teaching them how to achieve a competitive advantage and maintain a wide range of customers willing to consume franchise products and services. The advantages of franchising as a method of growth and expansion in the tourism industry are analyzed in details. Disadvantages and limitations of this financial instrument are considered, too. The profile of the Bulgarian franchise model is studied as well as the present status and trends of the franchise development in Bulgaria. Also, current problems of the franchise market in this country are discussed.

Keywords: Franchising, Growth Strategy, Tourism Enterprises, Responsible Franchising

Presentation Method: Regular Oral

FRANCHISING FUNDAMENTAL CHARACTERISTICS

In recent decades franchising has emerged as popular expanding business tool, which combines diversity of products, services and company strategies. This business model became an effective opportunity for small tourism enterprises, which can’t afford to finance their development (Dant & Kaufmann, 2003).

A lot of trade formulas and business strategies are defined with the term ‘franchising’, but often this denotation is given to them incorrectly (Bermúdez, 2002). Defining the franchising concept is a task related to many difficulties, because depending on the perspective of studying (law, trade, institutional, etc.) more attention is paid to some aspects than to others. Franchising is a commercial relationship between two agents – franchisor and franchisee, who are legally and financially independent, but share a common goal (Insa-Ciriza, 2003). Franchising is based on a contract, by which the franchisor gives to the franchisee the right to use a developed business concept, including brand name, products, marketing services, methods and manners of managing the business, in a specific field against payment. Usually in the franchising system there are several franchisees, who have similar cooperation agreements with one and the same franchisor. This allows them to work together on the market by a cooperative system. In this context Díez et al. (2005) define franchising as a cooperative system between different organizations, bounded by a contract, by which one of them, called the franchisor, gives against payment to the other party, called the franchisee, the right to use the brand name and/or the commercial formula, materialized by fixed distinctive signs. As, at the same time the franchisor guarantees technical support and the necessary regular maintenance services during the term of the contract. You could extruct from this definition the following fundamental characteristics of franchising, and in particular: Franchising is a cooperative system,

The relations between the two parties are established by a contract, The participants in this system are one major company (the franchisor) and the companies which sign the contract with the franchisor (the franchisees). The franchisor shall provide to the franchisees the brand name, commercial formula or know – how, technical or other support during the term of the contract.

Another definition of this intellectual and financial tool is given by Bermúdez (2002). He perceives franchising as a business system for cooperation aiming at connecting two economically and legally...
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