The Advantages and Disadvantages of Franchising in France

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The Advantages and Disadvantages of Franchising in France 1 Running head: International Trade: Licensing and Franchising The Advantages and Disadvantages of Franchising in France Presented by: Deon E. Boswell Of Team McWorld University of Maryland University College AMBA606 November 4, 2005 The Advantages and Disadvantages of Franchising in France 2 Executive Summary The tremendous growth in franchising over the last decade can be traced directly to the explosion of growth in international trade and globalization. As organizations, attempt to enter new markets they are finding that direct investment via subsidiary creation is an expensive proposition and that their capital expenditures could be used for other opportunities that pose less risk. However, the lure of expansion into growth markets is driving organizations to look at different ways to get their products or services into the hands of consumers. Licensing and franchising are both methods used to extend an organization.s reach while mitigating its risk to the vagrancies of foreign government regulations and economic policies. Licensing and franchising offer several advantages and disadvantages to organizations seeking to expand their reach outside of their domestic borders, the perspective of this paper is from an organization that would like to extend its reach and as result the advantages and disadvantages presented will be viewed from a licensor and franchisor perspective. The advantages to licensing a product are (Goodwin, 2005): Recoup part of R & D expense Chance to enter foreign market without major capital investment Gain income from information or technology with limited commercial useful life. Opportunity to form an initial relationship with a potential joint venture partner Method to enter a market where other entry mechanisms might be prohibited Few long term obligations unless separately called for in the contract Gain technology from licensee - try new applications of old technology The advantages of franchising are (IFA-University.com, 2005): Chance to enter a foreign market with a significant capital expenditure Gain income from royalty payments based on the gross sales of the franchisee The Advantages and Disadvantages of Franchising in France 3 New markets and consumers are exposed to the business and consumers can identify the company by the franchisor’s trademark Most compliance issues, barriers to entry, and internal market volatilities are the responsibility of the franchisee The franchisor sets the minimal standards of performance on service and products offered and typically has its products offered on an exclusive basis The disadvantages of licensing are (Goodwin, 2005): Creation of a future competitor Possible damage to reputation, trademarks if quality control becomes a problem Can prevent direct entry into market if circumstances later dictate that approach Possible antitrust problems in developed country markets The disadvantages of franchising are (IFA-University.com, 2005): A franchisee’s business is identified by the franchisor’s trademark . a bad franchisee can impugn the franchisor A franchisor is responsible for providing the training, marketing, and other support on a continual basis to the franchisee A franchisor has significant and lengthy regulations with which to comply regarding franchise disclosure In no way are the above lists of advantages and disadvantages intended to be inclusive of all the benefits and pitfalls related to either market entry method. It is important to note that France and the EU have very extensive laws concerning franchising and it would behoove any organization to become intimately familiar with the regulations to maximize its potential for success. The Advantages and Disadvantages of Franchising in France 4...
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