BBA 6th ESBM Franchising

Topics: Franchising, Business, Marketing Pages: 10 (539 words) Published: August 8, 2015
Entrepreneurship & Small
Business Management
FRANCHISING

Definition
The practice of using another firm’s successful
business model.

According to David H. Holt: A business system created
by a contract between a parent company called
“Franchisor”, and the acquiring business owner called
“Franchisee”, giving the acquiring owner the rights to
sell goods or services, use certain product, names or
brands or to manufacture certain brands.

Characteristics
 It is an agreement
 Franchise does not own the parent firm and the products or name
 It is for fixed period
 Replication of successful business format
 Takes place with business models having successful track records  It is for oneself not by oneself

Types
 Product – Earliest type. Dealers are given right to
distribute goods for manufacturer. The dealer pays
some fee for the right.
 Manufacturing – The franchisor gives the right to
take care of at least one of the entire manufacturing
cycle of a product. E.g. bottling plants.
 Business-format – Wide range of services of the
parent company is done by the franchisee. E.g.
advt., promotion, planning etc.

Advantages
 The task becomes easier for franchisee
 Reduce chance of failures
 Market recognition for franchisee
 Increase in purchasing power
 R & D becomes strong
 Protected and privileged rights
 Obtaining loans are easy
 Brand equity

Disadvantages
 No room for creativity
 Number of franchisee restricted
 Govt. norms
 No right to switch over business
 Goodwill created by franchisee remains for franchisor
 Any time termination of contract
 Failures when happen, franchisee suffers

Evaluation of franchise agreements
Franchisee: Knowing the business and operation of
the business are two different entity and so the
requirement for to be a franchisee need the
knowledge and business idea of how to run the show.
Any sort of technical issues when emerges has to be
dealt with within the norms and conditions of the
parent company.
Evaluation the franchisee is mostly based on the fact
about dealing the process of the franchisor.

Evaluation of franchise agreements
Franchisor: The parent company enjoys the right to
the owner and decision-maker. The effectiveness in
the contract is not their headache. The franchisor
always the right to snatch the business away from the
franchisee on the grounds where the contract is
breached.
The skills and the specifications of the franchise
agreement remains on the hand of the franchisor but
with the prior notification to the franchisee.

Franchising in India

India has no legislation specifically related to
franchising. It is the contract agreement formed
between two parties and the govt. intervention
remains on the only few areas:
1. Intellectual Property Act- The franchisor has to
protect it’s own business and decide whom to chose
as franchisee. Falls under Trade and Merchandise
Marks Act, 1958.
2. Competition Laws- The agreement when will be
formed will be scrutinized by Monopolies and
Restrictive Trade Practices Act, 1969.

Franchising in India
3. Consumer Protections Laws- The products or
services which will be dealt with both the parties
should fall under Consumer Protection Act, 1986. The
consumer will have the rights to file complaints
against any odds and the parties both have to answer
the forum.
4. Labor Laws- No agreement should be formed
without the consent of the Indian labor law. The
court need to be addressed and the parties should
follow the labor rules and regulations.

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