Advantages And Disadvantages Of Franchising

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Franchising advantage and disadvantages Franchising is a form of business that benefits all the parties concerned. This may be true, but franchising, like any other business model has its benefits and drawbacks. Since this studies is focused on the franchisor, the advantages and disadvantages of franchising will be viewed from the franchisors perspective. (Unidroit) Growth perspective: Pros and Cons Rapid expansion is the most obvious advantage franchising creates for an entrepreneur. Franchising makes it possible for a business to expand quickly over a short period of time with little capital. The franchisees provides the capital needed for expansion, the franchisor does not make direct investment to the new branch or place of business. Growing…show more content…
The ability to exercise control over the franchise network is a major disadvantage to franchisors. The degree of control an entrepreneur has over its franchisees business is less than if the outlets were owned and operated by the company. Another major disadvantage is managing rapid growth, although growth seems to be a good thing but managing it sometimes can be challenging. Franchisors are required to provide a number of services, such as ongoing support and training for each of its franchisees. If a franchisors business is growing rapidly, the franchisor needs to keep supporting its growing number of franchisees which will require the franchisor to continuously add personnel and can stress out the franchisor. (Unidroit; Hisrich, et al. 2002, 545; Barringer, et al. 2010,…show more content…
Many franchise companies purchase or produce in large quantity the raw materials, parts, packages, accessories etc. used by them and their franchisees. Franchisees are normally required to purchase these items from their franchisors as part of the franchise agreement. Producing or purchasing these supplies in large quantities enables the franchisor to achieve economies of scale and the franchisees usually benefit from the low prices as well. Another cost advantage of franchising is that franchisees share most of the franchisors expenses, such as advertising. Each franchisees normally contributes a certain percentage to fund advertisement. The ability to commit a large sum of money towards advertisement usually makes it possible for franchise companies to conduct advertisement across a wide geographic area. Without franchising, the franchisor would have had to fund the advertising budget alone. The franchisor also receives income from the franchise fee and royalty fee paid by its franchisees. By receiving those income, the franchisor gets a fairly quick return on its know-how and trademark without incurring substantial risk. (Unidroit; Hisrich, et al. 2002, 545; Barringer, et al. 2010,
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