Four Types Of Franchising

3.4.2.2. Franchising

Franchising is “an organizational agreement form based on a legal agreement between a parent organization (the franchisor) and a local partner (the franchisee) to sell a product or service using a brand name and process that have been developed and are owned by the franchisor” (Alexander & Doherty, 2009; p.260). The franchise agreement is inclined to be more complete than a licensing agreement, where the franchise has consent to a total operation being prescribed (Chee & Harris, 1998, p. 310).

According to Hollensen (2007), there are number of factors that have contributions to the rapid growth rate of franchising. The two dominant factors are following;

 The general worldwide decline of traditional manufacturing industry

Franchising often helps the investors having capital but little or no prior business experience. It allows the companies to utilize everything from the right to use a name to the total business concept (Hollensen, 2007, p. 335). According to Hollensen (2007), there are two major types of franchising:

1. Product and trade name franchising in which the suppliers make contracts with dealers to buy or sell products or product lines. Dealers use the trade name, trade mark and product line.

2. Business format ‘package’ franchising where the package transferred by the franchisor contains most of the elements that are necessary for the local entity to establish a business and run it profitably in the host country in a prescribed

The best examples are McDonalds, KFC, Coca-Cola, Pepsi, Hertz, and Avis etc. The benefits of using franchising as market entry mode are far reaching. Due to the role franchisee who has motivation to operate the business and local knowledge of the market, it is much more rapid way to enlarge business activities over a large area with minimum investment than the other forms of market entry strategy (Chee & Harris, 1998, p. 311). At the same time, the franchisors get huge amount of money as royalties, so it is very profitable for them ans well as they have maximum control over the operations of the business (Chee & Harris, 1998, p.