Characteristics and Types of Franchises


It is an arrangement between two functions; one is the franchiser and another franchisee. The franchiser grants or loans the right to franchisee to exploit its trademarks and trade labels as well as other business to produce and market goods, goods, or services in compliance with specific benchmarks and requirements. The franchisee usually has to pay one-time franchise cost plus in addition some given percentage of sales come back as royalty. Other advantage includes immediate name identification, standard design and decor, proven products, promotion of business, training of employees, tried and tested products or more gradation of products. The franchiser benefits fast growth of earnings and business at minimal capital outlay.

One of the top characteristics of the franchise is that each customer undertakes a work to fulfil the many conditions and requirements of the franchiser (seller) that are related to creation and deal of goods and services to its customers. Beneath the contract, the franchisor is appreciated to provide good advice on location of firm, advice on management, helps in training and development, selection of equipment and may also provide financial assistance. All the above motivates the unification and standardization of products of the companies including the provision of unity on market design and style, events, the quality of services and goods and the additional benefit to the franchisor.

Some of the advantages of franchising mode (Kotler, 2002, p. 377)
  1. Lower level of capital investment.
  2. Reduction of employees costs of the vertically integrated network management.
  3. Expansion of sales market with the upsurge in sales amount and territory growth.
  4. Helps to create the prestige and goodwill of the business and its brand, acknowledgement, increased quality of goods and selection of products of the company.
  5. Increase in income from deal of the permit, renting real house franchise equipment.
  6. Reduction with time of turnover.
Some of the drawbacks of franchising setting (Kotler, 2002, p377)
  1. Difficult to control the reliability of financial reporting franchisee.
  2. The franchisor may crafted from franchisee company a possible competitor
  3. Low and poor reputation of the franchises may influence the product quality control of the firm.

Joint Ventures

It is an arrangement in which several parties team up to pool their resources, share control and possession over the company's activities to achieve the common goal. They are often created to access the foreign marketplaces which are often very difficult to gain access to directly. You will discover much well-known relationship of firms which come jointly to get competitive advantages and penetrate new market segments in form of joint projects.

The following are the explanations why joint ventures can be the privileged approach to admission to the overseas markets. The reason why are as follows
  1. Lack of managerial, financial and technical know-how for self-development in overseas markets.
  2. In the case where government will not admit and allow access to foreign organization or subsidiaries to the neighborhood market without the involvement of local capital for politics and economical reasons.
  3. Due to financial reasons, the company may team up with foreign firm for joint sale and production that will provide higher profits due to low priced of local labour, recycleables, etc.
Some of the drawbacks of jv strategy as access mode to international market segments are (Kotler, 2002, p. 377)
  1. Conflicts and contradictions between your get-togethers who form the jv can be related to different viewpoints on the use of profits and its own allocation, management activities and execution of different investment and financial strategies.
  2. The need in strong partnership in the funding and creating of the jv can impede the realization of the company's transnational production and marketing guidelines.

Foreign direct investment

It is the most satisfactory form of participation in overseas market by means of capital investment by creating own production plants and assemblage centres. FDI's are identified by so called the concept of control in which the key idea it to acquire major control and effect on management decisions. Despite the fact that there is absolutely no full 100% possession interest; a tiny percentage or higher shares may have effective control over companies' decision making and plan development (Kotler, 2002, p. 378)
However several advantages of foreign direct investment setting include (Kotler, 2002, p. 378)
  1. All the gains earned from investment funds belong to the business with full control on capital allocation further which may be used for permanent production and marketing strategies.
  2. Creating occupations for the local market as well as tax repayment can make a favourable image in the eye of municipality and its human population.
  3. The company can book profits by making use of cheap local raw materials, labour, saving transport costs, expenditures, etc. which can be used further for effective marketing activities and development of sales activities.
  4. The company can adjust to the new environment because of its products, services and marketing strategies by maintaining close and favourable relationships with marketers, suppliers, real estate agents, legal advisors and customers of the business.

Direct investment capital is transported principally in two forms; the export of loan capital and capital raising.

Venture capital is generally brought in international market by means of direct investment and portfolio investment. Direct investment includes total control and acquisition of local company's stake. Whereas stock portfolio investment includes buying shares of overseas companies overtaking control over its can offer buyers with high profits. Loan capital is the loans provided by status agencies and government authorities, companies, etc. which is split into short term loan usually up to 2 yrs and permanent which is over 2 yrs of time frame (Kotler, 2002, p. 378).

Turnkey projects

Another exemplory case of the widely used foreign entry mode is a turnkey job. It is offered in the form of contract between two people, according to which one party agrees completely construct, design and offer with equipment business/herb/service facilities and give the fully finished project to another party for arranged after remuneration. Turnkey project generally employed by the providers of professional equipment and frequently provide predesigned task with required equipment. In majority of cases turnkey job requires complicity of structure companies; however, it can be substituted by equipment manufacturer or consulting company, in the situation when company is not capable to find appropriate thing for investment abroad.

Turnkey project's maid gain lays in opportunity to generate significant income and multiply there activates overseas by develop own buildings, crops, or manufacture, particularly, in the arias with limited usage of foreign direct investment and with absence of professional knowledge.

One of main down sides of turnkey project as a method of accessibility into overseas market is a time, what can be described by the chance of disclosure secrets of company to rivals father leading to hostile overtake of company's factories and vegetation. Precisely the same problem can happen in the event. Even though, many companies interesting in establishing their facilities, particularly if the variety country has limited overseas ownership (Subba Rao, 2010).

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