Franchising - A Tool for Business Expansion

Over the years franchising has emerged as one of the most preferred business strategies around the globe including India. Many domestic and foreign brands are benefiting from the franchise growth strategy. The franchise arrangement is a legal relationship between two parties i.e. franchisor and franchisee. It grants franchisee the right to sells goods and services in his signed market. An established brand with a proven and tested business concept can replicate its success across multiple territories by taking franchise route. He extends its brand name, systems and procedures to a potential franchisee for a defined territory that can be a country, region, state, city or even an area within a city. In return, franchisee pays upfront fees and ongoing fees in lieu of training, support and services to the brand owner.

The beauty of franchising is that almost all business ideas are franchisable. Hence, interested franchise seekers have plethora of business concepts to choose from across diverse sectors according to their investment capacity, interest, location and market potential. It is important to note that almost 90 percent of businesses fail within a year or two of being rolled out. On the other hand, the success rate of franchise ownership is much higher, almost over 80 percent.

The advantages of franchise business:

Unlike in case of venturing independently where an entrepreneur has to sweat it out all alone to build a business, the franchise model extends full knowledge, training and support by the brand owner. It gives enough freedom to franchisees to operate the business, subject to then brand’s standard operational procedures. The model maximises the chance of success as it is backed by a recognized brand name. Most of the times, franchisors take care of advertising and other marketing related needs to help local partner to concentrate on sales and service delivery. In some cases, a franchisor may help a franchisee to raise initial investment capital and even working capital from various financial institutions.

The challenges in franchise operations:

Whether a business is franchised or not, it should always maintain its brand equity. In franchise model, there is always a risk of brand dilution from franchisor’s point of view. It can happen due to overuse of brand and poor franchisee performance etc. At times, the franchisees may not pay fees in time leading to financial issues for the brand owners.

Considering the pros and cons of franchise growth strategy, one can conclude that mutual trust and understanding is the key for the overall success of any franchise system. Both the franchisor and the franchisee should work together to grow and strengthen the brand. Only then they can derive the maximum benefits of this wonderful expansion tool.

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