Advantages and Disadvantages of Franchising

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The primary advantages of franchising from the perspective of the franchisee are the provision of a recognizable consumer brand, tested product and service concepts, technical assistance in the areas of site selection, facility construction and interior design, training, marketing support, and financial controls. Franchisors often assist franchisee applicants in obtaining financing and/or lease agreements. Although all business models encompass a certain amount of risk, proven franchise concepts experience a considerably reduced level of failure. Given the extent of this support, even individuals without extensive experience in the hospitality industry can often acquire and successfully manage a franchise business. The primary disadvantages of franchising from the perspective of the franchisee are that the franchisee must pay a royalty fee and must comply with vigorous quality and control procedures established by the franchisor. Conflict may arise between the franchisee and franchisor when territorial exclusivity is breached or when trademark issues or renewal rights are disputed. The primary advantages of franchising from the perspective of the franchisor are that it enables a company to establish a large number of outlets in a relatively short period of time. In addition, although the franchisor provides the business concept, it is the franchisee that is required to obtain financing to pay for the land, physical facility, inventory and working capital. The franchisor’s costs are primarily related to administrative and support expenses, such as pre-opening assistance, training, and quality control. Franchise companies are therefore leveraged to a lesser degree and are less vulnerable to cyclical fluctuations. The primary disadvantages of franchising from the perspective of the franchisor are that, as its system grows, it is difficult to maintain high standards and effective communication with its franchisees. In addition, national and international growth often requires adaptation of the franchise system to local tastes and cultures.

Advantages and Disadvantages of Franchising

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