Franchising Management Subject, Essays (high school) of Business

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TOPICS

ON

FRANCHISING

FOR THE

-TRINAL PERIOD-

2

N D

SEMESTER ACADEMIC YEAR 2022-

I. WHAT IS FRANCHISING?

-The word franchise came from the old French word called franche which

means to free or exempt (American Heritage Dictionary of English Language). In

medieval times, franchise was a right or privilege granted only by a sovereign

power to the individuals in exchange of the rights-to collect taxes or revenues,

maintain civil order, hold a fair, build a roads, organizing markets etc.

-It is defined as a business opportunity by which the owner (producer or

distributor) of a service or a trade marked product grants exclusive rights to an

individual for the local distribution and or sale of the service or product, and in

return receives a payment-royalty and conformance of quality standards. There are

two parties involved in the method of doing franchise business, they are the

franchisee and franchisor.

FRANCHISING

The relationship between the two is inherently one

of the advisee and advisor. As an advisor, the

franchisor provides the guidance and support on

hiring and training staff, setting-up shop,

advertising its product and services, sourcing its

supply, and so on. In return, the franchisee pays

start-up-fee or percentage for the use of its

intellectual property rights or the franchisor’s

advisory role.

WAYS OF DESCRIBING

FRANCHISING

BUSINESS OPPORTUNITY

Trademarked products or services of

the franchise parent owner grants the

right to the individual for its sale and

distribution in the market.

PATTERN OR METHOD OF

DOING BUSINESS

A franchisee is granted a right to

offer, sell, or distribute goods or

services under a marketing format as

designated by the franchisor.

FRANCHISE OPPORTUNITY

Three components-a trademark

and/or logo, the use of a product or

service following a marketing plan,

and the payment of a royalty fee-

constitute the essence of a

franchised business.

FRANCHISE AGREEMENT

It contains agreement or legal document that binds the franchisor and the

franchisee in which it typically includes the following:

Identifying information for both parties;

Confirmation of ownership of intellectual property and licensing terms;

Rights granted to the franchisee;

Standards and obligations of the franchisor and franchisee;

Length of the agreement and options for renewal;

FRANCHISE AGREEMENT

Royalties, fees, and other expenses of the franchisee;

The territory in which the franchisee will/is permitted to operate and a

statement of whether or not those rights are exclusive;

Site ownership, selection, and approval requirements;

Building and design standards and renovation or update requirements and

schedules;

FRANCHISE AGREEMENT

While this list is extensive, franchise agreements should ideally

be tailored specifically to the franchise in question and may

include fewer or additional items. Therefore, use of a franchise

agreement template without significant revision will likely not

protect the parties’ interests and is not recommended.

FRANCHISE AGREEMENT

Additionally, within each of the areas above, you should review

and negotiate specific details. For a franchisor, it is important

to protect the brand, its intellectual property, and reputation.

For the franchisee, negotiation of some elements of a franchise

agreement can protect your investment, improve your position,

and offer greater opportunities for success and growth.

3. Copyrights-protect original works of authorship, such as paintings,

photographs, musical compositions, sound recordings, computer programs,

books, blog posts, movies, architectural works, and plays. There are some things

that are not “creative,” like titles, names, short phrases, and slogans; familiar

symbols or designs; lettering or coloring; and mere listings of ingredients or

contents.

4. Trade Secrets-while businesses have a lot of confidential information, not

everything is a trade secret. A trade secret is typically something not generally

known to the public, where reasonable efforts are made to keep it confidential,

and confers some type of economic value to the holder by the information not

being known by another party.

SUBSETS OF INTELLECTUAL PROPERTY RIGHTS IN

FRANCHISING (legal terminologies)

Some examples of likely trade secrets include new

business models; customer and supplier

information, especially around price; marketing

strategy; processes and formulae; and other

confidential business information.

Trade Secrets

Product distribution or trade name franchising

It has evolved from the time when suppliers made sales contract to dealers to

buy or sell certain products or product lines. In this relationship, the dealer,

acquires the trade name, trade mark, and/or product from the supplier. The

dealer (franchisee) identifies with the supplier (franchisor) through the

product line. Typically, this approach to franchising has consisted of

distribution from a single supplier (a manufacturer) to a large number of

dealers either directly or through regional supply centers. An objective of the

supplier is to have a dealer (dealership) in each community or area, to provide

the product to all potential customers within geographic area, region, or the

whole country. This franchising approach has been used in the auto and truck,

soft drink, tire, and gasoline service industries.

Figure 1: Typical Product and Trade Name Franchising.

SUPPLIER

(MANUFACTURER)

Region DealerRegion Dealer

Dealer

Supply Center

Franchisor

Dealer

through

to

Or direct to

to

3. Quality Control Standards

-It has already established standards or it has properly administered and

controlled standards, such standards help the franchise to achieve

constructive, positive results by ensuring product or service uniformity

throughout the franchise system. By setting and maintaining high standards,

a franchisor does the franchisee a genuine service. Further, a standards of

quality are vital in presenting a consisted patronage image, ensuring return

business, maintaining employee morale and pride in work.

4. Less Operating Control

-An entrepreneur can open a franchised business with less cash than if

he or she were to open a business independently. Why? A franchisee can

start up with considerably less operating capital because the business may

not require as much inventory as a comparable nonfranchised business. In

addition, the knowledge and experience of the franchisor available to the

franchisee concerning how much stock needed and when to reorder can

dramatically reduce the potential for aging of stock, waste or spoilage of

perishables, and unprofitable storage of low demand items.