FRANCHISING AUTHOR: ALPANA TREHAN CHAPTER-13 © 2011, Dreamtech Press :: Chapter 13 1

 A contractual relationship between the franchisor and the franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format or procedure owned by or controlled by the franchisor, and in which the franchisee has made or will make a substantial capital investment in his business from his own resources. --- The International Franchise Association DEFINE FRANCHISING © 2011, Dreamtech Press :: Chapter 13 2

A type of franchise in which a franchisor grants a right or authority to the franchisee to distribute the products of the franchisor. Product Distribution Franchises The most popular type of franchise where the franchisor provides a method to the franchisee to operate the business by using the trademark and logo of the franchisor. Business Format Franchises A type of franchise in which the franchisor grants a right to the franchisee to manufacture and sell its products using the trademark of the franchisor. Manufacturing Franchises TYPES OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 3

1 Generating a franchising business plan 2 Seeking professional advice 3 Selecting a location 4 Conducting Intellectual Property(IP) audit 5 Creating franchising documents 6 Initiating the advertising strategy 7 Building up a training team STEPS OF FRANCHISING A BUSINESS © 2011, Dreamtech Press :: Chapter 13 4

 High Competition  Technology  Customers’ Tastes  Legal Environment  Cultural Factors  Relationship between the Franchisor and Franchisee FACTORS INFLUENCING FRANCHISING © 2011, Dreamtech Press :: Chapter 13 5

 Advantages:  Enables the franchisor to expand his/her business quickly by receiving ongoing royalties  Helps the franchisor to develop more efficient and innovative policies  Provides initial support, such as training, financing, and operational, and management assistance, to franchisees  Disadvantages:  Makes it difficult for the franchisor to manage franchisees due to increasing number of franchises  Involves the chances of friction between two parties due to payments  Make the franchisee reluctant to perform efficiently as he/she is always directed by the franchisor ADVANTAGES AND DISADVANTAGES OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 6

1 Making regular visits at the franchisor’s outlet by franchisee before making the franchise agreement 2 Consulting a franchise attorney for reviewing the terms and conditions of the franchise agreement 3 Comparing the actual status of the franchisor with what mentioned in the agreement 4 Signing the franchise agreement, if everything is smooth at this point 5 Attending training sessions and receiving guidance given by the franchisor 6 Starting the franchise business at the decided location STEPS OF PURCHASING A FRANCHISE © 2011, Dreamtech Press :: Chapter 13 7

 Initial Fees  Refers to the initial fees paid by a franchisee to the franchisor to purchase a franchise  Variable Costs  Indicates the cost paid for purchasing land and buildings, construction and renovation, and getting licenses  Royalty Fees  Refers to ongoing amount of money paid by the franchisee to the franchisor for using the trademark of the franchisor  Promotional Expenses  Refers to cost involved in advertising and promoting the brand  Other Additional Expenses  Refers to expenses involved in other franchising activities, such as training, computer assistance, and support services COST STRUCTURE OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 8

 The Indian Contract Act, 1872  Governs the contractual relationship between the franchisor and the franchisee  Monopolies and Restrictive Trade Practices(MRTP) Act, 1969  Regulates the agreement related to restricted trade practices  Consumer Protection (CP) Act, 1986  Provides remedial measures to consumers in case of any defective products  Competition Act, 2002  Prevents the adverse impact of competition in India with respect to product, services, storage, and distribution of product  Trademark Act, 1999  Refers to the act enacted for the registration of trademark for any franchising business  IP Rights  Prevents the misuse of franchisor’s IP, such as copyright, trademarks, patents, and trade secrets LEGAL ASPECTS OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 9

 Franchising has immense scope in developing countries, such as India, as it fastest and easiest method of expanding a business.  It is based on a sound principles of excellent and regular quality associated with a brand name of any product.  With advent of technology, Internet, telecommunications, and increased level of knowledge of individuals, franchising is expected to be a dynamic business medium in forthcoming years.  Today, customers are more comfortable to purchase products through the Internet. FUTURE PROSPECTS OF FRANCHISING © 2011, Dreamtech Press :: Chapter 13 10

 Franchising refers to a business expansion method in which an enterprise (franchisor) grants rights to another enterprise (franchisee) to practice its business philosophy in exchange of a certain amount of royalty.  The governments of all the countries have enacted specific laws and acts regarding franchising a business.  The process of franchising initiates with the formulation of a franchising agreement. RECAP © 2011, Dreamtech Press :: Chapter 13 11