Advantages and Disadvantages of Franchising

Advantages and Disadvantages of FranchisingFranchisingFranchising is arrangement where one party (the privileger) grants another party (the franchisee) the right to drill trade-name as well as certain business systems and processes, to produce and market good or service according to certain specification. The franchisee usually pays a one-time franchise-fee positivist a percentage of barters revenueas royalty, and gains immediate name cognition, tried and tested products, standard building and decor,detailed technique in running and promoting the business, training of employees, and ongoing alleviate in promoting and upgrading of the products. The franchiser gains rapid involution of business and earningsat minimum capital- exposelay.Feature of the franchise is that each buyer undertakes to fulfill the various conditions and requirements of the career (franchiser), cerebrate to the merchandise and sale of goods and the provision of related services to consumers. Thus, in the world market there are groups of companies united in a single system under the protective covering of a major outside(a) corporation.Its partners in the contract the franchisor provides advice on corporate location, selects equipment, helps in training, advice on management, and may also provide financial assistance. All this facilitates the standardisation and unification of products and services of the companies included in the system of franchising provides unity on market events, style and design, the quality of goods and services sold the centralization of procurement related savings (and the additional benefit to the franchisor).Advantages of franchising modality are following (Kotler, 2002, p. 377)Rapid expansion of sales markets, the increase in sales volume and the territorial expansion of the businessAbsence of the cost of the vertically-integrated ne devilrk management (reduction of personnel costs)A lower level of own capital investmentLift the prestige of the frat ernity and its trademark, recognition from the customers, increased confidence in the quality and range of products a single companyIncome from the sale of the license and renting real estate franchise and equipmentProfit from lending opportunities franchisees and reducing the time of turnover.Disadvantages of franchising mode are following (Kotler, 2002, p. 377)The likelihood of a smaller part of the profits from the franchise business than on their ownLow reputation of one of the franchises in the absence of proper quality stamp down can affect the reputation of the firmDifficulty in controlling the reliability of financial reporting franchiseeThe franchisor is preparing a possible competitor in the face of franchisee companyJoint venturesJoint ventures are often created for approach to remote markets, companys decision to team up with their foreign partner, sharing ownership and control over the activities of the company. In world practice, there are many examples of well-know n association of firms and corporations to tap new markets and gain competitive advantage.Creation of a interchangeable venture may be the preferred mode of access to foreign markets for the following reasons1. If the company lacks the financial, technological, managerial and other resources for self-development in foreign markets2. If the government does not admit to its market foreign companies or subsidiaries without the booking of local anaesthetic capital for some political or economic reasons 3. When the company, for economic reasons, team up with a foreign company for the joint production, the sale of which go forth provide the company higher profits due to the low cost of use of local resources (labor, raw materials, etc.)However, with all advantages of the using joint venture as entry mode for entering and presenting on the international market there are a few problems, the main ones are (Kotler, 2002, p. 377)1. Contradictions between the partners in the joint venture what may be related to different points of view on the use of the profits of the enterprise, management and implementation of marketing activities, areas of investment, and etc.2. The need for a strong partnership in the existence and funding of the joint venture may hamper the implementation of the transnational corporation its own, universal for all countries production and marketing policy.Foreign direct investmentThe most complete work out of the involvement of a foreign market is the investment of capital in the creation own overseas assembly and production plants. The meaning of direct foreign investment is defined by the so-called concept of control. The main idea of this mode of entry is that a foreign investor investing in the purchase or construction companies abroad controls further management decisions in this venture. And he does not contribute to have a 100% ownership interest in it even a small percentage of shares may be sufficient to establish control over decisi on-making (Kotler, 2002, p. 378)On the other side, even all shares do not provide absolute control if the government dictates whom the company should hire, distribution of revenue, what should company sell and at what price. However, usage of this foreign market entry mode includes several advantages (Kotler, 2002, p. 378)1. All the profit from investments belongs to the company and it can use it at its own discretion, carrying out their own long-term production and marketing strategies2. The firm can increase its profits thought gaining working experience in a large international market with the help of usages local cheap raw materials, labor, saving on transportation costs, etc., as well as expanding sales and conducting effective marketing activities3. paying taxes to the budget of the foreign state and creating jobs, the company can secure a palmy image in government and among the population 4. Due to establishing close favorable relations with suppliers, distributors, agents and customers the company can better adapt its products, services and marketing programs to the characteristics of the foreign market, thus constantly improving its competitiveness.Direct investment capital to the foreign market is carried out in two forms the export of venture capital and loan capital. Venture capital imported into the international market in the form of direct and portfolio investment. Direct investment involves the purchase or acquisition of the total local companys controlling stake. Portfolio investment means buying shares of local companies that are insufficient to establish control over them.Loan capital is loans provided by states, companies, banks, administrative regions, municipalities, etc. Loans divided on two groups short-term (up to two years) and long term (over two years) (Kotler, 2002, p. 378).