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What is Franchise?

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Franchising refers a business model where the "franchisors" authorize the proven methods, strategies and trademarks of their businesses to "franchisees" for a fee and a percentage of gross monthly or annual sales revenue.

The franchisors provide various tangibles and intangibles such as national or international advertising, training, and other support services for the franchisees in return as per the franchising agreement.

Franchising can be seen as a faster, cheaper form of expansion than adding company-owned stores, because it costs the parent company much less when new stores are owned and operated by a third party. However the parent company will only earn a percentage of the earnings from each new store. The franchisee also pays the costs of actually starting and operating the store, including legal fees, occupancy or construction costs, inventory costs, and labour.

Agreements may last 5 to 20 years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees.

Franchise is also a method of marketing and distributing of product or services based on a two-party relationship; that is the franchisor (the owner and granter of right) and the franchisee (recipient of right) relationship. The right granted is for the purpose of running the business by using the trademark or trade name based on a specific system, at specified location or area within a specified period of time.

 
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