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Benefits & Disadvantages

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Benefits of using a franchise model

  • Franchisee incurs lower initial capital than independently starting a company
  • Able to utilise franchisor’s proven successful strategies and trademarks
  • Franchisor can expand rapidly without increasing its labour force and operating costs, using much less capital
  • Parent company earns a higher margin for the franchised stores than company-owned stores because of minimal operating expenses in maintaining franchised stores.
  • Leveraging on a recognised brand name and business image
  • Assured of consistent quality
  • Attaining higher productivity/better motivated staff
  • Reducing risks of failure leveraging on a proven product with good track record
  • Franchisesoffer important pre-opening support:
    • site selection
    • design and construction
    • financing (in some cases)
    • training
    • grand-opening program
  • Franchises offer on-going support:
    • training
    • national and regional advertising
    • operating procedures and operational assistance
    • supervision and management support
    • increased spending power, access to bulk purchasing and economies of scale
  • Franchising enables technology transfer and expertise between international and local companies. It can be realized when an international franchisor appointed local company as their master franchisee for specific territory and assist and develop local companies on aspects of business management, business systems, research and development activities, marketing know-how, branding and so forth. 

Disadvantages of a franchise model

  • Franchisee has lower amount of control over its products and service, which may lead store quality to vary greatly from store to store.
  • Franchisee usually pays a percentage of the revenues to the franchisor,
  • Franchisee may have to incur substantial upfront franchise fees which reduces the available working capital.
 
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