11. Franchising

Lead-in:

1. franchising – привілей, ексклюзівні права і привілеї на переведення торгівлі чи бізнесу

2. agreement – згода, договір, угода

3. accounting – бухгалтерія, облік, розрахунок

4. bookkeeping – бухгалтерія

5. penalty – покарання, кара, штраф

6. trademark – фабрична марка, торгівельна марка

7. marketing strategy – стратегія торгівлі (маркетингу)

8. operating manual – підручник, посібник

9. quality control – контроль якості

10. renewal – відновлення

One of the fastest-growing and most important segments of business is franchising.

There are many different franchise agreements.

Franchising is a marketing system based on a legal arrangement that permits one party – the franchisee – to conduct business as an individual owner while abiding by the terms and conditions set by the second party – the franchiser.

The franchise is the contract granting the right to do business and specifying the terms and conditions under which the business will be conducted.

The franchisee is usually an independent local business person who agrees with the franchise owner to operate the business. The franchiser is the company that owns the franchise’s name and distinctive elements (such as signs, symbols and patents) and that provides operating systems, such as accounting, advertising, bookkeeping, marketing and other services. While the franchisee is given the right to produce and market the franchiser’s designated goods or services, that production and marketing must be done according to the terms of the licensing agreement. The contract specifies what the franchisee can and cannot do and prescribes certain penalties for non-compliance.

There are two types of franchising systems: product and trademark franchising and business format franchising.

Product franchising is an independent sales relationship between the franchiser and the franchisee in which the latter is given the right to use some of the franchiser’s identity.

Business format franchising is characterized by an on going business relationship between franchiser and franchisee that includes not only the product service and trademark (or trade name) but also the other components of the operating system: marketing strategy and plan, operating manuals and standards, training programs for operating the system, quality control, and communication between franchiser and franchisee.

Franchisees get training from the company that helps them to manage their business and advertising. This continuous support is one of great advantages of franchising. Not less important is using the brand name of a company that is known and advertised nationally, or even worldwide. It is easier for a franchisee to raise money from banks than it is for a sole proprietor because a franchisee has a large company’s support.

But there are disadvantages as well:

• A franchisee has less independence than other sole proprietors;

• He or she has to pay part of his or her profits to the company (royalty payments).

• A franchisee cannot sell his or her business if he or she does not have a franchiser’s agreement of doing so;

• Renewal of the franchise is not automatic, so a franchisee can lose his or her franchise.

Questions for comprehension check-up and discussion:

1. What is franchising (the franchise)?

2. What is the franchisee?

3. What is the franchiser?

4. How many types of franchising systems do you know?

5. Is it easier for a franchisee to raise money from banks than it is for a sole proprietor? Why?

6. What are advantages and disadvantages of franchising?