FRANCHISING

International Business MethodInternational Business Method

Institute of Business and Information Technology

Maria Iqbal F07B110

Maleeha Ghaffar

F07b117 Anum Shehzad

F07b120 Nayab Nasir

F07b127 Saher Javed

F07b131

GROUP MEMBERSGROUP MEMBERS

Institute of Business and Information Technology

Singer sewing machine (1850)

Coca-Cola

Fast food establishments (1933)

BackgroundBackground

Contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee.

The agreement is governed by a contract, the Franchise agreement, which runs for a defined period of time, generally renewable and ranging from five to 20 years.

What is FranchisingWhat is Franchising

Use of franchisor’s trade name, format, system and/or procedure under license

Means to raise capital and expand quickly Assistance to franchisee

Marketing, management, advertising, store design, standards specifications

Payment by franchisee by way of royalty, licensee fee or other means

FranchisingFranchising

Franchising is more than distributorship

Extends to an entire operation or method of business

Greater assistance, control and longer duration

Distributor merely re-sells products to retailers or customers

FranchisingFranchising

TYPES OF FRANCHISETYPES OF FRANCHISE

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3 main types of franchise:

1. Product distribution franchise;

2. Business format franchise; and

3. Management franchise.

A product distribution franchise model is very much like a supplier-dealer relationship.

Typically, the franchisee merely sells the franchisor’s products. However, this type of franchise will also include some form of integration of the business activities

1. PRODUCT DISTRIBUTION FRANCHISES

1. PRODUCT DISTRIBUTION FRANCHISES

Examples of famous product distribution franchises :

EXAMPLESEXAMPLES

1. PRODUCT DISTRIBUTION FRANCHISES

1. PRODUCT DISTRIBUTION FRANCHISES

Produces the syrup concentrate Sells the syrup

concentrate

FRANCHISEE Produces the final drink

Retail Stores

Restaurants & F&B Outlets

Vending Machine Operators

In a business format franchise, the integration of the business is more complete.

The franchisee not only distributes the franchisor’s products and services under the franchisor’s trade mark, but also implements the franchisor’s format and procedure of conducting the business.

2. BUSINESS FORMAT FRANCHISING

2. BUSINESS FORMAT FRANCHISING

EXAMPLESEXAMPLES

A form of service agreement.

The franchisee provides the management expertise, format and/or procedure for conducting the business.

3. MANAGEMENT FRANCHISE

3. MANAGEMENT FRANCHISE

EXAMPLESEXAMPLES

Advantages of FranchisingAdvantages of Franchising

Buying a name/reputation

Established markets

Technical/management assistance

Standardized procedures

Quality standards

Selection of location

Facility design

Quicker cash flow

Disadvantages of FranchisingDisadvantages of Franchising

Loss of independence

High initial fees

High royalties and advertising allowances

Contractual restrictions

Inapplicable advertising

Termination clauses

Not receiving promised help

Unsuitable products

Lack of competitive advantage of parent company

Franchise Your Business SuccessfullyFranchise Your Business Successfully

To franchise your business in a fruitful manner, just get answers to some questions such as :

• Do you have a successful business?• Do you wish to see its branches in different corners of the nation? • Do you want to increase your brand visibility? • Is franchising right for you? Is your business expandable?• Will the target audience like your products or services?• Well, to achieve all this why don’t you franchise your business?

BE CAREFULBE CAREFUL

The franchisee is not completely independent.

In addition to the initial franchise fee, franchisee must pay ongoing royalties and advertising fees.

Franchisee must be able to balance restrictions and support provided by the franchisor with their own ability to manage the business

BE CAREFULBE CAREFUL

A damaged image or franchise system can result if other franchisees perform poorly or the franchisor has financial problems.

The duration of a franchise is usually limited and the franchisee may have little or no say concerning termination

Common Mistakes of Prospective Franchisees

Common Mistakes of Prospective Franchisees

Not reading, understanding and/or asking questions about the franchisee agreement and other legal documents

Not understanding the responsibilities of a franchisee and the rights and obligations of a franchisor

Not seeking sound legal and financial advice Not verifying oral representations of franchisor

Common Mistakes of Prospective Franchisees

Common Mistakes of Prospective Franchisees

Not analyzing the local market in advance Not analyzing the competition Not making thorough due diligence of the

franchisor Not choosing the right location

FRANCHISING IN PAKISTANFRANCHISING IN PAKISTAN

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Reason for Franchising

2/3 of franchisees felt that economies of scale in

bulk purchasing encouraged them to consider

franchising

FRANCHISING IN PAKISTANFRANCHISING IN PAKISTAN

Pakistan has a viable middle-class with ample purchasing power. Pakistan offers good opportunity international firms seeking to establish franchise operations in the country.

In Pakistan the concept of franchising was introduced as far back as in early 1950's when soft drinks, such as Coca-Cola, were introduced by local bottlers who manufactured under a license from their foreign principals.

No government restriction on investors who wish to establish a franchise in the country.

U.S. FRANCHISE OPERATIONS IN PAKISTAN

U.S. FRANCHISE OPERATIONS IN PAKISTAN

1.Restaurant:  McDonald's, Kentucky Fried

Chicken, Pizza Hut, Subway2.Hotel/Motel:    Sheraton, Marriott, Best Western, Ramada 3.Security:         Brinks, Wackenhut 4.Car Rental:        Avis5.Printing:            Alpha graphics 6.Mineral Water:   Culligan

U.S. FRANCHISE OPERATIONS IN PAKISTAN

U.S. FRANCHISE OPERATIONS IN PAKISTAN

7.Soft Drinks:  Pepsi-Cola, Coca-Cola, Seven-up, 8.Courier Service:    DHL, TNT Skypak, Federal Express9.Apparel:              Walt Disney, Jockey, Hang Ten10.Footwear:            Hush Puppies, Caterpillar11.Entertainment:     Time Warner12.Consulting Services:      Dunn & Bradstreet

NON-U.S. FRANCHISE OPERATIONS IN PAKISTAN

NON-U.S. FRANCHISE OPERATIONS IN PAKISTAN

1. Apparel:              Benetton (Italy), Schieser (Germany) 2. Hotels/Motels:     Serena Group3. Restaurant:         Pizza Express (U.K.) 4. Education:           Asia Pacific Institute of Information Technology (APIIT) of Malaysia

ConclusionConclusion

Franchising – a great model for minimizing risks and maximizing returns

Proven formula for success ready and waiting to be adopted by the new entrepreneur.

Provides proven operating systems, solid research and development, established marketing methods and instant credibility, plus extensive training and support -