The franchise business model is based on a successful business model of another firm. The franchisor gets to avoid the liability of building other stores and further investment to continue the distribution of its goods and services to its consumers while the franchisee benefits from the success of the franchisor (Santa Clara University, 2016). The franchisee makes more profits than a direct employer because a franchisee has direct shares in the business venture. KFC is an example of a business that has adopted the franchising business model. The company which is global operates on both company-owned and franchises across the world. In the United States, only 12 percent of the company’s outlets are company-owned (Bell & Shelman, 2016). The rest of the outlets in the United States are franchised. The franchise business model is a collaborative effort which benefits both the franchisee and the franchisor.
The franchising business model is a collaboration for growth for both the franchisee and the franchisor. Franchisors are adopting the franchising business model to bring their customers quality and consistent experience to the end customer at a cheaper cost (Mourdoukoutas, 2013). The franchisor should offer the franchisee adequate support and knowledge on the business concept. Real estate is an expensive venture which interferes with the growth of many companies. Collaborative efforts between the franchisor and the franchisee help the franchisor to eliminate this barrier to entry, especially in new markets. The model offers the franchisor the chance to make profits higher than those offered by market levels.
There are certain disadvantages to this business model for the franchisor. Conflicts are common and might escalate in the absence of a perfect conflict resolution mechanism. The franchisor also runs the risk of their brands being counterfeited (Santa Clara University, 2016). Franchisors are also faced with the challenge of not understanding all the tastes and preferences, especially in a foreign market. Most franchisors run the risk of losing their brand value in the collaborative effort.
There are many factors that determine the eligibility of potential entrepreneurs to become franchisees. The franchisee should be financially strong to handle the financial requirement of the franchise. The franchisee is expected to provide the franchisor with the rental space for the franchisor to use as an outlet for the business (Santa Clara University, 2016). The franchisee profits from the success of the business model. Franchisors such as KFC are successful businesses which have established their brands across the world. The franchisee bears the financial burden of the business while the franchisor takes care of operational processes in the outlet. The franchisee is expected to be aware of the customers’ preferences in tastes in the local market. The franchisor is responsible for the training of the staff according to the new consumer brands (Bell & Shelman, 2016). Franchisees enjoy great financial benefits from the collaborative effort. Conflict often arises from the lack of financial support when compared to the operational support offered by the franchisor. Most franchisees are satisfied, and the few who are not fully satisfied remain in the business relationship for the financial returns.
In conclusion, the franchising business model is a joint venture which benefits both the franchisor and the franchisee. In the business model, I would prefer to be the franchisor. The franchisor retains the potential for growth. Despite the financial returns that the franchisee enjoys from the collaborative effort, the success is dependent on the franchisor. The franchisor does not fully depend on the franchisee to make profits and to grow, but on its established brand name and proven quality to the end customer. The franchisee stands to lose more and is also limited from growing as an individual entity. The franchisee is, however, saved of the difficult task of building a competitive advantage especially if it is a new business. I strongly believe that there is no shortcut to success, and each business should work its way up and not swim in the glory of others for quick but meager profits.
References
Bell, D., & Shelman, M. L. (2016). KFC’s Radical Approach to China. Retrieved from Havard Business Review: https://hbr.org/2011/11/kfcs-radical-approach-to-china
Mourdoukoutas, P. (2013, October 4). 5 Things That Make A Franchise Successful. Forbes. Retrieved from Forbes: http://www.forbes.com/sites/panosmourdoukoutas/2013/10/04/5-things-that-make-a-franchise-successful/#3c6936474c35
Santa Clara University. (2016). Session 10: Franchising Your Business. Retrieved from Santa Clara University: https://www.scu.edu/mobi/business-courses/business-expansion/session-10-franchising-your-business/
