Engleski III (poslovni engleski, sve lekcije)

FRANCHISE FEVER

There are several ways for a company to enter a foreign market. Besides licensing, one of the ways is also franchising, which originates from the French word for free and is mainly used by service companies like McDonald’s, which is certainly one of the best-known and powerful franchisers in the world.
In a franchising system, a franchiser plans, directs and controls systematic operations of a closely connected group of enterprises, the individual franchises. Franchises are recognized by three main characteristics:

1.    The franchiser owns a trademark or service mark and licenses it to franchisees in return for royalty payments.
2.    The franchisee is obligated to pay for the right to be a part of the system. Besides initial fee, start-up costs includes rental and rental of equipment and fixtures, and in some cases regular license fee
3.    The franchiser supplies its franchisees with a marketing and operation system for doing business. McDonald’s, for example, demands franchisees to attend its “Hamburger University” for 3 weeks in order to learn how to manage the business. The franchisees must also follow strict procedures in buying materials.

Certain reasons must be considered before buying a franchise:

High start-up costs and royalty fees – For example, in order to open a McDonald’s, the franchisee has to pay both for the location, as well as the franchise fee so he could operate the business for a period of 20 years. After that period, another franchise fee is charged. Besides that, every year, a franchisee must pay a royalty fee to the franchiser.

Extremely high raw material costs – with the purpose of maintaining consistency in their offerings (services)? Franchisers usually insist that their franchisees buy raw materials directly from them or from a supplier with which they have a special agreement, meaning that they receive a discount on what the franchisees order. The prices charged for these materials are usually much higher than anywhere else. But, if the franchisee decides to buy its raw materials somewhere else, the franchiser can legally end the relationship, potentially leaving the franchisee without its entire investment.

Lack of financing – The franchisees usually have to use their own savings or take out a loan, because most franchises don’t provide financing. In some cases, franchisers will help their franchisees get started by financing franchise fees, equipment or start-up costs. And even though franchisees have to put up a portion of their personal assets as security for the loan?, at least they don’t have to reduce their bank accounts to zero.

Lack of territory control – Market saturation and decreasing returns are the reasons why most franchisers will limit the number of stores in some area. Still, many franchisers will try to squeeze as many retail stores into an area as possible. The individual franchisee is the one who suffers in this situation, because his potential market is reduced drastically.

Lack of individual creativity – Franchisers request uniformity, which means that every singe aspect of the business is governed by the franchise.