FRANCHISING

PRESENTED BY: Beant Singh

Roll No. 120425720

MBA I (F)

INTRODUCTION

Franchising refers to the methods of practicing and using another person's philosophy of business. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee.

Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor. Agreements typically last from five to thirty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees.

OVERVIEW

The term "franchising" is used to describe business systems which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty, but no method of doing business.

This is called "product franchising" or "trade name franchising".

HISTORY

Franchising dates back to at least the 1850s; Isaac Singer, who made improvements to an existing model of a sewing machine, wanted to increase the distribution of his sewing machines. His effort, though unsuccessful in the long run, was among the first franchising efforts in the United States. Franchise Registry concludes that franchising there is continuing to grow and that franchising is growing in the national economy.

BUSINESSES FOR WHICH FRANCHISING WORKS BEST

Businesses for which franchising is said to work best have the following characteristics:

Businesses with a good track record of profitability. Businesses built around a unique or unusual concept. Businesses with broad geographic appeal. Businesses which are relatively easy to operate. Businesses which are relatively inexpensive to operate. Businesses which are easily duplicated.

ADVANTAGES

DISADVANTAGES

For franchisors

Expansion Legal considerations Operational considerations Quick start Expansion Training

Limited pool of viable franchisees Control For franchisees

For franchisees

Control Price Conflicts

SOCIAL FRANCHISES

In recent years, the idea of franchising has been picked up by the social enterprise sector, which hopes to simplify and expedite the process of setting up new businesses. A number of business ideas, such as soap making, wholefood retailing, aquarium maintenance, and hotel operation, have been identified as suitable for adoption by social firms employing disabled and disadvantaged people.

EVENT FRANCHISING

Event franchising is the duplication of public events in other geographical areas, while retaining the original brand (logo), mission, concept and format of the event. As in classic franchising, event franchising is built on precisely copying successful events.

SMALL BUSINESS FRANCHISE FINANCING

The Small Business Franchise is a classic win-win scenario, with both parties benefiting from the arrangement. The franchise financing decision is made easier as a result of the success of the franchisers business model, which will already be proven.

INTERNATIONAL FRANCHISE ASSOCIATION

The International Franchise Association is the world's oldest and largest organization representing franchising. Founded in 1960, it is a Washington, DC based trade group and non-profit association that represents a growing membership of more than 1,300 franchise systems, 10,000-plus franchisees and more than 500 firms that supply goods and services to the industry.

TRADE MARKS IN INTERNATIONAL FRANCHISING

PROTECTION OF TRADE MARKS INTERNATIONALLY

One of the first realizations typically made by a franchisor attempting to expand his activities into other countries is that foreign laws are often derived from legal traditions and systems different from his own, frequently resulting in frustrating delays and seemingly incomprehensible restrictions on planned expansion.

AVAILABILITY OF TRADE MARKS

Searches are recommended before a franchisor proceeds to file for registration or commences use of his trade marks internationally Assuming registration has not been obtained at the time of execution of a franchise agreement, the franchisor may consider passing onto the franchisee the risks associated with the possible rejection of an application.

WEAK VERSUS STRONG TRADE MARKS

Generally speaking, the inherent distinctiveness or "strength" of a trade mark will very much determine whether it is likely to be accepted for registration in a particular foreign country. Inherently distinctive trade marks are the most easily cleared for use and registration.

INTERNATIONAL CLASSIFICATION OF GOODS AND SERVICES

It should be borne in mind that most countries adhere to the International Classification of Goods and Services, which divides all products into thirty-four classes, with eight additionalclasses reserved for services. An applicant then selects the class(es) to be included in his application(s) and often must specify the goods or services of interest in each class

REGISTRATION PROCEDURES

There are a number of countries which adhere to a "first to register" as opposed to a "first to use" system for protecting trade marks. Under a first to register regime, applications may be filed and registrations obtained before use has commenced, thus enabling protection in a timely fashion.

OTHER CONSIDERATIONS

A franchisor should also consider registration of the transliterated version of his trade mark to prevent third parties from infringing the foreign form by adopting the local equivalent.

THE UNITED STATES OF AMERICA

Amendments to the U.S. Trademark Act effective in 1988 are of significant importance to franchisors seeking to do business in that country. An applicant in due course is required to file a verified statement that his trade mark is in use in commerce within six months from the date the notice of allowance is issued.

ECONOMIC POTENTIAL OF INTERNATIONAL FRANCHISING IN EMERGING MARKETS

International franchising has grown significantly since the 1960s because of both push and pull factors. Domestic saturation, increased competition and diminishing profits at home have pushed franchisors to examine their opportunities abroad, while favorable macroeconomic, demographic and political conditions abroad pulled them into specific markets. The economic rate of growth is a variable that needs to be emphasized in analyzing the market potential of developing markets.

CURRENT TRENDS AND RESEARCH IN INTERNATIONAL FRANCHISING

As globalization plays an increasingly prominent role in the world economy, businesses are prudently seeking to expand their operations abroad. The rise of giant franchisors, such as McDonalds in China, are sending an urgent signal to large franchise behemoths and newly established franchises alike that international franchising is here to stay.

CASE OF MCDONALDS AS A FRANCHISEE IN INDIA

McDonald's India is an employer of opportunity, providing quality employment and long-term careers to the Indian people. The average McDonald's restaurant employs more than 100 people in 25 different positions from cashier to restaurant manager. McDonald's world class-training inputs to its employees can be seen in the present close to 2000 employees currently in Mumbai and Delhi.

Worlds Oldest McDonalds

Worlds Oldest McDonalds This 44 year-old site is the oldest in the worldwide chain of 20,000 restaurants and the last one with red-and-white striped tile exterior. After opening in 1953, it immediately became the standard for the fast food franchises across the country. The building and its 60-foot high neon sign with "Speedee the Chef" are eligible for listing on the National Register of Historic Places.

MCDONALDS IN INDIA

Around the world, McDonald's traditionally operates with local partners or local management. In India too, McDonald's purchases form local suppliers. McDonald's constructs its restaurants using local architects, contractors, labour and - where possible local materials. McDonald's and its international supplier partners worked together with local Indian Companies to develop products that meet McDonald's rigorous quality standards.

CASE STUDY

ISSUES FOR INTERNATIONAL FRANCHISING: LESSONS FROM THE CASE OF A POLAND-BASED RESTAURANT OPERATOR

The accompanying case study highlights some of the debatable issues surrounding international restaurant franchise development. Some of these issues, such as customization versus standardization and the relationship between a franchisor and an international franchisee, are critical in the development of international restaurant franchises.

POTENTIAL OF INTERNATIONAL FRANCHISING IN INDIA and financial iThe Indian economy grew by 8.1% in the last quarter of 2003, thanks to the ongoing reforms and disinvestments. The middle class has never had it so good, with plenty of options and credit available in abundance at a competitive rate. Banks have identified India as the fastest growing retail market. Banks nstitutions have disbursed loans of over Rs. 100,000 crore (USD 20 Billion).

CONCLUSION

International franchises have become one of the fastest-growing franchise areas as the world recognizes the benefits of franchising and franchises look to expand globally. International franchising offers a unique opportunity for entrepreneurs to tap into the potential of the rapidly expanding global marketplace.

International franchising requires a certain amount of infrastructure and expertise to be effective. It takes time to adapt the franchise to foreign markets and to build the relationships that will be vital to the companys franchisees (e.g. relationships with suppliers). Therefore, many franchisees may have plans for international expansion even though they dont currently have any locations outside the U.S.

SUGGESTIONS

McDonalds had done well with a fairly limited product range as a franchisee

To maintain consistency in new products as it expands the product line, McDonalds must rely on test marketing new menu items in pilot locations.
Indeed, McDonalds as a better franchisee has the opportunity to apply its core competenciesscrupulous adherence to quality standards and continual promotion of experimentationin new venues. McDonalds faced heightening competition on several fronts like subway and other local brands in Patiala. McDonalds faces some difficult challenges as a franchisee. The companys environment efforts, while important, should not overshadow its marketing initiatives, which are what the company is all about. McDonald's as a franchisee should increase the employees' wages and let the employees enjoy more wealth of benefits, including bonus, education supports, profit sharing, stock purchasing and so on.

THANK YOU