What Are the Implications of Managing the Franchise Side of a Chain Organization

Franchising has been recognized as a successful business model leading to the accelerated expansion of the new store with local control of the franchise owners assuring lesser financial risks with rewards associated with local ownership which requires a lower level of supervision and economies of scale. “The most widely accepted definition of a franchise refers to a contractual relationship between a franchisee (usually taking the form of a small business) and a franchisor (usually a larger business) in which the former agrees to produce or market a product or service in accordance with the blueprint devised by the franchisor”(Stanworth et al. 1995)Management Structures: Franchising is primarily defined in terms of the legal business agreement between two partners, the franchisor and the franchisee. The franchisor, who has previously established a market-tested business package of products or services, enters into a continuing contractual relationship with a number of franchisees, typically small business owners, who must operate their businesses according to the franchisor’s specified format (Curran and Stanworth, 1983). The franchisor provides a proven method of operation, support, and advice on the setting up of the new franchisees, and also guarantees continuing support to the franchisee. In return, the franchisee pays a lump sum entrant fee and other charges for regular services (that is, royalty on sales, advertising fees, marketing levy) (Fulop and Forward, 1997). Franchising has been adopted as a growth strategy for many firms in business with the advent of globalization. It is different from other forms of business. A franchise is a hybrid form of business characterized by complex contractual arrangements (Eisenhardt, 1989). Though many franchises operate between hybrid and the hierarchy (centralized or organizational) firm and incorporate both the franchised units as well as the company-owned outlets (Brickley and Dark, 1987)