Franchising has developed in recent years as an effective way of expanding a business, especially in a foreign country. A franchise is an agreement by which a company (the franchiser) allows other enterprises (the franchisees i.e. people who have bought the franchise) to trade goods and services using its brand name and company logo in a given area.
Naturally the franchisee pays for this privilege, usually by an initial investment and subsequent royalties or fees. In return, the franchiser has an obligation to support the franchise network, notably with training, advertising, promotional activities and with a specialist range of management services. The franchisee is legally an independent enterprise but is expected to conform to the conditions of the franchise in term of image, promotion and quality standards.
Coca-cola, McDonald's, Wimpy, Benetton and other large companies have made theur name all over the world through franchising operations.
Franchises have a higher success rate than sole traders in starting a business from scratch, because franchising reduces the risk of business failure and the franchisee is supported by the successful business record of the franchiser.
According to the BFA, 94% of franchises were still in profit after five years, compared with only 45% of other independent small firm. Franchising is, therefore, often sees as a “safer option” than complete independence.