Franchising (from the French franchir: vt to clear an obstacle or difficulty)^[1] refers to the method of practicing and using another persons philosophy of business. French ( français,) is a Romance language spoken around the world by 118 million people as a native language and by about 180 to 260 million people The "franchisor" authorizes the proven methods and trademarks of his business to the "franchisee" for a fee and a percentage of gross monthly sales. A trademark or trade mark, represented by the symbols ™ and ®, or mark is a distinctive sign or indicator used by an individual Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor. Advertising is a form of Communication that typically attempts to persuade potential Customers to Purchase or to consume more of a particular Brand The term training refers to the acquisition of knowledge skills and competencies as a result of the teaching of vocational or practical skills and knowledge Agreements typically last five to twenty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees.

Contents 1 Overview 2 History 3 Businesses for which franchising works best 4 Advantages 4.1 Quick start 4.2 Expansion 4.3 Training 5 Disadvantages 5.1 Control 5.2 Price 5.3 Conflicts 6 Legal aspects 6.1 Australia 6.2 United States 6.3 Russia 6.4 UK 6.5 Kazakhstan 7 Social franchises 8 Event franchising 9 See also 10 References 11 External links

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. A vending machine is a machine that provides various snacks beverages and other products to consumers This is called "product franchising" or "trade name franchising".

A franchise agreement will usually specify the given territory the franchisee retains exclusive control over, as well as the extent to which the franchisee will be supported by the franchisor (e. g. training and marketing campaigns). In popular usage "marketing" is the promotion of products especially Advertising and Branding However in professional usage the term has a wider meaning of

The franchisor typically earns royalties on the gross sales of the franchisee. ^[2] In such cases, franchisees must pay royalties whether or not they are realizing profits from their franchised business.

Cancellations or terminations of franchise agreements before the completion of the contract have serious consequences for franchisees. Franchise agreement terms typically result in a loss of the sunk costs of the first-owner franchisees who build out the branded physical units and who lease the branded name, marks, and business plan from the franchisors if the franchise is canceled or terminated for any reason before the expiration of the entire term of the contract. (Item 15 of the Rule of the Federal Trade Commission requires disclosure of terms that cover termination of the franchise agreement and the terms substantiate this statement)

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. Isaac Merritt Singer ( October 27, 1811 – July 23, 1875) was an Inventor, Actor, and Entrepreneur. A sewing machine is a textile machine used to stitch Fabric or other material together with Thread. His effort, though unsuccessful in the long run, was among the first franchising efforts in the United States. A later example of franchising was John S. Pemberton's successful franchising of Coca-Cola. John Stith Pemberton ( January 8, 1831 &ndash August 16, 1888) was an American Druggist and the inventor of Cola Coca-Cola is a carbonated Soft drink sold in stores restaurants and Vending machines in more than 200 countries ^[3] Early American examples include the telegraph system, which was operated by various railroad companies but controlled by Western Union^[4], and exclusive agreements between automobile manufacturers and operators of local dealerships. The Western Union Company ( is a financial services and communications company based in the United States. A car dealership or vehicle local distribution is a business that sells new cars and/or Used cars at the Retail level based on a dealership contract ^[5] Earlier models of product franchising collected royalties or fees on a product basis and not on the gross sales of the business operations of the franchisees.

Modern franchising came to prominence with the rise of franchise-based food service establishments. This trend started before 1933 with quick service restaurants such as A&W Root Beer. Year 1933 ( MCMXXXIII) was a Common year starting on Sunday (link will display full calendar of the Gregorian calendar. A&W Root Beer is a Root beer franchise in the United States and Canada that was started in 1919 and inspired a restaurant chain in 1922 ^[6] In 1935, Howard Deering Johnson teamed up with Reginald Sprague to establish the first modern restaurant franchise. Howard Deering Johnson ( February 2 1897 &ndash June 20 1972) was an Entrepreneur, Businessman, and the founder of an ^{[7] [8]} The idea was to let independent operators use the same name, food, supplies, logo and even building design in exchange for a fee.

The growth in franchises picked up steam in the 1930s when such chains as Howard Johnson's started franchising motels. The 1930s were described as an abrupt shift to more radical and conservative lifestyles as countries were struggling to find a solution to the Great Depression. Howard Johnson's is a chain of restaurants and Hotels, located primarily throughout the United States and Canada. ^[9] The 1950s saw a boom of franchise chains in conjunction with the development of the U. The 1950s Decade refers to the years of 1950 to 1959 inclusive S. interstate highway system. The Dwight D Eisenhower National System of Interstate and Defense Highways, commonly called the Interstate Highway System (or simply the Interstate System) ^[10] Fast food restaurants, diners and motel chains exploded. Fast food is the term given to food that can be prepared and served very quickly In regard to contemporary franchise chains, McDonalds is unarguably the most successful worldwide with more restaurant units than any other franchise network.

According to Franchising in the Economy, 1991-1993, a study done by the University of Louisville, franchising helped to lead America out of its economic downturn at the time. The University of Louisville (also known as U of L) is a public University in Louisville, Kentucky, United States. ^[2]Franchising is a unique business model that has encouraged the growth of franchised chain formula units because the franchisors collect royalties on the gross sales of these units and not on the profits. Conversely, when good jobs are lost in the economy, franchising picks up because potential franchisees are looking to buy jobs and to earn profits from the purchase of franchise rights. The manager of the United States Small Business Administration's Franchise Registry concludes that franchising there is continuing to grow and that franchising is growing in the national economy. The Small Business Administration ( SBA) is a United States government agency that provides support to Small businesses. ^[11]

Franchising is a business model used in more than 70 industries and that generates more than $1 trillion in U. S. sales annually. ^[12]

Businesses for which franchising works best

Businesses for which franchises is said to works 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

Quick start

As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators). A well run franchise would offer a turnkey business: from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting

Expansion

After their brand and formula are carefully designed and properly executed, franchisors are able to expand rapidly across countries and continents, and can earn profits commensurate with their contribution to those societies. A turnkey or a turnkey project is a project in which separate entities are responsible for setting up a plant or equipment (e Additionally, the franchisor may choose to leverage the franchisee to build a distribution network.

Also with the help of the expertise provided by the franchisers the franchisees are able to take their franchise business to that level which they wouldn't have had been able to without the expert guidance of their franchisors.

Training

Franchisors often offer franchisees significant training, which is not available for free to individuals starting their own business. Although training is not free for franchisees, it is supported through the traditional franchise fee that the franchisor collects.

Disadvantages

Control

For franchisees, the main disadvantage of franchising is a loss of control. While they gain the use of a system, trademarks, assistance, training, marketing, the franchisee is required to follow the system and get approval for changes from the franchisor. For these reasons, franchisees and entrepreneurs are very different. An entrepreneur is a person who has possession over a company enterprise, or Venture, and assumes significant accountability for the inherent risks and the outcome The United States Office of Advocacy of the SBA indicates that a franchisee "is merely a temporary business investment where he may be one of several investors during the lifetime of the franchise. In other words, he is "renting or leasing" the opportunity, not "buying a business for the purpose of true ownership. " ^[13] Additionally, "A franchise purchase consists of both intrinsic value and time value. A franchise is a wasting asset due to the finite term, unless the franchisor chooses to contractually obligate itself it is under no obligation to renew the franchise. " ^[14]

Price

Starting and operating a franchise business carries expenses. In choosing to adopt the standards set by the franchisor, the franchisee often has no further choice as to signage, shop fitting, uniforms etc. The franchisee may not be allowed to source less expensive alternatives. Added to that is the franchise fee and ongoing royalties and advertising contributions. A franchise fee is a fee that a person pays to operate a franchise branch of a larger company and enjoy the profits therefrom The contract may also bind the franchisee to such alterations as demanded by the franchisor from time to time. (As required to be disclosed in the state disclosure document and the franchise agreement under the FTC Franchise Rule)

Conflicts

The franchisor/franchisee relationship can easily cause conflict if either side is incompetent (or acting in bad faith). For example, an incompetent franchisee can easily damage the public's goodwill towards the franchisor's brand by providing inferior goods and services, and an incompetent franchisor can destroy its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits. Franchise agreements are unilateral contracts or contracts of adhesion wherein the contract terms generally are advantageous to the franchisor when there is conflict in the relationship. ^[15] Additionally, the legal publishing website Nolo.com listed the "Lack of Legal Recourse" as one of Ten Good Reasons Not to Buy a Franchise:

“

As a franchisee, you have little legal recourse if you're wronged by the franchisor. Nolo, formerly known as Nolo Press, is a publisher in Berkeley California that produces Do it yourself legal books and software that reduce the need for A legal recourse is an action that can be taken by an individual or a corporation to attempt to remedy a legal difficulty Most franchisors make franchisees sign agreements waiving their rights under federal and state law, and in some cases allowing the franchisor to choose where and under what law any dispute would be litigated. Shamefully, the Federal Trade Commission (FTC) investigates only a small minority of the franchise-related complaints it receives. [16]

”

Legal aspects

Australia

In Australia, franchising is regulated by the Franchising Code of Conduct, a mandatory code of conduct made under the Trade Practices Act 1974. For a topic outline on this subject see List of basic Australia topics. The Trade Practices Act 1974 is an act of the Parliament of Australia.

The Code requires franchisors to produce a disclosure document which must be given to a prospective franchisee at least 14 days before the franchise agreement is entered into.

The Code also regulates the content of franchise agreements, for example in relation to marketing funds, a cooling-off period, termination and the resolution of disputes by mediation. Dispute resolution is the process of resolving disputes between parties. Mediation, a form of Alternative dispute resolution (ADR or "appropriate Dispute resolution " aims to assist two (or more disputants in reaching

United States

In the United States, franchising falls under the jurisdiction of a number of state and federal laws. The United States of America —commonly referred to as the Franchisors are required by the Federal Trade Commission to provide a Uniform Franchise Offering Circular (UFOC) to disclose essential information to potential franchisees about their purchase. The Federal Trade Commission ( FTC) is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act UFOC is an abbreviation for "Uniform Franchise Offering Circular" a legal document used in the Franchising process in the United States. States may require the UFOC to contain specific requirements but the requirements in the State disclosure documents must be in compliance with the Federal Rule that governs federal regulatory policy. ^[17] There is no private right of action under the FTC Rule for franchisor violation of the rule but fifteen or more of the States have passed statutes that provide a private right of action to franchisees when fraud can be proved under these special statutes.

The franchise agreement is a standard part of franchising. It is the essential contract signed by the franchisee and the franchisor that formalizes and specifies the terms of the business arrangement, as well as many issues discussed in less detail in the UFOC. Unlike the UFOC, the franchise agreement is a fluid document, crafted to meet the specific needs of the franchise, with each having its own set of standards and requirements. But much like a lease, there are elements commonly found in every agreement. See also Leasing, Renting A lease is a Legal document, but can be an oral arrangement which confers a right on one person (called ^[17] "There is a difference between a discrete contract and a relational contract, and franchise contracts are a distinct subset of relational contracts. " Franchise contracts form a unique and ongoing relationship berween the parties. "Unlike a traditional contract, franchise contracts establish a relationship where the stronger party can unilaterally alter the fundamental nature of the obligations of the weaker party. . . . . . . " ^[18]

There is no federal registry of franchises or any federal filing requirements for information. States are the primary collectors of data on franchising companies, and enforce laws and regulations regarding their presence and their spread in their jurisdictions. In response to the soaring popularity of franchising, an increasing number of communities are taking steps to limit these chain businesses and reduce displacement of independent businesses through limits on "formula businesses. "^[19]

The majority of franchisors have inserted mandatory arbitration clauses into their agreements with their franchisees. Arbitration, a form of Alternative dispute resolution (ADR is a legal technique for the resolution of Disputes outside the Courts wherein the Since 1980, the U.S. Supreme Court has dealt with cases involving direct franchisor/franchisee conflicts at least four times, and three of those cases involved a franchisee who was resisting the franchisor's motion to compel arbitration. The Supreme Court of the United States is the highest judicial body in the United States and leads the federal judiciary. Two of the latter cases involved large, well-known restaurant chains (Burger King in Burger King v. Rudzewicz and Subway in 517 US 681 (1996) Doctor's Associates, Inc. v. Casarotto); the third involved Southland Corporation, the parent company of 7-Eleven in Southland Corp. v. Keating, 465 US 1 (1984) . Burger King ( often abbreviated to Burger King v Rudzewicz, 471 US 462 ( 1985) is a notable case in United States Civil procedure that came before the Supreme Subway Restaurants, commonly known as Subway, is a Fast food restaurant franchise that primarily sells Sandwiches and Salads called 7-Eleven is a worldwide chain of Convenience stores It is since March 2007 the largest chain store in any category beating McDonald's by 1000 stores 7-Eleven is a worldwide chain of Convenience stores It is since March 2007 the largest chain store in any category beating McDonald's by 1000 stores

Russia

In Russia, under ch. 54 of the Civil Code (passed 1996), franchise agreements are invalid unless written and registered, and franchisors cannot set standards or limits on the prices of the franchisee’s goods. Enforcement of laws and resolution of contractual disputes is a problem: Dunkin' Donuts chose to terminate its contract with Russian franchisees that were selling vodka and meat patties contrary to their contracts, rather than pursue legal remedies. Dunkin' Donuts is an international donut and Coffee retailer founded in 1950 in Quincy, Massachusetts, U

UK

In the United Kingdom, there are no franchise-specific laws; franchises are subject to the same laws that govern other businesses. For example, franchise agreements are produced under regular contract law and do not have to conform to any further legislation or guidelines. There is some self-regulation through the British Franchise Association (BFA). However there are many franchise businesses which do not become members, and many businesses that refer to themselves as franchisors that do not conform to these rules. There are several people and organisations in the industry calling for the creation of a framework to help reduce the number of "cowboy" franchises and help the industry clean up its image.

On 22 May 2007, hearings were held in the UK Parliament concerning citizen initiated petitions for special regulation of franchising by the government of the UK due to losses of citizens who had invested in franchises. Events 334 BC - The Greek army of Alexander the Great defeats Darius III of Persia in the Battle of the Granicus. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. The Minister of Industry, Margaret Hodge, conducted hearings but resisted any government regulation of franchising with the advice that government regulation of franchising might lull the public into a false sense of security. The Minister of Industry indicated that if due diligence were performed by the investors and the banks, the current laws governing business contracts in the UK offered sufficient protection for the public and the banks. ^[20]

Kazakhstan

Until 2002, franchising rules in Kazakhstan were also governed by Chapter 45 of the Kazakh Civil Code (CC). Kazakhstan, also Kazakstan ( Қазақстан, Qazaqstan, qɑzɑqˈstɑn Казахстан, Kazakhstán,) officially the A civil code is a systematic compilation of laws designed to comprehensively deal with the core areas of Private law. Measures of state support franchising generally been included in the programme of support for business. Measures to promote franchising were provided in paragraph 2. 4. 1 of the state program for small business development and support for the 1999–2000. Key provisions of Chapter 45, as well as the rules governing the franchise in more detail relations, entered the law "About integrated business license (franchise)", dated 24 June 2002, No. 330 - II. It should be noted that amongst the Commonwealth of Independent States, Kazakhstan is one of the first countries to introduce the legal definition of franchising in a special law.

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. Social enterprises are social mission driven organizations which trade in goods or services for a social purpose 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.

The most successful example is probably the CAP Markets, a steadily growing chain of some 50 neighborhood supermarkets in Germany. CAP Märkte (CAP Markets are medium-sized neighbourhood Supermarkets in Germany employing Disabled people Customer divider barjpg|thumb|In supermarkets sellers periodically change prices for classes of goods in response to market conditions rather than negotiating the price of each good Germany, officially the Federal Republic of Germany ( ˈbʊndəsʁepuˌbliːk ˈdɔʏtʃlant is a Country in Central Europe. Other examples are the St. Mary's Place Hotel in Edinburgh and the Hotel Tritone in Trieste. Edinburgh ( ˈɛdɪnb(ərə Dùn Èideann) is the Capital of Scotland and is its second largest city after Glasgow. Trieste (Trieste Slovene and Croatian: Trst; German: Triest) is a city and port in northeastern Italy very near to

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. A brand is a collection of Images and ideas representing an economic producer more specifically it refers to the descriptive verbal attributes and concrete symbols such as a A logo ( Greek el λογότυπος = el-Latn logotypos is a graphical element ( Ideogram, Symbol, Emblem, Icon, Sign) ^[21] As in classic franchising, event franchising is built on precisely copying successful events. Good example of event franchising is the World Economic Forum, or just Davos forum which has regional event franchisees in China, Latin America etc. The World Economic Forum (WEF is a Geneva -based Non-profit foundation best known for its Annual Meeting in Davos, Switzerland Davos ( Romansh: Tavau, Italian: Tavate is a municipality in the district of Prättigau/Davos in the canton of China ( Wade-Giles ( Mandarin) Chung¹kuo² is a cultural region, an ancient Civilization, and depending on perspective a National

See also

• Franchise consulting

References

External links

• Franchise Territory Definition
• International Franchise Association
• American Association of Franchisees and Dealers
• Canadian Franchise Association
• Franchising Association of India
• The British Franchise Association
• The Australian Franchise Association

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