Chapter 2- Analysis Rise of Franchises

Franchising is a business system, which is booming. That is why the focus of this research focuses on the causes that have contributed to the growing importance of this system as a mechanism of expansion or a business venture. An analysis was made, based on the Agency Theory, the Theory of Transaction Costs and the Theory of Property Rights to explain the phenomenon, as well as description about what the system entails and what has led to be regarded as a safe and a successful investment form, retaking key aspects based on previous research.

Business: Theory and Practice, 2011

Franchising is not a popular business development form in Lithuania. Only 0.02% of all Lithuanian companies use franchising for business development, while in most of the developed countries franchise is recognized as a convenient business expansion form. So, what factors determine such differences in the use of franchising? Analysis of related literature showed, that mainly researchers analyse some aspects of franchising, however there is no systematized analysis which covers all the main franchise development elements. Therefore, the aim of this article is to systematize franchise business development phases, main elements and factors, influencing this process and to propose a theoretical franchise system development model. Thus, theoretical considerations about the main phases and elements of franchise system development as well as advantages and disadvantages of the system are analysed in the article. These theoretical considerations are generalized in theoretical franchise system development model, which shows, that development of franchise business consists of particular steps, starting from favourable conditions for the system to emerge; intention and ability of franchisor to form franchise based on his business; the establishment and initial development of franchise system; and its further functioning. The article does not test the model and even does not discuss the operationalization of it. Operationalization of the model as well as empirical evidence is presented by the authors in the forthcoming articles.

Franchising as a specific form of business is one of most interesting and perspective forms of doing business in the 21st century. The present circumstances on the market touched by the crisis require (expected in 2021) the permanent looking for the certainty for the enterprises. One of it is franchising. It concerned the classical closed vertical distribution system, which is managed on contractual basis and one of the system members, named franchisor, connects some levels in the production-distribution chain. His partner is a franchisee. Both partners are searching for the optimal level of correlative relationship. It is a dynamic commercial system, which represents a modern form of cooperation between the enterprises. Franchising is regarded as a progressive marketing strategy. It is one of few forms of entrepreneurship without stagnation in the crisis period, as well.

2020

The growth of franchise has developed rapidly and demanded by the franchisee and franchisor, since this system containing a symbiosis mutualism where the parties are bound to each other and gain a lot of advantages. However, this systemarisesthe questions: what is the basic consideration for the franchisee before agree in the franchise agreement? What is the requirement which needs to be listed in the franchise agreement? What is the excellence of franchise as the business alternative for the franchisee?The research method of this article is legal research or also called doctrinal research which purposes to analyze the regulation on franchise business which is descriptive, this research using a conceptual/normative approach which is a research that collecting secondary data such as primary, secondary, and tertiary legal materials. Before the parties entering a franchise agreement, the franchisee must be doing some survey on the feasibility of the franchise to know and analyzing wher...

Knowledge, 2018

Franchising is considered the most successful marketing concept around the world. Today, many franchises are offered, and it is incomparably easier and more secure to develop entrepreneurial spirit under the patronage of the already developed system. Franchise is called long term, firm contractual cooperation between independent companies or entrepreneurs, franchisor and franchisee, where the franchisor provides the franchisee with a set of knowledge and gives it its brand. The number of franchise systems in the world is rising, and competition compels the franchisee to search for new and attractive offers. The largest number of franchises exists on the United States market, the number of employees in this market is in arrears, and achieves the high GDP measured in billions of dollars. In the United States are represented all kinds of franchise systems, from the automotive industry, restaurants, education, beauty salons to new forms of work from home. Canada is the second largest in franchising, many forms have been developed that place the franchise at the very top of economic business. In Europe, the less developed countries, such as Poland, the Czech Republic, Hungary, Bulgaria, etc., are developing more and more domestic brands and striving towards the conquest of international markets. New models of franchised business such as home-based franchises are being developed to allow most people to work from home. The application of the franchise system in our country would significantly contribute to the development of the domestic market. The future success of franchising in Serbia depends on the ability to innovate, improve the size of the site, provide education to interested small and medium-sized enterprises and entrepreneurs. Looking at all these countries and different markets, one can conclude that franchising is less developed in weaker economies, while economically more developed markets achieve even greater expansion in the form of GDP, employment, education, institutions. If each country awakens awareness of the value of franchising as a good technique for enterprises and entrepreneurs, it will open the possibility of expansion franchising to international markets, through marketing, social networks and the Internet. What is important is that this type of franchising is developing in our country and in this way it is slowly focusing on international markets. In franchising, the risk of business failure when starting a business is significantly lower than when starting a stand-alone business. Franchising is a way to use a proven, more successful, business model in a personal business, thereby reducing the likelihood of failure. The franchisee still continues to act substantially with his own resources, at his own risk, but under a different name. A well-known and famous brand is an additional guarantee for greater recognition and an automatically higher number of consumers. Franchising is a shortcut to a more successful business success. In the future, banks are expected to pay more attention to the financing of franchising, as both franchisees and recipients are referred to banks that receive the role of checkpoints and mediators.

In this article, we have analyzed one of the most relevant lines of research in the franchising literature-the creation of a franchising system. Three confronting theories are reviewed and presented in this paper to explain the franchising phenomenon; namely, the resource scarcity theory, the agency theory, and the plural from theory. The conclusion of our analysis is that probably none of them is able to explain the full franchising occurrence, but each theory explains different parts of the franchising phenomenon, so they should be perceived as complementary theories. THE DECISION TO FRANCHISE: A THEORY OF FRANCHISE SUPPLY n impressive amount of theoretical and empirical research has been conducted to explain why firms choose to distribute their product or service offerings through franchise channels. The franchisor's decisions to franchise vs. own the business discusses the franchisor choice of franchise (market) vs. company ownership (hierarchy) — in essence, a theory of franchise supply. Hunt (1977) assured that, for potential franchisors, ―franchising held out the promise of the American Dream, the dream of making it big‖, and this idea of ―making it big‖ is one of the main reasons that owners of franchising companies argue for using the franchise system. No doubt, franchising helps rapid growth, but it also involves a loss of control over the business. In many industries, we see chains that extensively use franchises competing with chains that never franchise, and it seems that both alternatives can work and succeed, so why use franchising? And what are the rationales for using franchising instead of growing through company-owned units? The classic literature on this subject, all of which is strongly rooted in economics, can be grouped into two different theories to explain why a company decides to franchise-the Resource Scarcity Theory (Oxenfeld and Kelly, 1969; and Norton, 1988) and the Agency Theory (Brickley, Dark, and Weisbach, 1991; and Lafontaine & Kaufmann, 1994). More recently, another competing theory has emerged which seeks to explain the prevalence of the franchise system on the basis of the organizational characteristics that differentiate it from other forms of ownership-the Plural Organization Theory (Bradach & Eccles, 1989; and Bradach, 1997). In what follows, we will look at the treatment received by each of these competing theories in the literature on franchising, trying to find a common ground and reconciliation between them. RESOURCE SCARCITY THEORY: FRANCHISING TO GAIN RAPID ACCESS TO FINANCIAL RESOURCES Franchising is a cheap and fast way to grow because the franchisee supplies the franchisor with one of the basic resources to develop a business-money. The franchisor faces a need for growth to achieve economies of scale and market share, particularly in the early stages of the operation when they usually face a scarcity of financial resources to fund the growth. The franchisee not only contributes to the franchisor with fees and royalties, but also finances the investment to start the operation and provides the ongoing capital required to continue the operation. So, franchising appears to be the best solution when there is a need to grow fast and when the franchisor needs to gain access to financial and human resources at a low cost. Caves and Murphy (1976) stated that the A

Journal of Financial Economics, 1987

We examine companies that franchise some units and centrally operate ('own') others. The agency problems confronting these two organizational forms are analyzed. Testable hypotheses are developed. The empirical results support the notion that owning versus franchising reflects a trade-off among agency-related problems. The cost of monitoring store managers appears to be especially important in the own/franchise decision. The level of repeat business and initial investment requirements per unit also appear to be important.

2013

The development of the franchise network as an alternative solution in comparison with the traditional opening of the organizational units allows our own expansion through enganging less money and risk-sharing with local entrepreneurs who are already well familiar with its own market and its potential and had it completely checked before investing their own funds in buying a franchise. Company "Soko Stark" in Belgrade is one of the largest companies in the confectionery industry, in the region and for more than 90 years has been a leader in the domestic market. Given the fact that the concept of franchising as a business in the last decade, has been rapidly growing in all world markets, management of Soko Stark reviewed all the advantages and disadvantages of such business concept and took all necessary actions and measures as soon as possible to come out with a new strategy of development, before creating its retail network through the system of franchising. The company w...

International Journal of Urban and Regional Research, 2000