The Franchise Alternative

One way to avoid some of the management headaches associated with

starting a business is to invest in a franchise, an approach that enables you

to use a larger company’s trade name and sell its products and services in a

specific territory. In exchange for this right, the franchisee pays an initial fee

and often monthly royalties as well to the franchiser (the corporation).

There are three basic types of franchises. In a product franchise, the

franchisee pays the franchising company for the right to sell trademarked

goods, which are purchased from the franchiser and resold by the franchi-

see. Car dealers and gasoline stations fall into this category. In a manufactu-

ring franchise, like a soft-drink bottling plant, the franchisee is licensed by

the parent company to produce and distribute its products, using supplies

purchased from the franchiser. In a business-format franchise, the franchi-

see buys the right to open a business using the franchiser’s name and for-

mat for doing business. The fast-food chains typify this form of franchising.

Franchises account for about one third of all retail sales in the United

States and employ 7 million people.

Franchising is not a new phenomenon. It has been around since the

nineteenth century, when such companies as Singer and International

Harvester established dealerships throughout the world. Early in this cen-

tury, Coca-Cola and General Motors, among others, used franchises to

distribute or sell their products. But the real boom in franchising began

in the late 1950s, with the proliferation of hotels and motels like Holiday

Inn and fast-food establishments like McDonald’s and Baskin-Robbins.

The latest trend in franchising has been diversification in the variety

of products and services offered. Today, franchises range from day-care

centers and health clubs to dental clinics and video-tape rental outlets.

By and large, most are service operations.

Advantages of Franchising. Why is franchising so popular? According

to the president of the International Franchise Association, franchis-

ing has triple benefits: “The franchiser wins because he builds a strong

foundation for his company. The franchisee wins because he can take

advantage of the franchiser’s proven business system. And the general

public benefits from the consistency of the product or service.”

The biggest winners are generally the franchisers, who are able to ex-

pand their businesses through franchised outlets without depleting their

own capital. Franchisers not only expand their business using other peo-

ple’s money, they also receive regular income from franchisees, who pass

on a percentage of their gross revenues and help pay for advertising and

promotional costs.

Investing in a franchise can also be good for the franchisee, because

the risk is reasonably low. Ninety-two percent of all franchise outlets

make it through their fifth year. When you invest in a franchise, you know

that you are getting a viable business, one that has “worked” many times

before. You also have the advantage of instant name recognition and mass

advertising. An independent hamburger stand can’t afford a national TV

advertising campaign, but McDonald’s, Burger King, and Wendy’s can.

Few franchisees are able to write a check for the amount of the total in-

vestment. Most obtain a loan to cover at least part of the cost. According

to the Department of Commerce, 16 percent of all franchisers provide

some form of financial assistance such as low-rate loans. Another 34

percent assist the franchisees in preparing loan applications for banks,

private investors, or the Small Business Administration.

Besides financial aid and advice, the franchiser gives a new franchisee

training in how to run a business. Although franchising offers many advan-

tages, it is not the ideal vehicle for everyone. For one thing, owning a fran-

chise is no guarantee of wealth. It may be the safest way to get into business,

but it is not necessarily the cheapest. According to some analysts, it costs

10 to 30 percent more to buy a franchise than to open a business indepen-

dently. And not all franchises are extremely profitable operations.

One of the most significant financial variables is the monthly pay-

ment or royalty that must be turned over to the franchiser. The fees vary

widely, from nothing at all to 20 percent of sales.

Another drawback of franchises is that they allow individual operators

very little independence. Franchiser can prescribe virtually every aspect of

the business, down to the details of employees’ uniforms and the color of

the walls. Franchisees may be required to buy the products they sell directly

from the franchiser at whatever price the franchiser feels like charging. Fran-

chisers may also make important decisions without consulting franchisees.

2. Match the terms with their definitions:

1. franchise

2. franchising

3. franchisee

4. franchiser

a. a corporation that grants a franchise to an individual

or group

b. a person or group to whom a corporation grants an

exclusive right to the use of its name in a certain terri-

tory, usually in exchange for an initial fee plus monthly

royalty payments

c. a formal agreement for someone to sell a company’s

products or services in a particular place, in exchange

for a payment or part of the profits

d. a business arrangement whereby an individual ob-

tains right from a larger company to sell a well-known

product or service

3. Find in the text the English equivalents for the following Russian terms:

Франчайзинг; франшиза; франчайзер (франшизодатель); фран-

чайзи (франшизополучатель); франчайзинг товара; производствен-

ный франчайзинг; франчайзинг организации бизнеса (формата

бизнеса); диверсификация; агенство, представительство (фирмы);

финансовая переменная; торговая точка, работающая на основе

франчайзинга.

4. Read the text again picking out the advantages and disadvantages of

franchising for a franchiser and a franchisee.

5. Answer the following questions on of the text.

1. Why is franchising said to help avoid some problems associated

with starting a business? 2. What are the two parties in franchising?

3. How many types of franchises are defined in the text? 4. What type of

franchise is used when a franchisee makes and distributes the products

licensed by the parent company? 5. Is franchising a new phenomenon?

Since when has it been known? 6. What have been the recent trends in

franchising? 7. Why does the franchiser win by selling a franchise? 8. Is

buying a franchise a guarantee of success and profit for a franchisee?

9. What is often more costly – buying a franchise or opening a business

independently? 10. Who has more freedom in business – franchisees or

independent business operators?

6. Give a gist of the contents of the text.

Text 3

Complete the questionnaire below and analyze the results using the directions given

after it. The language of the questionnaire is rather informal and abounds in phrasal

verbs; to cope with this difficulty you may first do Activities 11–12 from the Language

section.

Date: 2015-12-13; view: 545; Нарушение авторских прав