Which of the following statements is true about franchising?
A. Franchisees are imitators; there is little innovation in a franchise system B. About a quarter of all retailing is franchised C. Franchising is a way for an innovator to earn higher innovation profits D. Franchising is a big part of going global and acting global E. Both C and D
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W. Mocroft, Philanthropist, Master Degree in International Business, Las Vegas
Answered Nov 27, 2018
In this question the advantages and disadvantages of franchising are not the issue. It is true that there is little opportunity to be creative if you have bought a franchise. Essentially, you are carrying out an activity innovated by someone else and paying for using any success they have had. Business format franchising is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to own and operate their own business under the brand, systems and proven business model of the franchisor.
Both C and D are correct because the Innovator (franchisor) is extending his business by giving franchises and if he wants to go bigger still, franchising is a part of going global. It is not clear from reports whether B is correct, i.e. the exact proportion of retailing that is franchised.
A franchise is an agreement between a business owner (the franchisor) and another party (the franchisee). This agreement allows the franchisee to use the business name and processes of the franchisor, or to market a product or service owned by the franchisor, and the franchisor offers assistance in organizing, training, merchandising, marketing and managing in exchange for a fee.
You could say the franchisee is an imitator, but he may only use the franchise as a jumping off point and then go on to run his own business, leaving the franchise. The proportion of retail that is franchised depends upon which arm of retail is examined, but in 2017 in the US franchised retail products and services were forecast for a 5.5% growth in financial output abd for franchised retail food was expected to rise 4.1%.