Franchising

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 or services in a specific territory. In exchange to this right, the franchisee (the small-business owner) 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 franchisee. Car dealers and gasoline stations fall into this category. In a manufacturing 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 franchisee buys the right to open a business using the franchiser’s name and format for doing business.

Franchising is not a new phenomenon. It has been around since the 19^th century, when such companies as Singer and international Harvester established dealerships throughout the world. Early in the 20^th century, Coca-Cola, General Motors, and Metropolitan Life Insurance Company, 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.

The latest trend in franchising has been diversification in the variety of products and services offered. Today, over 2,000 companies offer franchises, ranging from day-care centers and health clubs to dental clinics, video-tape rental outlets, and funeral parlors.

Advantages of franchising. Why is franchising so popular? According to the president of the International Franchise Association, franchising has triple benefits: “The franchiser win 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 expand their business through franchised outlets without depleting their own capital. Franchisers not only expand their business using other people’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. 92 % 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. In addition to giving you a proven formula, buying a franchise helps you solve one of the biggest problems that small businesses face: lack of money. Besides financial aid and advice, the franchiser gives a new franchisee training in how to run a business.

Many franchise organizations offer advice on advertising, taxes and other business matters, as well as instructions in the day-to-day operation of the franchise.

Disadvantages of franchising. Although franchising offers many advantages, it is not the ideal vehicle for everyone. For one thing, owning a franchise 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 independently. And not all franchises are extremely profitable operations. One of the most significant financial variables is the monthly payment or royalty that must be turned over to the franchiser. The fees vary widely, from nothing at all to 20 percent of sales. High royalties are not necessarily bad - if the franchisee gets ongoing assistance in return. Another drawback of franchises is that they allow individual operators very little independence. Franchisers can prescribe virtually every aspect of the business. Franchisees may be required to buy the products they sell directly from the franchiser at whatever price the franchiser feels like charging. Franchisers may also make important decisions consulting franchisees. Although most franchise opportunities are legitimate, it pays to be wary. Franchises and “business opportunities” are occasionally fraudulent. The best way to protect yourself from a poor franchise investment is to study the opportunity very carefully before you commit yourself.

1. How is a franchise business set up?

2. What are three basic types of franchises?

3. Who controls a franchise business?

4. What is the difference between a franchiser and a franchisee?

5. What may the franchiser provide for the franchisee?

6. What are some advantages and disadvantages for both parties?

Language

1. Practise reading the following words correctly. If necessary, use a

dictionary.

organization; effort; authority; characteristics; bargain; sole proprietorship; incentive;

partnership; proprietor; employee; employer; customer; home country; acquisition;

independence; limited resources; unlimited liability; private; public; host country;

non-profit; subsidiary; holding; parent; governance; shareholders; frnachiser; franchisee;

multinational; multinationalism; licensing; ware-housing; joint venture; entrepreneurship;

franchiser; franchisee; entrepreneur; entrepreneurship; co-operative; merger; take-over.

2. The word company can be used in many word combinations. Consult the dictionary and give the Russian equivalents of the following word combinations.

Affiliated/subsidiary ~; holding/controlling ~; bogus/bubble ~; chartered ~; forwarding ~; full-line ~; incorporated ~; indigenous ~; insurance ~; joint stock/stock ~; letter-box ~s; manufacturing ~; mortgage ~; multinational ~; one-man ~; operating ~; parent ~; real-estate ~; safe deposit ~; shipping ~; short-line ~; surviving ~; top-notch ~ies; trust ~; wild cat ~.

3. Look at the four diagrams showing corporate relations and complete each sentence with one of the terms below.

sister companies, group, associated companies, holding company

a) Owner Co. 1 Co. 2 Co. 3 The three companies is an example of a _____________________	c) Owner Ss. 1 Ss. 2 Ss. 3 The three subsidiaries are ____________________
b) _____________________ 51% 78% 60% Co. 1 Co. 2 Co. 3 The main company is a ______________________	d) Investing Company 20% of shares 32% of shares Co. 1 Co. 2 Companies 1 and 2 are examples of ______________________

Co: company; Ss: subsidiary.

4. Complete the sentences using the words from the list below.

associated company; acquisition; chief executive; big business;

subsidiaries; mergers; chairperson; corporations; shares; company;

multinational; venture; commercial; parent company; conglomerates

1. Some of the operations of a typical … are more global than others. 2. Each unit including the … has its own, local management. 3. A large shareholding should provide considerable influence (but not control) over the … . 4. Whether the project will be a … success is still uncertain. 5. His first business … was a clothes shop in Rose Street. 6. Mr. Gate’s boyhood pastime was computer programming. Today Microsoft, his …, is the world’s most successful supplier of computer software. 7. The South depends more on small and medium-sized business for jobs than on large … . 8. Goodman Holdings has … in Liechtenstein and the Channel Islands, which control investment around the world. 9. Medeva, the fast-growing pharmaceuticals group 19 p (points) to 224 p on the news that it has made another … in America. 10. Tourism in Hong Kong is …: it is the third largest source of foreign exchange and employs, directly and indirectly, 180,000 people. 11. Many corporations have expanded by means of mergers with and acquisitions of businesses in unrelated fields. Such collections businesses are called … . 12. One problem posed by some … is that economic growth does not necessarily result from them, and no new jobs may be created. 13. The majority of … in practically all companies are owned by institutional investors. 14. In general terms, the … represents the company in the outside world and takes a leading part in making policy. 15. The … is responsible for carrying out company policy and the day-to-day management of the firm.

5. Find combinations with the word corporate that refer to:

1. The perception that people have of a corporation.

2. What corporate employees climb during their career.

3. Company results over a period of time.

4. The values that people have and the way that things are done in an organization.

5. The way a company is managed at the highest level.

6. Plans that companies have maintaining and developing their positions in future.

7. Company failure.

8. A symbol, usually showing the company’s name.

Corporate: performance, image, collapses, governance, strategy, culture, ladder, logo.

6. Use the expressions from ex. 5 to complete the following sentences.

1. Corporate … and associated fiascos have exposed the failure of the auditing industry as a whole, not just the failure of industrial audits. 2. No single subject has so dominated the attention of managers, consultants and management theorists as the subject of corporate … . 3. While Wal-Mart grew, Walton was developing the practices that were to give the firm one of America’s most-admired corporate … . 4. Huet, remaining one step ahead on the corporate …, has been transferred to New York as head of Societe Generale ion America. 5. Good corporate … should be about stopping messes from happening, not just cleaning up afterwards. 6. Few investors are prepared to look beyond conventional measure for assessing corporate … . 7. All phone books are to have identical blue covers with the British Telecom … . It is part of the corporate … .

7. Fill in the gaps with the correct preposition.