REYNANCIA, MARIA BEATRICE N.

ACTIVITY 6
AEC 306

1. Compare franchising from licensing in terms of: (10 pts.)

a. Meaning- Franchising is a type of business arrangement that includes the
licensing of a trademark, payment of a fee, and management of the
franchised company's operations while Licensing involves the shared use
of a brand, piece of technology, or other piece of intellectual property. A
licensing agreement is the document that establishes a license
connection. Compared to licensing, franchising involves a deeper and
more intricate economic connection and agreement.
b. Degree of Control- In franchising, the franchisor has extensive influence
over the franchisee's operations, including the level of customer service
and the use of marketing and sales techniques while the licensing
agreement for the licensed product specifies the licensor's rules of usage,
which apply to the licensee. However, the licensor has no control over the
licensor's company.
c. Registration- In Franchising registering is required because the laws
governing these registrations were created by government entities. These
include the local government office, SEC, DTI and BIR. While in Licensing
it is not mandatory because it is just a business arrangement in which one
company gives another company permission to manufacture its product
for a specified payment.
d. Fee Structure- Since the franchisor's company is inflexible, setting the
fees in a franchise system is an inherent flaw in the franchising approach.
Every firm continuously modifies the selling price it charges clients,
whether such changes are permanent or only temporary. While in
Licensing it is negotiable since the licensor grants the licensee the right to
produce and sell goods, apply a brand name or trademark, or use
patented technology owned by the licensor.
 e. Training and Support- The objectives of any franchise system are to
accomplish consistent, long-term replication of their brand promise to
consumers and to achieve financial success at every level of the franchise
system. A key element of accomplishing that aim is the training and
support to its employees while in Licensing it is not provided because it is
an approach used by other independent service providers, or for trained
staff inside a company.

2. Briefly explain the advantages and disadvantages of franchising for the

franchisor and for the franchisee
a. Efficient growth- Franchising is frequently employed by companies as a
low-cost expansion strategy. The fact that a new franchised store does not
need a capital layout in contrast to corporate-owned outlets is a significant
advantage of this strategy. Additionally, it has been demonstrated that
franchised stores perform better than corporate-owned ones.
b. Access to capital- Each franchisee provides their own funding for the
franchise store. You earn franchise fees, royalties, or a markup on the
items the franchisee sells while they cover all the expenditures and collect
the profits.
c. Increased brand awareness- When launching a franchise firm,
franchisees have a significant advantage known as brand recognition. No
matter where they are in the world, customers can depend on a certain
kind of product or service and the experience they will receive at any
location inside the franchise network.
d. Loss of complete brand control- the franchisees will be subject to
significant constraints under the terms of the franchise agreement, it's vital
to keep in mind that they will be autonomous parties looking to maximize
their own profits, often at the expense of the franchisor.
e. State laws and regulation compliance- The laws of both the state in
which the franchisor has its headquarters and each state where it plans to
 sell franchises must be complied with by the franchisor. By outlining the
many rules that their company must go by, the attorneys might assist them
with overall franchise compliance.
f. Lack of financial privacy- A new franchise must completely rely on its
parent firm for operational instructions and direction. For the purpose of
enhancing audit-royalty payments, it must give the franchisor all the
financial data that is collected. This is done with the idea that by seeing
each other's financial statements, they may improve their own systems.
g. Restricting regulation- The franchisee is subject to restrictions during the
ongoing partnership, including limitations on the products or services the
franchisee may offer, non-competition covenants, and prohibitions on
selling the franchisee's firm. The basic rule is that every country must
require disclosure of any limitations on the franchisee's economic freedom
of action.
h. Initial cost- In order to establish a successful franchise model for the
company's future growth, franchising your firm will require a sizable initial
financial commitment. This investment will include spending money on
creating legal paperwork, operational manuals, marketing materials, and
recruitment.
i. Brand recognition- A franchise with an established product or service
benefits from a client base that is familiar with and favors the franchise.
The franchisee will already have a client base, which would take years to
build up, so this brand familiarity is a significant advantage over starting a
new independent firm.
j. Built in customer base- Consumer franchise defines the frequent, core
purchasers of a client base. These clients are most likely to keep buying
the company's goods in the future. This is a crucial step in assisting
marketers in comprehending how to employ the marketing tools at their
disposal to boost sales profitability and operational efficiency for the
company.
3. Explain the following purposes of licensing. (15 pts.)
a. Control- Licensing agreements make sure that you have the right to use the
assets of another individual or company. It has the power to secure brands and
enables product designers and inventors to make money off of their licensed
items without being concerned about unlawful usage.
b. Support- A larger, more successful organization will be able to support the
process, produce your product in higher quantities, and promote it to a far wider
audience.
c. Extension- Maintaining control over their product while simultaneously benefiting
from sales and increased exposure for their brand is possible by experimenting
with new items, particularly in new markets can help to expand their own
business.

4. Distinguish brand licensing from licensed production. (5 pts.)

Brand owners may expand their existing fan base and enter new market
segments through Brand Licensing without making a major investment in new
production techniques. It enables manufacturers and merchants to differentiate
themselves from the competition, provide customers with the trendiest brands,
and increase sales while the production of technology created abroad under
license is known as Licensed Production. Legal production rights, technical
data, process technology, and any other proprietary components that the
licensor cannot get are given to the licensor by the licensee.