Franchising

Contractual Entry mode

By Ana Maria Gaviria Palacio
 • Meaning
• Examples
• Types of franchises
Contents • Advantages and disadvantages of
franchising as an entry mode
• Why to franchise?
Arrangement where one party (the franchiser) grants another
party (the franchisee) the right to use its trademark or trade-
name as well as certain business systems and processes,
to produce and market a good or service according to certain
specifications.

Definition by Businessdictionary.com
The franchisee usually pays a one-time franchise fee plus a percentage
of sales revenue as royalty, and gains…

immediate name recognition

tried and tested products

standard building design and décor

detailed techniques in running and promoting the business

training of employees

ongoing help in promoting and upgrading of the products.

Definition by Businessdictionary.com
Famous
Examples

Source https://www.masterfranchising.com
Types of Franchise
Systems
 Types of Franchise Systems

Largest Business
format
Product and
trademark
franchise
Management
franchise
Manufacturing
Franchise

franchised
chainsMultiple Units
Single Unit Area franchise
Master
Franchise
Two Types of Franchise Systems
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Business Format Franchise

An arrangement under which the franchisor provides a formula for doing
business to the franchisee along with training, advertising, and other forms of
assistance.
Fast-food restaurants, convenience stores, and motels are well-known
examples of business format franchises.
Business format franchises are by far the most popular form of
franchising, particularly for entrepreneurial firms.

Copyright ©2016 Pearson Education, Inc. 15-8

BUSINESS
FORMAT
FRANCHISING
- Cosechas outlet in Cosechas outlet in
Medellín, SantaFe Mall Pasto, Colombia
Types of Franchise Agreements
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Single Unit Franchise Agreement

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 Types of Franchise Agreements
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Multiple Units Franchise Agreement

Allows franchisees to operate

more than one franchise unit
in a given territory.
Franchisor

Franchisee Franchisee Franchisee

location x location y location z
Types of Franchise Agreements
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Area Franchise Agreement

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Types of Franchise Agreements
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Master Franchise Agreement

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Two Types of Franchise Systems
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Product and Trademark Franchise or Product Distribution Franchise

An arrangement under which the franchisor grants to the franchisee the right to buy its products and use its
trade name.
This approach typically connects a single manufacturer with a network of dealers or distributors.
For example, General Motors has established a network of dealers that sell GM cars and use the GM
trademark in their advertising and promotions.
Other examples of product and trademark franchisors include agricultural machinery dealers, soft
drink bottlers, and beer distributorships.

Copyright ©2016 Pearson Education, Inc. 15-14

• A product distribution franchise model is
very much like a supplier-dealer
relationship.

• Typically, the franchisee merely sells the

franchisor’s products. However, this
type of franchise will also include some
form of integration of the business
activities.
 Produces the syrup
concentrate
Example
Sells the syrup
concentrate

Produces the final

FRANCHISEE drink

Retail Stores
Restaurants & Vending
F&B Outlets Machine
Operators

Source:https://www.wipo.int/meetings/en/details.jsp?meeting_id=16823&la=EN
Two Types of Franchise Systems
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Management Franchise

A management franchise is similar to a business format franchise. Both approaches involve a franchisor providing a franchisee with
a complete package to operate a business unit and training them to fulfil their role. However, management franchises typically
involve a franchisee:
•taking a more managerial role;
•concentrating on business development; and
•undertaking strategic planning and team leadership rather than the business’s daily operations.

Some management-focused franchisees may still dedicate a small portion of their time to day-to-day operations, whereas others may
adopt a much more passive role. The role you take can vary depending on the franchise opportunity, the size of the franchise
network, and the type of business you run.

Source: LegalVision UK
Two Types of Franchise Systems
4 of 4

Manufacturing Franchise

Manufacturing franchising is a type of franchising system. It involves franchisors allowing

franchisees to produce, market, and sell products under the franchised brand’s trade name.
Franchisees will use the franchisor’s operating systems and manufacturing guidelines.

Examples

The 10 best manufacturing franchise business opportunities in USA

Source: LegalVision UK
Advantages and disadvantages of franchising as an
entry mode

•Source: Burns, P. (2020). Corporate entrepreneurship and innovation (4a ed.). Macmillan Education. Page 136. Table 5.3
Why Franchise
• Franchises offer important pre-opening support:
• site selection
• design and construction
• financing (in some cases)
• training
• grand-opening program
Source: Franchisedirect.com
When to When Is Franchising Most Appropriate?
Franchising is most appropriate when a
Franchise? firm has a strong or potentially strong
trademark, a well-designed business
method, and a desire to grow.

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 In some instances, franchising is not
appropriate.
For example, franchising works for Burger
King but would not work for Walmart.
Each individual Burger King store is

When to
relatively small, and policies and procedures
can be written for almost any contingency.

Franchise? In contrast, Walmart stores are much larger,

more expensive to build, and more complex
to run compared to Burger King. It would be
nearly impossible for Walmart to find enough
franchisees with the financial capital and
expertise to run its more than 11,000 stores.

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 • Barringer, B. R., & Ireland, D. (2016). Entrepreneurship: Successfully launching new ventures
global edition (6th ed.). Pearson Education.

• Brookes, M., & Altinay, L. (2015, September 15). Entrepreneurship in hospitality and tourism .
Entrepreneurship in Hospitality and Tourism - Goodfellow Publishers.
https://www.goodfellowpublishers.com/academic-publishing.php?content=story&storyID=353

• Burns, P. (2020). Corporate entrepreneurship and innovation (4a ed.). Macmillan Education.

Works cited • Drew, J. (2023, December 8). What is a management franchise? LegalVision UK.
https://legalvision.co.uk/franchising/management-franchise/

• Jim, S. C. (uly 31 2008). WIPO-Malaysia national seminar on intellectual property and

development of the franchising sector in Malaysia. Wipo.int.
https://www.wipo.int/meetings/en/details.jsp?meeting_id=16823&la=EN

• Brookes, M., & Altinay, L. (2015, September 15). Entrepreneurship in hospitality and tourism .
Entrepreneurship in Hospitality and Tourism - Goodfellow Publishers.
https://www.goodfellowpublishers.com/academic-publishing.php?content=story&storyID=353