Find out more about the pros and cons of franchising below. However, they enjoy a lot more freedom than franchisees. Each growth strategy has its own advantages and disadvantages, and each has its own legal ramifications. In such a situation, the licensor needs to either a. In this paper we have laid out the 3 basic agreements mcdonalds corporation uses when franchising. Accordingly a franchise agreement is typically a lot more prescriptive than a license agreement. Franchising is a type of licensing that goes beyond use of a specific product or branding and encompasses your business model. So if you are a business owner evaluating licensing versus franchising, consider. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. Business format franchising accounts for most of the explosive growth in franchising that has occurred in the past five decades. At ifsb, we assist business owners to identify the suitable expansion method which is required for the success of the organisation in the development of the businesses prototypes and management system. The broad scope of the franchise laws may apply to a distributorship or license relationship resulting in an unwitting breach by a business owner of federal or state. Franchisor authorizes franchisee to sell their products, goods, services and give rights to use their trademark and. A franchise is a type of license that a party franchisee acquires to allow them to have access to a businesss the franchiser proprietary knowledge, processes, and trademarks in.
Hello, i have worked as an executive assistant for an insurance restoration company for over 5 years and have bought into a franchise recentally and want to promote my services to. Multiunit franchisee magazine is the only publication dedicated exclusively to the hottest topic in franchising multiunit and multibrand franchisees. Each of these modes entails different levels of resource requirements, organizational control, expected future returns and risk exposure ahsan and musteen, 2011. It assures fast and easy expansion and has been selected as one of the best and most favourable methods of growth and distribution in the world. It is a marketing system for creating an image in the minds of current and future customers about how the companys products. Structuring licenses to avoid the inadvertent franchise.
The difference between licensing and franchising is that licensing is a legal relationship that is limited in scope and relates only to the use of a trademark or technology, whereas franchising involves a relationship that goes beyond the grant of a license and includes a relationship of control where the underlying business is required to operate in accordance with designated systems and. The difference between licensing and franchising can be drawn clearly on the following grounds. A theoretical approach to the methods introduction to. Franchising is a wellknown marketing strategy for business expansion a contractual agreement takes place between franchisor and franchisee. Franchising allows another business to replicate your entire company and business model in exchange for fees. International franchising and licensing request pdf researchgate. Licensing is an arrangement in which a company licensor sells the right to use intellectual property, or produce a companys product to the licensee, for a negotiated fee i. Franchising is an arrangement in which the franchisor permits. Franchising is a growing and important part of our economy franchising is a national and international strategy for grow ing a business. Either strategy can result in an incredible return on your investment. A licensing arrangement can slip into an unintentional franchising structure if the licensing contracts are drafted poorly or if the licensor inappropriately controls the business operations of the licensee. As an experienced corporate and transaction lawyer, author andrew sherman offers insider insights into unique opportunities for business growthspecifically, leveraging your intellectual capital through franchising and licensing. On occasion, a licensing agreement can turn into unintentional or accidental franchising if the contracts are drafted incorrectly or if the licensor controls the licensees business operations.
International franchise benefits include worldwide expansion of the business without giving up control or requiring extensive capital, since the franchisee provides this. This is because licensing is not subject to the ftc franchise rule. A franchise contract will often include the franchisors instructions on how the business should be operated, a license permitting the franchisee to use the. Franchisor authorizes franchisee to sell their products, goods. Licensees also enjoy lowered risk because theyre usually entering the marketplace with a known quantity and a builtin customer base. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. If you are a business owner, you may want to license the use of your brand or products to another business in order to gain more exposure for your company and earn revenue on the side. At least two levels of people are involved in a franchise agreement, namely. If that occurs, the licensor needs to immediately comply with franchise laws or readjust the operations to. Six days a week, in neighborhoods all across the country, more than 2,000 chickfil a restaurants are serving handbreaded chicken sandwiches, hot waffle fries and genuine hospitality. So, licensing can be a good way to start if you are interested in franchising your business. Franchising is a fast growing business model in the united states.
Aug 12, 2017 the difference between licensing and franchising can be drawn clearly on the following grounds. The intellectual property rights that are licensed in a franchising arrangement almost always include trademarks, and often include trade secrets, industrial designs and patents depending on the nature of the business. The advantages and disadvantages of franchising by david e. Access study documents, get answers to your study questions, and connect with real tutors for hosp 6030. Brouthers and others published international franchising and licensing find, read and cite all the research you need on. In franchising, the franchisor licenses its intellectual property to the franchisee.
Licensing, on the other hand, allows a licensee to pay for the rights to use a particular trademark. When deciding to open a business using an already established brand, you may have heard people talk about franchising and licensing. The obvious advantages of licensing over franchising include reduced legal costs, reduced accounting and auditing costs, no registration and approval of the license program with any state, and quicker entry into the marketplace. Franchising is a method of distributing products or services. Whether you are licensing or franchising, the important thing is to protect your ip. The broad scope of the franchise laws may apply to a.
Licensing and franchising share a few similar advantages. Owning your own franchise can be a great way to start a small business without taking on the risks that are associated with starting from scratch. Franchising vs licensing difference and comparison diffen. Franchising meaning, examples, advantages, disadvantages. Franchising is a business strategy for getting and keeping customers. International franchising and licensing request pdf. Franchising is a big business and it has enabled millions of people all around the world to be employed.
Dec 01, 2014 strictly, this was licensing, but it is so similar to what we think of franchising today that some people even consider singer the father of franchising. A license arrangement is primarily composed of 2 elements. Because america is the worlds most mature and sophisticated franchise market, use of the franchise model internationally is a competitive advantage for u. Opening a franchise can be a lowerrisk way to start a small business, but its not for everyone. Owning a franchise allows you to distribute the companys products as well as to use. In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of the company.
Brouthers and others published international franchising and licensing find, read and cite all the research you need on researchgate. A franchise is a license, though you usually dont find someone so focused on language minutia that they make a big deal out of the distinction in the sense of business opportunities. Each of these modes entails different levels of resource requirements, organizational control, expected future returns and. A clearer case of licensing is a car wash that has developed a successful process for getting its customers to opt for hot wax and other optional extras. A clearer case of licensing is a car wash that has developed a successful process for getting its customers to opt. Licensing and franchising, what is the difference and does it. One could say that franchising is a special type of licensing arrangement in. The purpose of franchising is, at its root, a method of marketing or advertising a companys goods and services. This is most often seen in the soft drink or automotive industry. Franchising and the impact, page 1 franchising and the impact of mcdonalds gerhardt, steve tarleton state university dudley, dan tarleton state university hazen, samuel tarleton state university abstract as individuals decide to open or pursue a small business, an important option available to. The conversion language in the license agreement is a red flag and sign that your license is probably a franchise. However, while franchising is a regulated industry and there are startup costs and expenses associated with franchising your business, it is critical that you. The franchi sor licenses to the franchisee, for a defined period, the right to use the franchisors business model and intellectual property.
Certainly no licensor expected to end up defending franchise allegations. It is similar to licensing, although franchising tends to involve longer term commitments than licensing. This written contract is called a license agreement. Franchising is an arrangement where franchisor one party grants or licenses some rights and authorities to franchisee another party. If that occurs, the licensor needs to immediately comply with franchise laws or readjust the operations to avoid franchise laws.
The franchisor will often assist the franchisee to run the business on an ongoing basis, hill 2008. Jun 28, 2019 licensing and franchising share a few similar advantages. In product trade name franchising, a franchisor owns the right to the name or trademark and sells that right to a franchisee. However, while franchising is a regulated industry and there are startup costs and expenses associated with franchising your business, it. A franchise is a license to use the name, trademarks, and proprietary products of an existing company. When you have a great business model, there are two powerful ways to see it reach its full potential. The conversion provision in the license agreement is probably unenforceable. For this right, the dealer pays a fee for the right to sell the trademarked goods of the producer. This article will explore different growth strategies with a particular emphasis on franchising, which is the most highly regulated of the growth strategies analyzed. Two powerful ways to grow your business in any economy 4th ed.
Licensing and franchising, what is the difference and does. What is the difference between licensing and franchising. Yet, these situations arise with considerable frequency. Strictly, this was licensing, but it is so similar to what we think of franchising today that some people even consider singer the father of franchising. Many times, people think licensing is an easier route to franchising. Those fees generally include a flat amount to join the franchise, along with ongoing royalties. Pdf lecture given for graduate students for the course merc 6541 marketing management. Franchising is a most common practice of expanding the business, through a licensing relationship, wherein the owner provides training, equipment, ingredients, and marketing support to the other entity.
It aids in the stimulation of the economy, creating jobs and expanding businesses nationally and internationally. For one thing, franchisees have to abide by company rules and the terms of their licensing agreements, so if you love to be independent, opening a franchise might not be your best bet. This gives the company the ability to grow and expand very quickly. The franchisee is the owner who pays for the rights and terms to. Franchising is a term used to describe a business model where companies sell the rights to their business to owners and operators who, for a cost, operate their business using the companys brand. For a company looking to expand, franchising and licensing are often appealing business models. This paper explores why big box retailers such as walmart. A contractual agreement takes place between franchisor and franchisee. What are the pros and cons on licensing vs franchising.
Book description the definitive resource for corporations in myriad industriesnow completely revised and updated. It allows franchiser to augment his distribution chain in minimum time. Franchising is a form of licensing in which one firm the franchisor contracts with another the franchisee to operate a business. February 9, 2010 min read opinions expressed by entrepreneur contributors are their own. Structuring licenses to avoid the inadvertent franchise by rochelle spandorf or any type of monthly fee based on gross receipts for the distribution or licensing rights. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps. Our franchising lawyers have a vast depth of skill in representing and advising domestic and international franchisors in all facets of their franchise operations. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. In addition to franchising, there are two other popular methods by which businesses expand their market and distribution channels. Franchising as it relates to the hospitality industry. Difference between licensing and franchising with comparison. Franchising is a wellknown marketing strategy for business expansion. The broad scope of the franchise laws may apply to a distributorship or license relationship resulting in an unwitting breach by a business owner of federal or state franchise and business opportunity laws. Our franchising lawyers have served as franchise counsel to many emerging and established regional, national and international franchisors in a variety of industries, including.
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