Is there a justifiable role for government involvement to attract sports franchises?
In sports, the government must attract sports franchises. This can be done by building well-equipped stadia in cities and funding professional sports. Governments should subsidize sports facilities as it leads to the creation of new jobs. Cities with major league teams also tend to attract more business and attain additional tax revenues and lease payments.
Are privately or publicly supported stadiums the norm?
Stadiums tend to be financially supported by the private sector. Professional teams prefer using private-owned stadiums as they are better equipped and managed compared to stadiums managed by the government.
The investment decision for a city in building a stadium
Investment in a stadium brings with it some benefits. First, there is the creation of jobs for the city’s occupants. The building of a stadium is also associated with revenue and lease payments and potential business prospects.
The general range of some of the rental payments by teams for use of their stadiums
There are several formulas used by franchisees to pay rent for use of facilities. One common way is done through the computation of an annual minimum payment. This is then divided among various categories of sports planned for than a year to work out the payment for each sport. Maintenance costs are either taken care of by the stadium management or the government through its local authority.
The direct benefits and indirect benefits/costs of a sports franchise
Benefits from the sale of tickets, concessions, and the sale of broadcasting rights to televisions, radio, and the Internet are ways in which major professional teams get their finances. These are known as endorsements. The income-generating capacity of the stadium used for the game also reflects the value of the team. High valued sports generate more revenue than low valued sports.
The possible positive and negative externalities associated with a sports team
Positive externalities include growth in employment opportunities, tourism sector, and city “status.” The presence of a major league has a positive impact on residents, especially among the youth leading to a decrease in the crime rate.
What is the multiplier effect? How is the effect overstated in economic impact studies?
Change in government spending usually causes a change in national income. The fiscal multiplier refers to the ratio between these two changes. Multiplier effect denotes the increased national spending due to increased national income. As a result, there is a measurable change in aggregate output generating an equal change in aggregate income.
The merits and costs of each method
Stadiums can be financed through government subsidies. This benefits the sports franchise, the government, and the society at large. But this also means that the people have to be taxed a little more so that the government gets funds needed to finance these stadiums and teams. The private sector also finances the stadiums and sports teams. Even though their funds are more sufficient than the government’s, they might decide to pull out of endorsing these stadiums and sports franchises when they are dissatisfied, that is when they are not making any profits.
Usually, franchising has been marketed without carefully analyzing the legal implications behind franchising. In this regard, there has been a proliferation of websites enticing people to consider franchising. This study selects an article by Brooke (2011) in the website and asks the most important legal questions about franchising. Expected answers are also provided.
Should a franchise lawyer be hired once I sign the franchise agreement?
After signing the franchise agreement, it is expected that, the new franchise owner will devote a lot of time, finances and energy towards the new franchise. Since such sort of input is expected, it would be unfair to such an individual if he or she is unfairly treated in the franchise agreement. It is therefore important to hire a franchise lawyer to deal with any legal issues which may arise.
Will the small business franchise act apply to the franchise agreement?
The small business franchise act was introduced by the federal government to ensure businesses adopt fair practices in franchise agreements; most franchise agreements are subject to this law and it is therefore inevitable to be covered by the law.
Which individual or institution will ensure that all parties within the franchise agreement live up to their obligations?
Since the franchise agreement stipulates different obligations for all parties in the contract, it will be difficult for either of the parties to enforce the contract on its own. In this regard, stipulations governing the enforcement of contractual obligations under the small business finance act will apply.
Say the franchise agreement involves a giant corporation like McDonald, will individual guarantee and obligations be enforceable, and what kind of obligations apply to a franchise holder in such circumstances?
In instances where the franchise agreement involves a giant corporation, individual guarantees may not be required because such franchises involve public limited companies, which recognize the company as a legal entity, separate from its owners. The obligations of the franchise holder under such an agreement revolve around ensuring the franchise standards stipulated under the agreement are adhered to.
If the franchise holder is not a corporation or company, does he or she hold the right to transfer the franchise to a company he or she owns?
Transferring the franchise to a company that, the franchise owner holds, amounts to a breach of the franchise agreement because during the formation of the partnership agreement, it was agreed that, the franchise would fall in the hands of an individual and not a company. If the franchise holder desired to run the franchise under a company, that he or she owns, he or she should have done so initially, and refrain from taking the franchise under a personal name. Moreover, if the franchise is run under a company, while it is registered under an individual, it may be difficult to realize damages if a legal proceeding arises because the company running the franchise may be a separate entity form its owner (legally). This may therefore cause a lot of problems in the franchise agreement.
What sort of limitations do affiliates of the franchise holder (such as family members) have on the franchise agreement?
Legally, the affiliates of the franchise holder are regarded as foreign parties to the franchise agreement.
Would the restrictions on the franchise holder’s agreement conflict with any personal or business interests?
The interest of the franchise holder should be assumed to be the interest of his or her affiliates. There should therefore be no conflict of interest between the two parties.
References
Brooke, B. (2011). Benefits Outweigh Risks In Franchising. Web.
Franchising is a popular business arrangement. It is where an organization grants another the right to use its brand or operational framework. The agreement lasts for a predetermined period. The franchiser is the entity allowing giving out its rights to another firm. A franchisee is a firm that seeks rights from the franchisor. Both parties derive benefits from the arrangement. The franchisor can infiltrate the market without having to invest in the construction and stocking of the chain stores (Bruckmann 23). In addition, the franchisor can sell large volumes of the products with the aid of the franchisee. The risk of having to invest in new markets is also avoided. Through the practice, franchisors can effectively market their products. They achieve this by encouraging franchisees to operate using their brand.
In the current paper, a discussion of how different governments define and regulate franchises is provided. The research focuses on the United States federal law and California state legislation with regards to franchising (Bruckmann 23). The paper also seeks to analyze how franchising is regulated among European countries. In addition, a review of how a franchise turns into an agency is provided.
How the Federal Law in the US Defines and Regulates Franchising
In the US, laws are enforced at the federal and state levels (Bruckmann 23). As a result, there is a lack of uniformity in the control of franchising activities. Franchising practices in this country are regulated by the Federal Trade Commission [FTC] (Bruckmann 22). The commission works together with regulators at the state level to ensure uniformity. The law was established to regulate the sale of franchises. It also standardizes the offer of franchises among enterprises operating in the country. According to FTC, a franchise exists as a commercial arrangement between a buyer and a seller.
According to FTC, franchising has three major aspects. The elements should exist for the arrangement to be considered as a franchise. To begin with, the seller grants the buyer the right to operate using the firm’s trademark (Bruckmann 23). As such, the latter will operate using the logo and name of the former. In addition, the franchise may involve the provision of the right to distribute the products of the seller (Bruckmann 24). In most cases, franchising also involves the permission to brand products to resemble those provided by the seller.
Secondly, a franchisee must involve the provision of assistance to the buyer (Bruckmann 23). In this case, the law requires the seller to guide the buyer in the implementation of the business models to be used as per the arrangement. The buyer must also receive training on how to operate the franchise. In most cases, the seller may require to be paid for the training services offered to the buyer. The cost of the training is often added to the total price required for the purchase of the franchise.
Alternatively, the seller may provide the training for free. In other cases, assistance may not be necessary. Such instances include when two firms are renewing their franchise contract. Despite the sharing of information concerning operations between the two parties, the franchisor reserves the legal right to control the business. Upon expiry of the franchise agreement, the seller has the right to determine whether to renew the arrangement or not (Az 34).
Thirdly, for an arrangement between two firms to be considered as a franchise, a fee must be paid. The payment covers the sale of the trademark and the operational model (Bruckmann 27). It is generally assumed that businesses only buy franchises from other entities regarded to be more successful than them. The buyer seeks to make profits through the process. The gains made are at the expense of the franchisor. As such, the buyer is required to pay the seller for the rights to use a trademark. The payment can be made once or in installments within an agreed duration of time. The federal law of franchising requires the buyer to pay at least 500 U.S dollars or more within the first 6 months of operations.
The federal franchise law enforced by FTC acknowledges every business agreement that fits the description of a franchise regardless of what the parties call their relationship (Bruckmann 23). Any legal matters arising from the arrangement of such parties are addressed following the laws put in place to govern franchises. However, the law states that for an arrangement to be considered as a franchise, the parties must be engaging in purely commercial activities. In this case, the buyer must benefit as a result of their association with the franchisor (Bishop 45).
The US FTC Rule requires the agreement between the franchisor and the franchisee to exist in writing (Bruckmann 21). The written agreement must show evidence that the seller has allowed the buyer to use their trademark in conducting business transactions. The franchisor must have permitted the franchisee to sell their products (Bruckmann 22). There must also be evidence that the two parties have an arrangement that will enable the buyer to adopt the seller’s model of operation.
Assistance offered to the buyer helps them to benefit from the model. However, the seller must be seen to retain control over the trademark. Retention is an important identifier of a franchise. It distinguishes it from other forms of business agreements, such as the sale of trademarks and production rights, where control shifts to the buyer. A franchising agreement must also have evidence of payment. Some state laws define oral agreements between the franchisor and the franchisee as a franchise. However, the FTC Rule does not recognize such arrangements.
The US federal law recognizes three general categories of franchises. The first is business opportunity franchises. The others are package and product distribution franchises (Bruckmann 23). The three categories describe the form of relationship between the buyer and the seller. All forms of franchises in the US fall under one of the classifications.
The business opportunity franchise involves the seller allowing the buyer to exploit existing opportunities in the market. In this case, the seller can allow the buyer to exploit ideas used by the former’s brand name, such as machine routes (Bruckmann 23). Here, the buyer is allowed to exploit innovations made by the seller. The arrangement between the two parties may involve allowing the seller to incorporate a technology owned by the franchisor in the production of goods and services. Another common form of business opportunity franchise involves the use of the franchisor’s trademark in the display racks of the franchisee. In such a scenario, the products stocked by the distributor are viewed as superior to others owing to the use of a renowned brand name. The practice serves as an effective marketing strategy.
Package franchises in the US are also commonly referred to as business format franchises. The FTC rule describes them as a situation where the seller allows the buyer to use their business model (Bruckmann 22). The arrangement is common, especially in the service industry. In this form of franchising, the franchisee operates as an independent entity. However, the business uses the trademark of the franchisor. The nature of services provided by the buyer of the franchise is similar to that of the seller. In this form of a business transaction, the franchisee needs to undergo intensive training to be in a position to match the quality provided by the franchisor.
The franchisor stands to benefit by ensuring that the buyer fully understands the operational model. Such a move enhances uniformity in the quality of the goods and services provided. The aim is to avoid negatively affecting the integrity of the trademark. A good example of this form of franchise in the United States is McDonald’s Corporation which has stores across the country run by different franchisees. Firms operating under the trademark offer homogenous services to their customers across the country. They also use a common operational and marketing design. The practice is also gaining popularity in other service delivery industries, such as real estate development.
The third category is the product distribution franchises. In this kind of arrangement, the franchisee sells goods that are produced and supplied by the franchisor. As such, the goods bear the trademark of the franchisor. The franchisee therefore fully operates under the control of the franchisor. As is the case in the package franchise, the franchisor provides a great deal of support to the franchisee. A franchisee in this case is also required to have a good understanding of the operational methods used (Bruckmann 23).
The arrangement also allows the franchisor to enjoy additional marketing of the product by the franchisee in its attempt to promote sales. The fee paid by the buyer of the franchise to the seller is for the provision of distribution rights. In this category, payment can take two forms. The franchisee can pay in terms of the purchases of goods supplied by the franchisor. Alternatively, payment can be in form of a predetermined franchising fee at the beginning of the operations of the franchise. The proceeds from the sales of the goods sold by the franchisee are divided between the franchisor and the franchisee following a predetermined ratio.
The agreement made by the franchisor and the franchisee before the commencement of operations must clearly outline the category under which the agreement falls. Both parties must honor the terms of the agreement. It is therefore important both the franchisor and franchisee understand the category of a franchise that exists between them (Bruckmann 28). As such, they will have a good understanding of their obligations. Failure to adhere to the provisions of the agreement could result in legal measures taken against a party. In such a case, the dispute can either be settled in a court of law. Arbitration has also proved to be effective in finding a solution for such problems. It is important to note that such disputes would result in the termination of the franchise.
The Individuals and Parties Protected by the Franchising Law
The federal FTC rule is viewed to be protecting both the franchisors and the franchisees. It provides a level playing field for both parties to the seller and the buyer of the enterprise (Bruckmann 27). It also seeks to provide guidelines that when used would reduce the chances of disputes occurring between parties to the agreement. The rule also provides guidelines on how the disputes occurring in franchises can be addressed reasonably.
To begin with, the FTC rule protects the franchisor under the Trademark Law. The rule considers the trademark license to be the most important aspect of the relationship that exists between the franchisor and the franchisee. As such, a franchisee typically becomes part of the franchisor’s business. The success of the franchisee is attributed to the success and the popularity of the franchisor’s trademark (Bruckmann 23). The franchisor trademark is therefore viewed as the reason as to why the arrangement originally exists. For this reason, the FTC rule allows the franchisor to make restrictions about the extent to which the franchisee can use the mark. Before franchising operations start, the franchisee and the franchisor must therefore agree on the restrictions that are to be exercised.
The FTC rule considers the selling of the franchise to the franchisee as an act of goodwill. The buyer of the franchise must therefore be willing to enjoy the favor extended to them by the franchisor while adhering to the limitations that have been put in place (Bruckmann 23). The rule recognizes the trademark as intellectual property. As a result of the reasons discussed above, the franchisor plays the greatest role in the formulation of measures to be taken to safeguard the trademark. The control of the trademark is also left in the hands of the franchisor. The franchisee is thereby required by FTC rule to work in close collaboration with the franchisor.
The FTC rule also protects the franchisee. The FTC Franchise Disclosure Rule, 16 CFR 436 of 1978 requires that the franchisors disclose in detail to the franchisee the franchise experience (Bruckmann 24). In this case, the franchisor is required to provide information, such as the performance of previous franchising activities. Information that pertains to the franchisor’s performance should also be provided. Such information pertains to the history of bankruptcy and ligation.
The current financial status of the franchisor should also be disclosed. To this end, the seller must furnish their partner with financial reports. Statements for the past 36 months are needed. As such, the franchisee will be in a position to assess the risks involved in the buying of the franchise. The obligations of the franchisee upon the signing of the franchise contract should also be stipulated.
To protect potential franchisees, the FTC rule also requires that the buyer of the franchisee be furnished with all statistics of the current and future franchising activities by the franchisor. The practice helps the franchisee to assess the viability of the market that they wish to do business in (Bruckmann 22). Usually, the territory in which a franchise is to operate in is determined before the signing of the contract. The franchisor must not sell another franchise to another business before the expiry of the contract to avoid unfair competition. Inappropriate pricing resulting in unfair competition by the franchisor must also be avoided.
The franchisee is also protected by the United States federal law from fraudulent activities by the franchisors (Bruckmann 24). In this case, information containing the cost of the investment should be disclosed. The franchise fee is also predetermined before the signing of any binding contracts between the franchisor and the franchisee. In addition, the federal laws governing franchising prohibit the franchisor from soliciting any form of payment from the buyer.
They can only do this after a formal agreement has been entered into. Following the signing of the contract, a cooling period, usually made of ten working days is allowed to give the buyers of the franchise enough time to consider their decision. Reasons for termination and non-renewal of the franchising contracts are also well outlined to avoid unfair treatment
The Legal Implications of the Franchise Law
As stated earlier, both the franchisors and the franchisees are protected by US federal law (Bruckmann 23). To begin with, the franchisor’s trademark is recognized and protected by the law as intellectual property. Since the law recognizes the trademark as the franchise’s backbone, the franchisor is the major decision-maker. The seller of the franchise is therefore in a position to put in place the necessary measures to protect the trademark by limiting the extent to which the franchisee can use it.
As a result, the franchisor is seen to reap maximum benefits from the franchise even after the sales of the trademark rights. The franchisees are also required to follow the guidelines stipulated by the franchisor concerning the use of the trademark (Fealing 34). The growth of the franchising firm is therefore inhibited. Since the signing of the franchise contract is conceptual, the franchisor is not liable for the performance of the franchisee.
The FTC Franchise Disclosure Rule, 16 CFR 436 requires the franchisor to disclose information concerning the franchise contract to the franchisee (Bruckmann 23). When this is done, the franchisee will be required to adhere to all the terms and conditions of the contract. Failure to adhere to the conditions can result in them being sued for breach of contract. The FTC rule also prohibits unfair business practices. Such practices include unfair pricing, and violating territorial agreements.
Failure to adhere to these requirements can lead to legal measures being taken by the franchisee against the franchisor. Franchisees are also protected from fraudulent activities, such as inflated and hidden costs (Bruckmann 23). The franchisee however has to read and understand the terms of their agreement. If such information had been disclosed, then the franchisor cannot be found liable.
How the State Law in the US (CA) Defines and Regulates Franchising
Some aspects of business transactions in California are under the control of the federal government (Fealing 61). As such, franchising in the state is carried out under the regulations stipulated in the FTC laws. However, there are several instances where this form of business is controlled by the existing state law. Such instances include situations where the sale or offer of a particular franchise is made within the jurisdiction of the state. There are situations where the new enterprise is located within the state. Under such circumstances, the existing legislations are likely to apply. Another example where the local legislative framework applies is where the state is the place of residence for the franchisee.
As is the case in most states in the US, California has domesticated several laws that regulate franchising activities. In light of this, the California Franchise Investment Law outlines the requirements and procedures to be adhered to in the formation of franchises. The law was developed over four decades ago (Fealing 57). The main reason for the formulation of the legislation was to effectively deal with security issues surrounding franchising. It is important to note that close to all businesses in the state of California are franchises. The entities vary from food stores, construction companies, and real estate development agencies.
With the trend rising rapidly, the government of California saw the need to step in to control the practice (Fealing 67). The state government of California is charged with the responsibility of enforcing the law. However, the implementation of the legislation at the state level is constrained as a result of the scarcity of resources. As such, it is not as effective as the federal government’s regulation of the practice.
It is important to note that California has its laws used to regulate franchising. However, the government still works in collaboration with the FTC rule developed by the federal authorities (Fealing 62). As a result of varying legal frameworks, regulation of the practice at the state level has been associated with high levels of complexity. The main reason behind this is that federal regulations of franchising vary widely from those adopted by the state of California. As a result, franchisors and franchisees tend to seek the counsel of lawyers specializing in this field before embarking on the practice. Most of the aspects that parties to a franchise tend to seek advice on including the licensing of trademarks, regulation of trade, and leasing of property.
In California, the trademark of the franchisor is considered to be the most important aspect of franchising. The reason behind this is that franchising involves allowing another business to operate under the brand of the franchisor (Fealing 64). The seller is often a successful business in the market. In most cases, it is one of the top performers in the industry where it operates. Franchisees operating under the trademarks of such successful firms are likely to attract high numbers of customers, leading to increased revenues. However, franchisors need to retain control of their trademarks. The major objective of this requirement is to ensure that the franchisor attains a competitive advantage over other firms operating in the industry. As a result, California law acknowledges trademarks as intellectual properties belonging to the originator.
The franchisor is, as a result, granted permission by law to limit the use of this intellectual resource. On their part, the franchisee is required by law to adhere to the limitations stipulated by the franchisor in the business contract. Failure to adhere to the requirements is considered a violation of a contract.
Franchisees operating in California are also concerned with the regulation of trade in the state. As a result of the complexity created by the variation between state and federal laws, businesses intending to buy and sell franchises are not sure of the exact guidelines to operate with. In most cases, they are uncertain of the legal repercussions that they may have to contend with by disregarding some aspects of the federal and California state laws (Fealing 61). As a result, most of the franchisors and franchisees tend to seek legal advice on the matter. The legal fee increases the cost of franchising and related business in California. The costs are included in the franchising fee charged to the franchisee. The high cost of this form of business in the state discourages investment.
Another issue that parties to a franchise in the state of California have to contend with is the leasing of property. Franchisees are faced with several uncertainties with regards to the need to acquire assets to support their trade. One of the activities undertaken by the franchisees is the determination of the most appropriate location of the new business establishment. They proceed to lease enterprises in preparation for the start of operations. However, the registration and approval of franchises in California is a time-consuming process. In some cases, the application for a franchise can be declined by the authorities (Fealing 68). As a result, franchisees may lose their investment if they had already leased enterprises before the denial of a permit.
The California Franchise Investment Law has put in place some of the most complex regulations for franchising in the US. The state of California requires franchisors to file their offer with the government. In addition, they are required to provide a detailed list of potential franchisees. The information is to be submitted alongside the disclosure document. The document is later scrutinized thoroughly to decide whether the franchisor’s offer to local franchisees is to be accepted or rejected (Fealing 62).
The process takes a lot of time to complete. Franchisors have to wait for long durations of time for the verdict to be made. The form of regulation differs from that adopted by the federal government. With the FTC rule, franchisors are not required to file a registration with the federal or the state government. The complex registration process discourages many franchisors from expanding their businesses into California. They prefer to open franchises in other states where there are few restrictions exist. Although the practice plays a role in the protection of local franchisees, it discourages investors.
The California Franchise Investment Law provided for the establishment of a regulatory body to play an oversight role in the regulation of franchises in the state. The body conducts thorough scrutiny of the disclosure document. Different aspects of the document are scrutinized. Aspects that are of key importance during the review include the registration documents tabled during the application, the financial statement of the franchisor, and the agreement to be signed by the franchisees (Fealing 62). Special attention is also given to executives from the franchising agency and the franchisor. California’s government’s move to scrutinize the applications of the franchisors is aimed at protecting its residents from deceptive companies.
Registration documents are scrutinized by the government to ascertain the legitimacy of the franchiser. The documents also contain a brief description of the franchisor. They also contain information on the nature of goods and services produced by the seller of the franchise (Fealing 64). The goods and services produced by the franchisor must also be of the locally accepted standards. Reasons, why the seller intends to work with a potential buyer in California, are also stated. In cases where the information provided by the franchisor is not adequate, the regulator writes letters to the franchisor to seek clarification. Franchisors are advised to respond to the letters promptly to speed up the evaluation of their applications.
The financial statement of a franchisor is scrutinized to determine its ability to conduct business in California with minimal financial problems. The evaluation is carried out to protect the local franchisees from entering into business with firms that may not be in a position to offer a steady supply of products (Fealing 63). Franchisors that are not financially stable are likely to cause serious losses to the local franchisees in terms of failed ventures. A franchisor is therefore required by the law of California to demonstrate that indeed they can satisfy the needs of the franchisees especially in terms of producing adequate amounts of goods to be sold in the local market by the franchisees.
Documents that are prepared by the franchisor in advance to be signed by the franchisees are also scrutinized by the government (Fealing 61). The main aim of the scrutiny is to make sure that the franchisor is honest to the franchisees and is not intending to deceive them. The California Franchise Investment Law also protects the franchisees from unfair terms and conditions stipulated in the franchise agreement. The buyers have the right to negotiate with their business partners. As such, the government of California requires that the contracts tabled by the franchisors to be signed be flexible to accommodate the needs of the franchisees.
To protect the local franchisees from fraudulent practices by the franchisors, the government of California also scrutinizes the executives of the firm selling the franchise (Fealing 61). The nature of a company’s dealings is directly related to the conduct of its executives. As such, scrutinizing the executives will give the government of California a picture of the expected nature of the franchisor. Franchisors with executives of questionable character have their applications declined. The executives of the agency that is involved in the sales of the franchise are also scrutinized. The scrutiny involves assessing previous franchises sold by the agent and their performance. Agents whose previously sold franchises are associated with disputes are denied registration.
The California Franchise Investment Law also restricts the power of the franchisor to deny the renewal of a franchise contract, as well as to terminate the already existing agreement (Fealing 64). The franchisor is required to have a good reason to terminate the franchise. In addition, the government of California expects them to purchase the surplus stock held by their business partner. The government also expects the same from franchisors who are not willing to renew their franchise contracts with the franchisee. In cases where the franchisee dies, the franchisor is required to continue honoring the terms of the franchise even when the franchise is under the control of the next of kin.
The franchisee is also required by the law of California to disclose their financial status to the franchisor. The information given should be accurate and should be free of errors or omissions. The franchisee is also prohibited from giving false information to the franchisor. According to the California Franchise Investment Law, the franchisee is also required to carefully study and contemplate the terms and conditions of the agreement. They are required by the law of the state of California to adhere to the terms of the agreements reached at the time of signing the contract (Fealing 61).
The Parties Protected by the State Law
The California Franchise Investment Law protects both the franchisor and the franchisee. Unlike the FTC rule, the law of California has more strict controls on franchising (Fealing 61). The regulations are seen to be geared more towards protecting franchisees at the expense of the franchisors. To begin with, franchisors are required by the law of the state to furnish the government with a disclosure document during registration. The document is thoroughly scrutinized to ascertain that the franchisors are legitimate. The law however does not require the same of the franchisees. As a result, many franchisors view the practice as a move to limit their entry into the business. The practice, therefore, discourages investors into the state (Fealing 78).
The California Franchise Investment Law also seeks to establish the financial status of the franchisor. A franchisor is required to be financially stable to protect the local franchisees from losing their investments. The financial stability of franchisors ensures that the local franchisees in California are assured of a constant supply of the products for distribution (Fealing 63). Financial stability also ensures that the franchisees residing in California do not enter into a contract with franchisors that are at risk of going bankrupt.
The executives of the franchisors and the agencies involved in the selling of the franchise are also scrutinized (Fealing 61). The move by the government is aimed at ensuring that the local franchisees only enter into contracts with businesses that are run by competent and trustworthy individuals. Those who are found to be undesirable are denied registration. The history of the franchisor, in this case, plays a key role in determining the verdict to be made by the regulator.
In California, the powers of the franchisor in a franchise are limited (Fealing 67). As such, the interests of the franchisees are protected by the law against unfair practices by franchisors which include the termination of the franchise contracts and the denial of renewals. The franchisor is required by the California Franchise Investment Law to provide a good reason they have resulted to taking the step. Even then, the seller is prompted to pay for the remaining stock held by the buyer (Fealing 63).
The California Franchise Investment Law however to some extent also protects the franchisor. The law prohibits the franchisee from withholding vital information from the franchisor (Fealing 63). Failure by the franchisee to adhere to the set guidelines in the franchise contract will result in the termination of the arrangement. The government of California also acknowledges the franchisor as the owner of the trademark, as such, the seller of the franchise is allowed to exercise control over it.
Legal Implications of the Law
The California Franchise Investment Law is viewed to be a government initiative to protect the interests of the franchisees operating in the state’s jurisdiction. Unlike the requirements of the federal law, franchisors wishing to operate in California are required by the state law to provide the government with a disclosure document. The document indicates the financial position of the franchisor, the terms and conditions of the agreement, and the executives (Fealing 61). A franchisor has to maintain good conduct to be able to conduct business within California. Franchisors with limited resources are also locked out of business by the government. Franchisees in California are therefore at a lower risk of losing their investments through franchising compared to other parts of the United States of America.
Franchisees are also advised by the government to carefully evaluate the terms and conditions of the franchise contract before signing (Fealing 69). Since the law allows for the negotiation of the terms of the agreement, both the franchisor and the franchisee are considered to be responsible for their decisions in the franchise. As a result, they are liable for their decisions. Failure to adhere to the terms and conditions of the franchise will result in legal measures taken against the party.
How the European Countries Define and Regulate Franchising
Franchising activities have a significant effect on the economy of European countries. According to the European Union (EU), franchising is a uniform commercial activity that produces desirable outcomes in an economy in terms of improving a firm’s access to the market. The practice also increases a firm’s ability to distribute its products to foreign markets (Bishop 4). Currently, there exist over 10,000 brands that have franchised their operations within the member states of the EU.
The countries enjoy over 300 billion US Dollars in terms of incomes generated through the practice (Az 16). Despite the large number of franchises that exist in the region, many economists believe that franchising in EU member states has not been exploited to its full potential compared to other developed countries, such as the United States of America and Australia. Failure to achieve the desired levels of franchising in the region has been attributed to the lack of clear frameworks to guide franchisors and franchisees through the process. The EU also lacks a regulatory body to formulate policies that clearly outline the requirements to be fulfilled by parties wishing to engage in the practice (Az 16).
It has also been noted franchises are not proportionately distributed among members of the EU (Az 14). The situation is especially evident among the major members of the regional body, such as France, Germany, the United Kingdom, Spain, and Italy. Despite the cohesion that exists between these countries, franchising as a commercial activity has not been seen to promote trade among the countries (Bishop 4). The reason behind this is that their lack of proper frameworks that control franchising between the countries. The EU member countries also have their domestic regulations that tend to differ from those used to guide franchising collectively for all the states.
As stated earlier, individual governments operating under the EU have their regulations aimed at exercising control over franchising activities within their national borders (Az 16). The regulations are aimed at protecting domestic franchisees and franchisors from incurring losses resulting from failed investments. Domestic governments are of the view that failure to regulate trade with foreign franchisers will leave the local entrepreneurs venerable (Az 17).
Competition is one of the negative effects likely to be experienced by a country because of uncontrolled trading activities. Although competition is desirable in the promotion of trade, member countries are afraid that infiltration of the country by foreign firms will hurt the local businesses by reducing the taking over the market. Domestic governments also come in to regulate the franchising activities carried out within their authority to control the quality of goods and services being consumed within their borders (Az 16). Franchisors must produce goods that are of acceptable quality in the foreign markets where they wish to franchise.
Regulation of franchising among members of the EU is carried out based on a number of heterogeneous laws agreed upon by the member states (Az 16). The regulations provide guidelines to be followed by businesses wishing to sell franchises to franchisees situated outside the country. The EU formulated regulations are established to promote franchising activities across national borders (Bishop 4).
Like other regional trading blocs across the world, the EU aims to promote free trade among its members. In line with these objectives, the EU must create a favorable environment that allows for the free movement of goods and services among its member countries (Az 17). Through franchising activities, businesses in member states enjoy increased growth as a result of the expansion of the market environment. The major limitation faced by the EU regulations is that they do not surpass domestic regulations established by individual countries (Az 12). As a result, the effectiveness of the EU regulations solely depends on the commitment by the individual countries to the regional body.
The presence of both domestic and regional regulations makes franchising a complex process (Az 16). As a result, both franchisors and franchisees experience confusion as they decide on the regulations to adhere to. The confusion has a great impact on the time taken to establish successful franchises. The reason behind this is that franchisors and their potential franchisees are required to seek legal advice before the start of operations to avoid breaking the laid down rules governing franchising (Az 25). In such a case, the regulations are viewed to be hindering regional development and integration. Most franchisors also avoid moving to foreign markets as a result of the complexity of the regulations. As a result, they embark on selling franchises only within the boundaries of the countries where they reside (Az 16).
The practice has a negative impact on the level of production. Since the goods and services to be produced are only meant for the domestic market, they are produced in small quantities. Firms are not able to enjoy economies of production as would be the case in an ideal situation whereby the EU would facilitate free movement of goods and services in an attempt to widen the market for the regional producers (Bishop 7).
The complexity of the franchising regulations also results in the growth of monopolies (Bishop 4). The situation is most evident in the domestic markets. As a result of the complexity of the rules and regulations governing franchising, franchisors are not able to supply their products to potential franchisees in the foreign markets for distribution (Az 16). The situation reduces competition among producers in domestic markets.
The producers experience exponential growth since they own both production and distribution systems in the domestic market. The situation is not ideal for trade since it results in the growth of monopolies within the countries where such businesses are located. Monopolistic practices also result in the exploitation of consumers (Az 19). As monopolies emerge, smaller brands are suppressed. Potential investors are also discouraged from entering such markets. As a result, the individual countries are bound to experience reduced economic development as one of the long-term effects of inhibiting franchising effects.
As a result of the negative effects that are associated with reduced rates of franchising often contributed to by conflicting regulations existing both at the national and regional levels, EU members countries have been able to appreciate the need to come up with a comprehensive framework to govern the practice (Bishop 4). The EU through the European Commission has over the years been able to sensitize its members on the need to encourage franchising activities across their borders by adopting a heterogeneous regulation framework (Bishop 6). Major strides have been realized following these lobbying efforts. One of the major achievements achieved is the adoption of Regulation 4087/88 in 2002 as a general standard to regulate franchising activities in the region.
The standard defined franchising as a package of legal rights which permit the use of intellectual property and industrial rights in service provision and sales of goods to their end-users (Bishop 5). The rights are sold by the franchisor to the franchisee. In the franchise agreement, the franchisee can be granted a permit to use the business models and designs of the franchisor. The franchisor can also allow for the use of other intellectual properties by the franchisee, such as the trade name used to conduct transactions, shop signs, copyrights, and trademarks (Az 13).
The franchise agreements are normally drafted by the franchisor (Bishop 4). They are drafted in accordance with the laws regulating franchising of the country in which the franchisor resides. The law allows the franchisor to draft the agreement so that it can put in place measures to protect the identity of its trademark (Bishop 3). Through the practice, the franchisor is also in a position to put in the necessary regulations that are aimed at ensuring that the reputation of their franchise network is safeguarded. In this case, the franchisors are viewed to be in control of all aspects of the relationships that exist between them and the franchisee (Az 16).
With the adoption of Regulation 4087/88, franchisees were required by law to only purchase goods and services that are produced by the franchisor (Bishop 4). The goods and services are to be later distributed to end-users. In cases where the franchisor is not in a position to supply the franchise with the goods and services directly, the franchisee can be required to obtain the supplies from other enterprises designated by the franchisor (Bishop 4).
The franchisee is hereby forbidden by the law from acquiring stock from suppliers other than the franchisor without its permission. Failure to adhere to the regulation is considered a breach of the franchise contract. The franchisor is allowed by the law to respond to such acts through actions such as termination of a contract. The franchisor can also institute legal proceedings against the franchisee on the grounds of breach of contract (Az 19).
The adoption of Regulation 4087/88 also saw the adoption of a general rule that franchisees shall not engage in a competing business (Bishop 7). The sole role of the franchisee in the commercial arrangement is to distribute the goods supplied by the franchisor. The franchisee is allowed the right to the trademark of the franchisor for use only in conducting activities that are beneficial to both parties. The trademark rights are offered to the franchisee to promote sales while the franchisor retains all the production rights (Az 12). The franchisee is also prohibited from selling the franchise without the franchisor’s consent. The new owner of the franchise must also comply with the terms and conditions of the original franchise contract (Bishop 3). The franchisor can also result in designing a new contract altogether.
Regulation 4087/88 also requires the franchisee to comply with all the franchisor’s standards of operations (Az 16). In this case, the franchisee is required to adopt the business models and designs that are used by the franchisor (Bishop 2). The provision is aimed at maintaining homogeneity like the goods and services sold within the entire franchise network. As such, the integrity of the franchisor’s trademark will also be guaranteed. The franchisee should also be maintained as per the franchisor’s requirements. The franchisee is required to paint and name the business as per the franchisor’s requirements. Failure to adhere to these requirements may result in the termination of the franchise contract (Bishop 4).
The franchisee is also required by law to pay a fee to the franchisor (Bishop 3). In many cases, the franchisee is also required to invest in the franchise network. The investment is often in form of a capital contribution. The advertisement cost is also shared between the franchisor and the franchisees (Az 16). The schedule of payment for these fees is as stipulated in the franchise agreement signed by both the franchisee and the franchisor. Failure to pay the fees constitutes a breach of contract (Az 13). The franchisor can result in taking legal actions, such as taking legal measures in response to the breach of contract. The franchisor in this case can also terminate the contract.
The Parties Protected by the Law
The EU regulations are seen to protect the interests of the franchisor. To begin with, the franchisor is granted the right to draft the franchise contract (Bishop 2). No consultations take place between the franchisor and the franchisee in matters concerning the terms and the conditions of the contract (Az 16). In this case, the franchisor is said to be in full control of all aspects of the franchise.
The franchisee is also required to buy goods directly from the franchisor (Bishop 8). Alternatively, the franchisee may be required to obtain supplies from a third party designated by the franchisor. As a result, the franchisor benefits from the arrangement by developing channels for the distribution of their product. The franchisor is also protected by the law in that it retains all production rights. The franchisee is not allowed to engage in activities that are viewed to bring competition to the franchisor (Az 13). The franchisee is also prohibited from selling the franchise without consulting the franchisor.
The EU franchise regulations are also viewed to promote the interests of the franchisor by requiring the franchisee to adhere to the franchisor’s operational standards (Az 16). As such, the services and products sold by the entire franchise network are similar. Through consistency, the integrity of the trademark is guaranteed (Az 14). The requirement that a franchisor makes a capital investment to the franchise network increases the worth of the franchise. The franchisee also compensates for a fraction of the advertisement costs incurred by the franchisor (Bishop 4). The regulation helps the franchisor cut the cost of operating the franchise network.
The Legal Implications of the Legislation
The franchisor is the major decision-maker in the franchise network (Bishop 4). It drafts the franchise contract in a manner that ensures the protection of the trademark (Az 16). The franchisee is also prohibited from selling the franchise without the consent of the franchisor. As such the franchisor’s intellectual property is recognized and protected by the law (Bishop 7). The signing of the franchise contract by the franchisee is an indicator that it has clearly understood the terms and conditions of the contract and guarantees to abide by them. The franchisor is therefore empowered by the law to institute legal proceedings if the franchisee fails to abide by the terms of the contract. Termination of the franchise contract is also justified in such cases (Bishop 4).
The transfer of intellectual property rights also comes at a fee. The franchisee is required to adhere to the entire payment schedule as stipulated in the franchise contract (Bishop 4). Failure to pay the franchise fee amounts to a breach of contract (Az 16). In such a case, the franchisor can sue the franchisee for failure to abide by the terms of the contract. The franchiser can also use the issue as grounds to file for the termination of the contract.
The franchisee is also required to cater for extra expenses incurred by virtual being a member of a certain franchise network. Such costs include those associated with advertising. The reason is that the franchisor advertises the entire trademark (Az 16). All the members of the entire network reap benefits from the advertising activities. Most franchisors as a result charge their franchisees advertising fees that are used to cater to future advertising expenses. The fees are paid regularly to promote consistency. Members of the franchise network who may not be willing to collaborate with the others are in most cases expelled by having their contracts contaminated because they are not working towards the development of the trademark.
How Franchising Turns into an Agency
Franchising is a commercial activity that involves the granting of permission to use successful and reputable trademarks that are currently operating in a specific industry. The arrangement is scheduled to remain in place for a specified period. It simply refers to the sale of franchises (Gillis and Combs 5). Both the seller and the buyer of the franchise benefit from their participation in the business activity. To begin with, the franchisee can adopt the business models and designs of high-performing firms. The franchisee is also allowed to operate under the trademark of the franchisor (Gillis and Combs 6).
As a result, the franchisee is likely to record substantial growth within a limited duration of time. The franchisor’s brand name is particularly likely to attract more customers for the franchisee, therefore, promoting sales. The franchisor also enjoys a number of benefits from the activity. For example, it is noted that franchising comes at a fee, which boosts the franchisor’s capital base. In addition, the franchisor can expand the market for their goods.
As a result of the widespread use of commercial activity, franchising activities have been simplified across the globe. For example, more countries and independent states are adopting legal frameworks to help fast-track franchising activities. With these regulations in place, the time taken to form franchises is significantly reduced, which benefits the investors and the economy at large. The cost aspect of the activity is also likely to be significantly lowered.
As a result of the relative ease associated with the formation of legally recognized business relations, other forms of relationships between businesses are also emerging across the globe (Gillis and Combs 5). The formation of agencies is one of the current trends. The new form of the business relationship has in the past been confused with other legal relationships existing between firms, such as franchises (Az 17).
An agency refers to a form of relationship between two parties whereby one acts on the other’s behalf (Gillis and Combs 4). The two parties are the agent and the principal. The relationship is often characterized by the principal delegating tasks to the agent. Usually, both parties have divergent interests (Gillis and Combs 2). The reason for delegation by the principal is that they lack the set of skills and knowledge that is required to undertake the task that is to be assigned to the agent. The principal in most cases also lacks the resources required to facilitate the completion of the task that has been delegated (Gillis and Combs 2). The agent is required to carry out the task diligently. They should safeguard the investments made by the principal. However, this is not often the case with the agents seeking to look at his or their interests first.
Agents in most cases tend to overstate their qualifications, skills, and conduct. The reason for this is to make them more desirable to the principal compared to other prospective agents (Gillis and Combs 2). Upon being sought to perform a particular task by the principal, the performance of most agents does not match their previous self-description (Gillis and Combs 2). The reason behind this is that they tend to withhold their efforts as they offer their services to the principal.
The reason as to why the agents tend to withhold their efforts is that the outcomes of their activities do not in any way mean that they will get higher rewards for their service (Gillis and Combs 4). A good example of a principal-agent relationship is that which exists between an employer and his or her employee. Usually, the salary of the employee is constant. It is paid regularly without putting into consideration how much effort the employee put into the tasks provided to him or her.
To encourage agents to put more effort into the tasks that have been provided to them, added incentives are introduced (Gillis and Combs 3). The incentives include rewarding the agents in terms of a proportion of the profits generated once all the costs of operations have been subtracted from the total output that was generated by the principal owing to their efforts (Gillis and Combs 5). In such as case, agents are not likely to withhold their efforts since they are aware that they are bound to reap benefits from their efforts. Through incentives, such as commissions, agents carrying out tasks on behalf of the principal also strive to put in efforts to the best of their ability to increase their earnings.
Similarities between an Agency and a Franchise
A franchise is also similar to an agency in that two parties are involved in each of the business types. For the case of franchising, we have a franchisor and a franchisee. Agencies on the other hand are composed of the agent and the principal (Gillis and Combs 3). In both cases, one of the parties is inferior to the other. In the case of franchising, the franchisee is inferior to the franchisor. In most cases, the franchisor is often a large successful firm.
Often, it is usually one of the market leaders within the industry where it operates. Its trademark is often one of the most coveted (Gillis and Combs 3). Smaller firms, such as the franchisee often seek to purchase the intellectual property rights of the franchisor to become to promote sales. The stock provided by the successful brands is also of high quality which helps market the franchisee (Gillis and Combs 2).
The interests of the parties to the two business types are also divergent (Gillis and Combs 3). In the case of an agency, the principal is interested in the success of the agent in undertaking the task that was delegated (Gillis and Combs 2). The principal also pays much attention to the quality of work that was done. On the other hand, the agent is interested in the compensation that he or she is likely to receive resulting from performing the task as per the principal’s requirements. Little or no attention is given to the quality of the task performed. In the case of franchising, the franchisor is interested in the distribution of goods through having successful franchise ventures (Gillis and Combs 4).
As a result, the franchisor is interested in identifying potential franchisees who are aggressive in marketing and those who are spread across wide geographical locations (Gillis and Combs 4). With a large number of franchisees, the franchisor will be in a better position to infiltrate the market. Franchisees on the other hand are entrepreneurs who are interested in profit-making. Their major concern is whether their franchises will pick up within a short period to generate income (Gillis and Combs 4). They are also highly concerned about the territory they operate with. They seek to invest in areas where the market is not flooded for them to make the most profits within a limited amount of time.
In both franchising and agency, the larger party often exercises control over how business activities are to be carried out (Gillis and Combs 6). The franchisor exercises control over the franchisee. The franchisor owns the trademark. Franchise laws recognize the trademark as the most important aspect of conducting business within a franchise (Gillis and Combs 4). As a result, the franchisor is allowed to come up with most of the regulations to govern the arrangement. Allowing the franchisor permission to control the franchise is justified in that it is trying to protect the trademark from being abused by the franchisees (Gillis and Combs 3).
The franchisee on the other hand has minimal say concerning the terms and conditions that are used as the guidelines for a franchise contract. In most instances, the franchisee is not even consulted when the agreement is structured. As the inferior party, the franchisee is required to sign or decline the offer made by the franchisor as it is without attempting to make changes to the contract (Gillis and Combs 5).
The same also applies to the agency type of business. The principal exercises control over the new agent. To begin with, the principals come up with the task that they wish to be completed on their behalf by the agent. The principal also comes up with the terms of being met in the final piece of work produced by the agent. The agent in this case too has no say on how business between the two parties is to be handled (Gillis and Combs 3). Typically, the agent is treated as one of the principal’s employees.
The relationship that normally exists between a franchisor and a franchisee is a typical agency (Gillis and Combs 4). In this case, the franchisor acts as the principal while the franchisee plays the role of the agent. Similar to franchising, the franchisor, in this case, the principal delegates to the franchisee, the agent the tasks to be performed (Gillis and Combs 3). In this case, the interests of the franchisor are to be given priority.
The practice is similar to that which is observed in an agency whereby the agents put the interests of the principal first (Gillis and Combs 3). A franchisee is required to promote the trademark of the franchisor by marketing and distributing products to their end-users. The franchisor enjoys increased volumes of sales since the franchisees are only allowed to stock supplies from the franchisor. Similarly, the agents are required to perform tasks delegated to them by the principals to the best of their ability.
Differences between an Agency and a Franchise
Although both business types are associated with delegation, the delegating business hires the services of the delegate for specific reasons (Gillis and Combs 3). In the case of franchising, the franchisor seeks to attract potential franchisees to help in the distribution of the goods that they produce. The franchisees, therefore, serve as the distribution channels for the franchisor (Gillis and Combs 4). The franchisor is keen to retain the production rights in order to control the franchisee’s access to the trademark. The fact that the franchisors seek the assistance of other firms however does not mean that they are not in a position to open supply chains within the preferred territory.
Franchisors often sell the distribution rights to the franchisees for them to better concentrate on controlling the production of goods a situation that allows for continuous expansion of the market through the selling of franchises. An agency on the other hand is whereby a business entity seeks the assistance of another to perform a particular task. Usually, the principal has little or no skills pertaining to the task to be carried out (Gillis and Combs 3). In other cases, the principal lacks the resources that are required to perform the required task.
Another major difference that occurs between the franchising and agency forms of business is that in franchising parties collectively work hand in hand to maximize their gains while parties to the agency are divided when it comes to matters of revenue generation (Gillis and Combs 3). Profits from the franchise are obtained from the sales of goods and services. The sale of the goods occurs at the franchisee level.
The goods however have to be manufactured by the franchisor inadequate amount to ensure that the franchise can satisfy the market. Once the goods have been manufactured by the franchisor, they are distributed to the premises of the franchisees where they are sold to their end-users. Usually, the franchisor is the manufacturer who supplies the franchisee with finished goods (Gillis and Combs 5). The sale of the goods to the franchisee generates revenue for the franchisor. The franchisee on the other hand distributes the supplies to the local people. The revenue generated from the sales made to the final user is retained for the franchisee (Gillis and Combs 3).
On the other hand, the agency composing of the principal and the agent is associated with minimal collaboration. The nature of their relationship however does not encourage cordial relationships. The agent is in many cases an employee of the principal. The agent benefits only from a salary he or she obtains from the principal. The principal on the other hand generates revenues from profitability encouraged by the use of successful business models.
Another major difference that exists between agency and franchising is that both the members of a franchise have a stake in the business while an agency is solely owned and operated by the principal (Gillis and Combs 3). In franchising, the business is solely owned by the franchisor. Up on franchising, the franchisor requires the franchisee to make a capital investment. As such, the franchisee is treated by the law as a partial owner of the business. The franchisee also buys stock from the franchisor (Gillis and Combs 4). Following the purchases of the goods, the franchisee sells them to the end-users.
The revenue generated belongs to the franchisee. Part of it will be used for the purchases of additional stock from the franchisor. The remainder of the money is used to settle some of the legal fees that exist after franchising (Gillis and Combs 5). In an agency, the agent is treated as an employee of the principal. The agent does not own any stakes in the business. There are also no laws or regulations that prohibit the termination of the contract between the principal and the agent.
Clear differences can also be identified between agency and franchising types of business based on the practice of withholding of effort (Gillis and Combs 1). Agencies are associated with the withholding of efforts while franchises are not. As stated earlier, an agent working in an agency has no motivation to spend considerable effort engaging in commercial activities related to the business. It is important to note that revenue is one of the major motivators among persons working within a firm (Gillis and Combs 3). As stated earlier, agencies are associated with small amounts of revenues. Since persons operating in the businesses are treated as employees, they are only entitled to a limited amount of income in form of a salary. The salaries are constant and do not change with the change in the output of the employee (Gillis and Combs 3).
As a result, workers become demoralized. They lack the motivation to put in a little more effort beyond that which is expected of them. The result of the practice is that the business experiences inhibited economic growth. Franchises on the other hand do not experience such effects. Both the franchisors and the franchisees are motivated to work hard since their efforts are seen to be beneficial in terms of increased revenues. Both the franchisors and the franchisees benefit directly from their efforts in terms of increased production levels (Gillis and Combs 6). They also realize the benefits of their work through increased sales volumes both in domestic and foreign markets. As a result, they will be motivated to continue putting in more effort.
Conclusion
Different countries have varying ways of conducting business. Franchising is one of the most highly regulated commercial activities. The regulations can be introduced at the local or regional levels. However, the existence of many regulatory frameworks may negatively affect the success of the practice. The reason is that the situation complicates the procedures related to the formation of these business relationships. Governments and regulatory bodies are required to come up with sound regulatory procedures that are easy to comprehend to promote the activity.
Works Cited
Az, Odavia. Franchising in European Contract Law: A Comparison between the Main Obligations of the Contracting Parties in the Principles of European Law on Commercial Agency, Franchise and Distribution Contracts (PEL CAFDC), French and Spanish Law, Munich: Sellier, 2008. Print.
Bishop, Bernard. European Union Law for International Business: An Introduction, Cambridge: Cambridge UP, 2009. Print.
Bruckmann, Barbara. 50th Annual Antitrust Law Institute, New York, NY: Practising Law Institute, 2009. Print.
Fealing, Kaye. Statewide Video Franchising Legislation: A Comparative Study of Outcomes in Texas, California and Michigan, Minneapolis, Minn.: Center for Science Technology & Public Policy, 2009. Print.
Gillis, William, and James Combs. “Beyond Agency Theory: A Resource-Based Explanation for Franchising and Franchisor Performance.” Academy of Management Annual Meeting Proceedings 3.1 (2009): 1-6. Print.
There is no use denying the fact that nowadays the world and society evolves rapidly. That is why, the main approaches towards the economy and marketing also change, obtaining new features. Aftermath of the world financial crisis influence the traditional approach to the sphere of marketing greatly and nowadays new and alternative ways to develop a company is being found.
Under these conditions, Saudi Arabia, traditionally being taken as the dependent on the petroleum-based economy, starts to make some steps in order to diversify away and find some other powerful sources of incomes for the budget. That is why, the shift towards a small business can be observed even there.
Nowadays, rather orthodox Saudi Arabia goes through a great number of various significant process which are able to change the character of its economy and obtain independence from the oil extraction industry (“Saudi Arabia – Marketing and Sales Strategy” para. 3).
With this in mind, it becomes possible to suggest the idea that the consumer perception about the alteration of some traditional patterns and increase of the role of franchise business in Saudi Arabia could be investigated in order to determine the attitude of people towards this shift and state whether it faces some significant problems or not.
Additionally, the main concepts of the notion of Marketing Mix could also be applied to the situation in Saudi Arabia. The alteration of some traditional patterns peculiar to the economy of a state means also the change of the categories which comprise the given marketing tool.
Thus, it is obvious that under modern conditions, such categories as product, price, promotion and distribution obtain new meaning under the influence of a great number of external factors. That is why, it is also vital to take into account the idea that the consumer perception could be affected by the set of factors that promote a certain development of the situation peculiar to Saudi Arabia.
Objective of the study
With this in mind, having outlined the main tendencies peculiar to the economy of Saudi Arabia nowadays, it is possible to outline the main objectives and goals of the given study.
Thus, the evaluation of the consumer perception about alteration in marketing mix and analysis of the franchise business and its peculiarities in Saudi Arabia could be taken as the main goals of the given paper. Moreover, four categories which comprise the Market Mix should also be analyzed. They are product, price, promotion, distribution. Additionally, the following hypothesis will be used
H1. The changes in the attitude towards franchises could be observed due to the main tendencies on the world market.
H2. Market Mixs alteration influences the change of the consumer perception.
Methodology
Taking into account the main aim of the given paper, it is possible to say that the survey which main aim is to collect the data connected with the attitude towards the shift of priorities towards the small business and franchising should be conducted. SPSS tool will be used to process and analyze the data.
Conclusion
Thus, it is possible to say that conclusion of the given paper will provide the final thought connected with the consumer perception about the Market Mix and the issue of franchising in Saudi Arabia. Moreover, the modern tendencies peculiar to the economy of the given state will also be outlined and analyzed.
Kazakhstan, the most flourishing economy among the Central Asian States, is one of the countries where franchising is abundant. While its economy is predominantly based upon its vast natural resources such as oil, franchising is an increasingly entrepreneurial venture for businesspersons in the country.
Kazakhstan’s main trade partners include Russia, Germany, China, Italy, France, and increasingly, the United States among others (EEFA, 2002, pg 1). The Kazakhstan economy mainly imports is machine apparatus, products of metal and food items. On the other hand, its exports include oil and the oil products, grain, chemicals, wool and meat among others (Dicken, 2003, p. 4).
Even though it is a term that has been with us for sometime, franchising is a fairly new phenomenon is Kazakhstan, and therefore, it has not reached its full application and potential in that country.
Regardless of this, Kazakhstan is the leading country in franchising business in Central Asia just as it is the leading economy in that part of the world. A number of brands originating from the United States are already ingoing the Kazakhstan market even though at a small-scale level and rate (Parshina, 2009, p. 2). Entrepreneurs are thus becoming deeply interested, from not only United Kingdom, Italy and the countries aforementioned, but also the United States of America (Dicken, 2003 pg 4).
This paper therefore seeks to address franchising specifically focusing on Kazakhstan, and with relationships that it has with other countries such as Russia, United Kingdom, and the United States among others.
While at that, the paper explores the true meaning of franchising, legal dynamics of franchising especially in Kazakhstan, a critical assessment of franchising in the country with reference to competition both foreign and domestic, as well as the market bottlenecks and opportunities available for exploration in so far as franchising is concerned.
Meaning of the term of franchising
Brimer and Smith-Porter (2004) reckon that to ‘franchise’ is one of the terms, which is at the largest part distorted, misunderstood if not abused in the business world. The central argument here is that the word is often used in the portrayal of the assessment attached to an individual or a trade name or in the description of an association or a relationship.
Beyond that, it is often used in building in consequential proficient and vigorous economic existence and co-existence (Dicken, 2007, pg 49). The confusion he notes, predominantly relates to the fact that franchising involves two parties which are the ‘franchisor and the franchisee’.
The trendy press, however, always tends to be more focused on the strain, anxiety and the litigation associated with franchising. This, according to Birley et al (2004), is one of the reasons that a number of business schools lean on disregarding it and often times very few business schools are teaching franchising presently in popular business discourses (Silova, 2010).
In the context of Kazakhstan, it is a construct that is characteristically having a huge number of franchisees who operate on sub-franchising conformities. Often times, the pilot franchisers are having foot/ground predominantly in Turkey and Russia, and very limited number of foreign franchisers work with Kazakhstan business enterprises. In fact, pundits suggest that they always have had preference with the Russian working partners (Thomas, 2010, pg 4).
Domestic Franchising Companies in Khazkhaztan
At the moment there are the number of Kazakhstan brands which may compete adequately with the foreign ones are few. However there have been a number of domestic companies which have flourished in the face of competition. The examples of these include BeautyManiya which deals in toiletries, perfumes, and retail cosmetics, DLC Forex Trade, Bukhuchet Nap-which deals in offering accounting services to SMEs, Folding Space-which deals in furniture, as well as S.Mile together with Nails Club. (Parshina, 2009, pg 3).
Legal Origin of Kazakhstan Franchising
Legally speaking, the country’s legal framework stipulating franchising business has been wanting if not absent. The only part of the pack legislation only came into being in 2002, paving way for the country’s adaptation of the franchising law. This act is called ‘On Complex Entrepreneurial licenses, 2002’ (OECD, 2006, pg 1). Among others, the legislation spells out ’franchising contracts, and creation of various foundations for the government to support’ (Gillespie et al, 2010).
Largely, they are basically relational laws that define the rights and obligations of the Franchisor. Some of the rights include directing quality of services/goods. Others are pre-determining the procurement of the acquisition if the franchisee relocate or move his/her company and deciding if to call off the franchising deal in the event that the franchisee goes against the agreed set of plans (Sherman, 2004, pg 49; Dicken, 2007, pg 58).
These laws broadly operate in concomitance with international practices and at the core hubs a number of stipulations including that a franchisor has the legal right to direct, organize as well as manage franchises and entrepreneurial operations (Sherman, 2004, pg 48).
Competitive analysis of the Kazakhstan Franchising: Foreign Franchising competitors in Kazakhstan
The competitive analysis of franchising in the country, Kazakhstan must be examined within the confluence of the countries it predominantly trades with and the ones, which have franchising influence in the country so far (Dicken, 2007 pg 67).
While entrepreneurs in Kazakhstan identify USA as the bedrock of franchising, and the one, which has been on the forefront in franchising concepts/ terms, the trading proper takes biases towards Russia, Italy, the United Kingdom, and Spain, with the US market saturation lagging behind (Gillespie et al, 2010). Regardless, some of the United States enterprises in the country include KFC, Office one superstore, Intercontinental and Calvin Klein Jeans (USA Diplomatic Mission, 2009, pg 1).
Besides, the Commercial Services that are USA connected are already in progression of relating with a good percentage of potential franchisers, and are at the moment in the concluding phases of instigating accords with the Kazakhstan domestic franchisers/partners or are in the core of creating their openings.
Dicken notes, for instance, that the areas in high requirement and demands are the fast foods. In addition, the U.S market is also taking other components of business. This is exemplified with the presence of Costa Coffee and the American Grill; these include “Business related education, as well as business services” (Parshina, 2009, pg 6).
Apart from the USA franchisers, a number of them operating in Kazakhstan are from Western Europe and Russia. Some of the western European Countries include Spain, Germany, the United Kingdom, and Italy. Some of the companies associated with these include Hugo Boss, Lefutur, Mexx, Tony and Guy among others, while from Russia comes Rosinter Group, just to mention but a few (Parshina, 2009 Pg 6).
Competitive analysis focusing on Domestic Franchisers
At the moment, the number of Kazakhstan brands in the market and competing with their foreign counterparts are few. This is because the foreign ones have been very dominant especially in because of the fact that their names are already widely recognized (Gillespie et al, 2010). This, as a consequent, has led to the limitation of the domestic franchising business entities not only loosing autonomy in Kazakhstan but also failing to penetrate foreign markets (Dicken, 2007 pg 71).
Indeed, the already established brand names compete and make the entrepreneurs to prefer foreign franchising against the domestic ones. However, a number of business scholars and business analysis have noted that with the decline of the Kazakhstan currency, and tailored around the probabilities to the acquisition of products locally, some firms have risked to undertaking local franchising to race against their foreign counterparts (Finkelerstein et al, 2005, pg 77).
The only negativity and limiting factor in this endeavor is the fact that franchising is not based on cost but rather on brand reliability and stability. This thorny factor has informed a limited number of local firms in Kazakhstan establishing these kinds of enterprises. The numbers are indeed few and some of the successful ones include Exotic Tea, DLC Forex Trade, Beauty Maniya, Folding Space, and Nails Club among others (Gillespie et al, 2010).
Competitive analysis of the Consumer Market and the limiting factors
In Franchising Business, market availability is a lead factor in determining the success of an enterprise (Dicken, 2007). The prospective (in terms of potentiality and capacity) of franchising business in Kazakhstan seems to be enormous. This evidently comes to the fore especially when one factors in the rate at which shopping malls as well as retail infrastructure are being established and developed in the country (Brimer and Smith-Porter, 2004).
These include, for instance, the fact that hypermarkets are continually being developed and opened across the country, with most of them in Almaty and Astana. Other centers of trade are also on being developed. Therefore, the consumer market is steadily growing (Dana, 2004, pg 47).
However, there are a number of factors that inhibit the rapidity of growth of franchising in a number of countries. These arguably apply to Kazakhstan and they include the following: One, Kazakhstan, just like many other countries, has a small population, with it standing at about 16milliom people.
Moreover, its population density is also relatively low to adequately anchor and support Franchising businesses (OECD, 2006). Two, the country’s legal mechanism as far as protection of intellectual property is concerned is wanting. The only piece of legislation that is not so elaborate came to being only in 2002 (OECD 2006, pg 2; Harris 2001 pg 1).
Three, there are limited measures for development and utilization of long-term financial opportunities as well as lack of precision and accountability benchmarks in the business setting. The other issue is on awareness and awareness creation tools. There is a low level of wakefulness of franchising prospects. Moreover, the mold and the franchising tools by the domestic entrepreneurs is not well grounded and developed (Finkelerstein et al, 2005)
Further, the rapid grand augmentation and development in real estate as an entrepreneurial endeavor option in the recent past has been an impediment. It has incredibly exaggerated franchising business in terms of reducing its profit, observably, impacting on the latest outlets, particularly ‘the high traffic areas’ (Parishana, 2009, pg 6; EEFA, 2002 pg 1).
The good news to this effect has been that, because of recent recession, the market prices of real estate have deteriorated noticeably and significantly and the expectation is that they are likely to keep at that if not lower over the next few years (Parishana, 2009, pg 6)
The other good news is that domestic consumption potential of the Kazakhstan people is progressively on the increase as well (Dana, 2004 pg 37). Therefore, there is an increasing demand for more services, a number of these services imply the use of franchising services, and this is becoming huge.
The areas with have evidently had immense prospective and attraction in this include ‘’Sales of business support services such as business consulting, building development’’, advertising, Personnel and related services in technological matters (Dicken, 2007).
Others are schooling services including teaching and foreign language discourse. Broadly, other tenets related to holiday and diversion in term of the entertainment industry and fast food are also flourishing, just as health and beauty services, retail sale, and clothing repair services have been (Feiler, et al., 2007 pg 67).
Certainly, the opportunities are much more than threats since franchising fits into the larger call of globalization. Dicken (2003) observes that this is perhaps realistic because of three issues.
One, each constituent blocks in the line-process of production and distribution must now rely upon technological impetus, which is further compounded with the consumer society and consumerism. Besides, every production chain across the board is propped with a system of financing and capital operations. In addition, all of them require regulation, control, and much more synchronization and management than in the previous historical epochs (Dicken, 2003).
Conclusion
Obviously, the strengths of franchising in Kazakhstan are many just as the impediments to it. Franchising, just like in many countries, has laid the groundwork of business opportunities and provides the span of capacity for individuals and businesses in Kazakhstan (Dicken, 2007).
This has increasingly led to pursuit and discovery of openings to meet their financial objectives and entrepreneurial penetration even though not to full potential. Of course, franchising allows business entities to construct affluence to changeable levels according to the scale of the business enterprise. Franchising in business is of course a clarion call to meet the demands of globalization since globalization is a buzzword; franchising in all countries can as well be buzzwords with the globalization itself.
Reference List
Brimer, J. and Smith-Porter, L. 2004. Annual Franchise and Distribution Law Developments. NY: America Bar Association.
Dana, P., 2004. Handbook of Research in International Entrepreneurship. Northampton: Edward Edgar Publishing Inc.
Dicken, P., 2007. Global Shift: Mapping The Changing Contours of The World Economy. London: Sage Publications.
Dicken, P., 2003. Global Shift: Mapping Reshaping the global economic map in the 21st Century, Fourth Edition. London: Sage Publications.
EEFA, 2002. A Comprehensive Resource for Effective Franchise Business in East and Central Europe. EEFA. Web.
Feiler, G. et al. 2007. Investing in Russia, the Ukraine, Latvia, Lithuania and Kazakhstan. Portland: Sussex Academic Press.
Finkelerstein, W. et al. 2005. Intellectual Property Handbook: A practical guide to franchising and Business. NY: ABA Publishing.
Gillespie, K. et al. 2010. Global Marketing. OH: Cengage Learning.
Harris, H. et al. 2001. Competition Laws outside the United States. NY: American Bar Association.
OECD, 2006. Local Capital Markets for Environmental Infrastructure: Prospects in China, Kazakhstan, Russian Federation and Ukraine. NY: OECD.
Parshina, O., 2009. Franchising in Kazakhstan. US-Commercial Service. Web.
Sherman, A., 2004. Franchising and Licensing: Two powerful ways to grow your business in any Economy. New York: AMACOM.
Silova, I., 2010. Globalization on The Margins: Education and Post socialist Transformations in Central Asia. NY: Information Age Publishing.
Thomas, A., 2010. Franchising Culture for Kazakhstan Television: Producers’ Ambivalence and Audiences Indifference. Web.
USA Diplomatic Mission, 2009. Kazakhstan Franchise Forum 2009 offers Unique Business Opportunities. United State Diplomatic Mission. Web.
Every new franchise is rooted in a number of complex business decisions and ideas. This paper reviews the major peculiarities of the UPS store franchise as well as verifies its underlying principles against the existing economic issues. This brand presents much interest in current business reviews since it exemplifies a successful startup and helps to perceive the foundation of the modern economy.
The UPS Store is a global corporation that provides various postal services. Specifically, the franchise specializes in printing, mailbox services as well as packaging and shipping. It was initially launched as an effective alternative to the American mail service and gained much popularity throughout the USA (“The UPS Store” par. 1).
The postal store possesses a huge financial potential, for the number of its units increases every year. Moreover, the UPS store is a successful provider of financing support programs. Thus, it offers a number of franchise loans to the new owners, which helps the beginners to feel secure in their future undertakings (“The UPS Store: Franchise Cost & Fees” par. 3). The financing serves as a prerequisite of successful franchising. According to Keup, “franchising is a method of market expansion utilized by a successful business entity wanting to expand its distribution of services or products through retail entities owned by independent operators using the trademarks or service marks, marketing techniques, and controls of the expanding business entity in return for the payment of fees and royalties from the retail outlet” (5). Thus, one can deduce that efficient franchising is a guarantee of the corporation’s prosperity.
The economy targets three questions that constitute its concept. These questions are aimed at the investigation of production sources, processes, and customer types. Therefore, they are usually regarded as ‘what,’ ‘how,’ and ‘for whom’ questions. The first issue refers to goods and services. The answer to the second question depends upon such factors as land and labor productivity as well as opportunity costs. Finally, a client implication determines the way in which a product or a service complies with a community’s demands (“The Three Fundamental Questions Every Economy Has to Answer. What, How, and For Whom” par. 1).
Applying the fundamental questions to the UPS franchise study, it may be outlined that the company offers mailing services by providing the customers with high-quality postal operations. Thus, the evaluation of the UPS’s work shows that the franchise’s land and labor productivity rank extremely high, due to the corporation’s constant extensions. The store targets various business establishments that are interested in mail services as well as the individuals who use it.
The three basic factors of production predetermine the outcomes of a franchise’s work. According to Ekelund and Hebert, the three factors are land, labor, and capital (703). The first factor embraces the actual resources that are used for a specific production. Since the UPS store specializes in services, it uses human resources. Due to the store’s motto, leadership helps the management to support the high standards of the services (“The UPS Store, Inc. Leadership Team” par. 1). Thus, the motivated and hard-working employees may be regarded as both efficient land and labor factors that determine the store’s success. The third factor refers to the financial and technological progress of the UPS. Due to the store’s productivity rankings, it may be concluded that the corporation advances in both budget and innovation extension.
Due to the rational management politics of the corporation, it demonstrates a progressive grow. Consequently, the UPS store serves as a model of a prosperous business startup.
Works Cited
Ekelund, Robert, and Robert Hebert. A History of Economic Theory and Method, Long Grove, Illinois: Waveland Press, 2013. Press. Web.
Keup, Peter. Franchise Bible 7/E: How to Buy a Franchise or Franchise Your Own Business, Irvine, California: Entrepreneur Press, 2012. Press. Web.
A franchise agreement is a set- up where a buyer is given exclusive rights to sell products of an already established firm. The buyer is called the franchisee and the parent company franchisor. Typically, franchisors give franchisees their brand name to trade with and offer help and support. Similarly, one may be licensed to produce and sell the franchisor’s products with no restriction on how to run the business (Frankoise, 1997). This paper highlights the pros and cons of franchising.
A franchise is advantageous over a new venture since it has low failure rates. According to conducted research, franchises stand a better chance of success than independent businesses (Coltman, 1988).
Secondly, a franchisor helps in the management of the enterprise; they provide equipment and supplies. In Liz’s case, she may be trained on good management skills while marketing undertaken by Food of Reality. The franchisor may also offer goods on credit and bulk as they have an established relationship with suppliers of goods (Francoise 1997).
Since franchises are firms with established brand names, franchisees enjoy the benefits of their investment (Hector, 2003). Franchisors spend a lot of money in branding and logos. Customers therefore find it easy to identify with the business since their brand is universally recognized. This is similar to buying a business as a going concern.
In some franchise agreements, a franchisor provides the location of the business besides a surety of available customer segment. Here, Liz stands to benefit from the goodwill of the parent company in terms of a ready market, strategic location, and customers. There are high profits that Liz may also reap from a franchise agreement.
Another important advantage concerns advertising. For every new business, advertising is vital. Franchisors cover commercial adverts and campaigns. Liz needs not to worry about advertisement of her products. Before one commits to a franchise agreement, they need to check the success of the parent company (Kestenbaum, 2008).
This is an added advantage since Liz already has a business idea that can be proven. Furthermore, exclusive rights in terms of location benefits a franchisee since franchisors do not allocate more than one franchisee in one territory. In this sense, Liz would benefit from low competition and massive market.
However, this agreement has its downsides. The initial cost of buying a franchise could be very high. Advertising, management, and trademark fees are included in the initial cost. Liz will have to rely wholly on the franchisor. If the franchisor exits the market, she will run out of business as well. Besides, lack of independence in the operations of the business therefore becomes a limiting factor.
Franchising agreement has restrictive terms particularly concerning management of the business. A franchisee is not at liberty to make any changes to correspond to the market changes (Sherman, 2003). Profits reaped from the business should be shared between Liz and Food of Reality. Furthermore, incase Liz wants to sell the business; she needs to have the approval of the franchisor. The buyer will have to be approved as well.
I would recommend that Liz enters a franchise agreement. Clearly, a franchise’s advantages outweigh the disadvantages. Additionally, Liz was a librarian. She therefore has no experience in the business field. To gather this, a franchise agreement would be a good starting point.
References
Coltman, M. M. (1988). Franchising in the U.S: Pros and Cons. USA: Self Counsel Press.
Francoise, J. (1997). Franchise Agreements within the European Community. London: Transnational Pub.
Hector, E. D. (2003). Advantages and Disadvantages of Franchising. New York: St Lucie’s Press.
Kestenbaum, H. (2008). So You Want to Franchise Your Business. New York: Harold and Knopf.
Sherman, A.J. (2003).Franchising and Licensing: Two powerful Ways to Grow Your Business in Any Economy. New York: Amacom.
Organizations and individual entrepreneurs continue to adopt more innovative approaches to business. Evidently, globalization and technological developments have played crucial roles in this business. Generally, these two factors have increased the rate of business processes. It is observable that brands have advanced beyond their domestic and regional markets (Schell 2011).
There is a notable platform for global business negotiation and franchise opportunities. There are several fundamental elements to be considered while establishing and conducting an international franchise. Strategies applicable in the management of complications associated with international franchise are eminent within all sectors of investment.
Entrepreneurs interested in franchise business must take into consideration the crucial challenges. Ideally, the basic objective is always to minimize the negative implications of franchise operations. Precaution and effective examination is vital for all parties interested in the global franchise business (Lorette 2013). This paper presents critical considerations to be undertaken during the establishment of a franchise investment.
Additionally, it describes the process of assessment of the risks and returns associated with the business. There is a description of the laws providing special protections to the franchisee. The report also indicates vital analysis and recommendations to be adopted by the franchisees.
Assessment of the Risk and Returns of the Franchise Investment
The report focuses on investment in the franchise within the Canadian hospitality industry. For this segment of international franchise, the interested parties must consider a variety of factors. However, it is vital for them to examine the risks and returns linked with this global franchise initiative. Canada is strategically fit for the establishment of the franchise.
Particularly, the country faces a huge influx of tourists and international travels (Herman 2013). This enables the hospitality industry to realize great revenues and profits. Therefore, it is the ideal destination for the establishment of this kind of investment. It is imperative to indicate that Canada has one of the greatest potential markets for the franchise sector.
The nation borrows a lot of franchise strategies and ideas from the major U.S business industry. Those involved in the franchise industry must note that Canada has distinct features. These might have severe business implications. Such important characteristics include the unique regional and the demographic elements. These factors require adequate attention for the business to realize its targeted success.
Franchising is a process in which the private businesspersons purchase the entitlements to establish and manage a site of a potential company (Arthur 2000). Regulatory concerns within Canada must be fully complied with during the process. The franchisor and the franchisee must be engaged in a legal contract.
The contract must indicate and explain the terms and conditions in a comprehensive manner. There are a variety of advantages and disadvantages associated with the franchise business. These must be noted before the franchisee signs the legal business contract.
The franchisee must note that the foremost procedure is to analyze and accent to the terms indicated within the contract. Failure to observe this consideration might lead to the experience of potential losses by the franchisee. The Canadian hospitality industry borrows certain regulations indicated in the “international franchise association” (IFA) charter.
Nonetheless, other regulatory frameworks emanate from the statutory provisions in Canada (Arthur 2000). The franchisee interested in the Canadian hospitality is entitled to several benefits. They are likely to obtain adequate familiarity with the company’s name.
In addition, the impact of the original company’s culture, brand and training may help in the development of a powerful franchise stature. These merits are vital for the successful running g the franchise business in Canada.
The franchisee is likely to benefit from the bustling hospitality industry in different ways. The high level of revenue recorded from the tourist sector is set to minimize the probability of failure of the franchise. The explicit Canadian business and investment policies might also lead to a considerable level of business success.
The parent company might be willing to extend its innovative practices to the franchise (Elgin 2002). These might include human resource training and apprenticeship. Employee welfare is one of the crucial elements of success. It must be extended to the franchise organization.
Generally, provision of a support strategy to the franchise owner has positive implications on its overall performance. The franchisee must face the elementary risk of raising the rights required for operation of the franchise. There are additional costs required to develop the necessary enterprises and functional systems. This may also cover employee remuneration.
The Canadian business laws must be complied with to the maximum level. These also include other necessities involving tax regulations and costs incurred during business licensing. The costs involving the authorization of the capacity to run and manage a franchise in the Canadian hospitality vary in a significant manner. The franchise entrepreneur may remain liable for other constant expenditures.
These might have negative implications on the business. Indicatively, they differ in orientation, such as those linked to the royalties and use of the name or brand of the mother company. In the end, such identifiable on-going expenditures might deeply minimize the level of expected profits (Lorette 2013). Other potential precautions might increase the level of associated business risks.
For instance, the Canadian franchise is still under refinement. Therefore, certain laws might predispose the franchisee to significant levels of risks. Certain regulations underlined within the franchise contracts appear very stringent and punitive to the business owners. The owners of the franchise must also comply with the contract. The aim is to reduce the likelihood of termination of the contract.
Factors to Be Considered For a Franchise Investment
There are diverse factors to be considered for a franchise investment in the Canadian hospitality industry. The franchisee must know that Canada has restrictions on trademarks. Canadian authorities only safeguard legally registered trademarks.
The power to register such trademarks is only exercised by the federal government. The importation of franchise laws from the U.S must be avoided. Particularly, the franchisee must consider innovative techniques applicable within the hospitality industry. Regulations that advocate for individual franchises must be reviewed (Schell 2011).
There are different franchise investment policies within distinct regions in Canada. These include the “grant master franchise and development agreements.” Observably, these franchise agreements remain unique for every province in Canada. Integration of the domestic businesspersons in the franchise process must be considered.
This is because it is a fundamental initiative that improves the level of engagement of local communities in the franchise process. It is also critical for the franchisee to adopt the “Canada oriented marketing.” This enables them to enhance the brand and extend the local market for the franchise (Herman 2013).
This initiative shall help the franchise business to flourish within Canada. The “Canadian franchise association”, (CFA) plays a crucial role in the regulation and protection of the franchisees. Therefore, the franchisee must examine and be conversant with the regulatory measures in the CFA.
Laws Giving Special Protections to the Franchisee
The provincial disclosure provisions are evident in three of the major provinces in Canada. Ideally, this provision offers the franchisee a special kind of cushion and protection from exploitation by the mother organization.
There are other provinces with necessary protective legislations for the franchisee. Generally, these regulations have different monitoring agencies throughout Canada (Herman 2013).
Some of the regulatory frameworks indicated under the provincial disclosure in Ontario and Alberta are aligned with those of the U.S. This regulation subjects the franchisor to certain conditions that must be attained before any business contract is signed by the potential investors.
For instance, all of the parties are required to make public all the material information regarding the deal. The “uniform franchise commission of Canada” is in the process of establishing a universal franchise law.
Recommendations
The franchisee must be aware of all legal requirements of the business within Canada. Additionally, it is vital to consider the refinement of these regulations. This shall help to enhance the development of a fully protective and regulatory authority.
The hospitality sector is one of the leading franchise industries with approximately 40% records (Schell 2011). However, many precautionary measures must be exercised to ensure minimal losses. The franchisee must be keen to develop effective and transparent business partnerships.
Comprehensive documentation and legal consultations are critical components of the franchise business. Stringent measures are appropriate in the practice of franchise business. It is also upon every investor to examine the franchise contracts before they accent to any conditions.
Works Cited
Arthur, A. Canada’s Hospitality Sector; Consolidation, Consolidation, Consolidation. 2000. Web.
Sanger Automotive Company wants to build an exclusive franchise agreement with Fisker Automotive inc. Fisker produces plug-in hybrid electric vehicles which are not well known in the market. The firm’s managers seek to collaborate with Sanger, a well known vehicle dealer operating in Florida and Georgia to sell their new Karma Sedan models in the area.
Fisker manufactures Karma Sedan, a plug –in hybrid electric vehicle which targets consumers who are more sensitive about toxic emissions. However, Sanger executives need to look at the impact of establishing this franchise on their long term operations. The consumer demand for electric vehicles is still unpredictable and as such, the firm may incur huge losses if it agrees to have Fisker’s franchise (“Sanger Automotive” 196).
The market for this type of car is still young because many consumers have little information regarding how electronic vehicles will suit their lifestyles. The vehicle industry is dominated by consumers who purchase electric vehicles based on what they know about specific brands.
Most buyers of electric vehicles have high household incomes and as such, this model is not suitable for the mass market. This is likely to affect Sanger’s operations because the firm is likely to sell fewer Karma Sedans every month. An issue which needs to be looked at is the incremental operating costs which Sanger is likely to incur if the franchise agreement succeeds(“Sanger Automotive” 196).
The firm needs to assess expenses it is going to incur in the franchise and how it will recoup them in its operations. This will enable the firm determine the viability of this franchise to its long term operations.
Sanger has a reputation for selling high quality luxury brands in the market. It caters for clients who have good average incomes. The firm will incur significant costs if it decides to sign up for the franchise agreement with Fisker. However, a market analysis shows that only 5% of potential customers are willing to spend more than 55,000 dollars on electric car models.
The tax credit of 7,500 dollars may fail to attract new buyers to the Karma Sedan because it has a market price of more than 96,000 dollars; a price which very few consumers can afford. The market is still indifferent to this model which may affect the uptake of these vehicles by consumers if the franchise agreement is successful.
This is because the Karma Sedan is a luxury model and other luxury models have registered less impressive sales figures in the past few years. If the franchise deal is agreed upon, Sanger will incur additional costs which are needed to make the new dealership operational (“Sanger Automotive” 197).
Sanger can pursue alternative courses of action to help it make its operations more competitive. The firm needs to conduct a market study in areas where its clients live to determine market perceptions regarding the Karma Sedan model. Information gathered will help the firm plan effective market strategies to help it serve the clients’ needs within these areas effectively.
Therefore, the firm needs to conduct a thorough market analysis to determine how it will add value to its potential customers in the market. It needs to come up with a business model which suits its operations to enable it make a positive return on investment.
Sanger needs to target specific markets which have customers that appreciate environment- friendly car models (“Sanger Automotive” 198). This can only be achieved through marketing drives that target specific client segments, which the firm seeks to attract.
Sanger needs to use its reputation as a luxury car dealership to help it achieve the growth it desires in the market. This will enable the firm manage relationships it has with its customers effectively, to help the Karma Sedan gain more following in the market. Sanger should advertise this model in its target markets to make more customers aware about its qualities.
The firm needs to estimate the value which will be attached to this vehicle brand in the market and how this will have an impact on its earnings.
The firm should hire dedicated sales staff who can make more customers appreciate the quality of this model. This will help the firm to engage clients more effectively to purchase the Karma Sedan. The firm needs to have strong market strategies to help it recoup money spent on other incremental costs before setting up the franchise (“Sanger Automotive” 198).
The qualitative criteria to be used include market studies which will be used by the firm to understand customer profiles and how they react to different vehicle models. This will help the firm plan effective market strategies to enable it grow its reputation in the market. However, a market study does not influence consumption patterns.
It can only be used together with other business strategies to help the firm grow its influence in the market. The firm’s unoccupied location helps the firm reduce costs which would have been incurred on setting up a new dealership.
The location has the required infrastructure needed to make the firm carry out its operations effectively. The cost factor is an important one when deciding on this decision (“Sanger Automotive” 199). This will help the firm reduce initial costs required to make the dealership operational.
Participation in luxury motor shows is a god way by the firm to make more customers aware of what it does in the market. The need to increase sales volumes is the quality criteria used to make this decision. The firm needs to look for market strategies which help it increase sales revenues it gets by selling these models.
This will make it possible for the firm to create demand for its products in the markets and this will help it increase its earnings. The firm should also find ways to train its sales staff to handle its clients well. This will help to improve customer relationships the firm has with its clients (“Sanger Automotive” 199).
This is an approach intended to increase the number of these vehicle models which the firm sells in the market. Sales staff need to have more knowledge about various attributes of design of the Karma Sedan. This will help them explain to customers properly about how the vehicle functions and how it is suitable to their lifestyles.
A market study will help the firm understand the profiles of different customers better. It also helps the firm to understand their lifestyles to determine products which are suitable for them. A market study may fail to reveal crucial information about the consuming public. Some potential consumers may be loyal to other car models. Furthermore, a market study does not influence consumption patters.
It only helps a firm formulate effective market strategies to enable it sell more products. The existing unoccupied location enables the firm to establish a dealership without incurring a lot of expenses.
The location hosted a previous dealership and has existing service facilities which the firm can renovate to help it serve its clients better (“Sanger Automotive” 200). However, the uptake of electric cars remains low and it may take time before the firm recoups the money it spends on establishing this dealership.
The firm’s strategy to market the vehicle as a high quality electric powered model, may earn it loyal customers in locations it operates. However, this approach may limit its earnings because the niche target market may be smaller than expected. This will have a negative effect on the firm’s earnings in the industry.
Marketing the vehicle in motor shows may be beneficial to the firm because it is likely to generate interest in potential consumers, which may drive sales revenues upwards.
However, this approach may fail to improve consumer perceptions towards the car because other competing models may be more attractive to potential consumers. Various attributes in the vehicle’s design may encourage more customers to be attracted to the model. However, the firm’s staff may not be able to explain these functions clearly to clients (“Sanger Automotive” 201).
Decision Selected
Advantage
Disadvantage
Market Study
Helps the firm understand clients better.
Does influence consumption patterns.
Existing Location
Helps the firm reduce start up costs.
May become expensive to maintain if sales volumes are low.
Motor Shows
Helps the firm increase sales revenues by creating consumer interest.
Other models may attract consumers. Occur after long periods of time.
Training staff to be more competent
Staff make customers more aware about vehicle’s design qualities.
Sales staff may fail to explain to customers how the vehicle works.
Table 1: Advantages and Disadvantages of Major Decisions Selected
Sanger is likely to incur an estimated total of more than 320,000 dollars before setting up the dealership. These costs exclude marketing and the prices of each individual units. It should be noted that Fisker will be delivering vehicles to the showroom at a price 10% less than the market price.
This makes it possible for the firm to get a positive return on investment. Since the price of this model is very high, the firm should only display few cars to evaluate the way customers respond to it. The firm should also ask Fisker to offset some of the costs which will be incurred in marketing, advertising and branding. This will make it allow the firm make more customers aware about this model (“Sanger Automotive” 202).
The dealership will be beneficial to the firm in the long term. Sanger needs to sell other vehicle accessories manufactured by Fisker which work with this model. This will strengthen the franchise relationship the firm has with Fisker.
Additional services which will be offered at the location will encourage more customers to purchase the Karma Sedan, which will improve its value in the market. Other marketing options do not guarantee the firm a positive return on investment. They are likely to make the firm incur a lot of expenses which it may not be able to recoup (“Sanger Automotive” 203).
The firm needs to look at returns it makes from its dealership annually to understand different market trends and consumer behavior.
The firm also needs to assess earnings it makes from the franchise to forecast future performance of this vehicle. It also needs to evaluate profiles of customers who purchase this vehicle to establish strong relationships with them. This will help the firm understand the needs of its customers in the market effectively.
Works Cited
“Sanger Automotive Companies: The Fisker Franchise Decision.” Case Study (2013): 196-205. Print.
Choosing the type of business ownership that a particular organisation is going to be characterised by is an essential step towards starting a business. Unless every single factor is taken into account when locating the type of business ownership for a particular entrepreneurship, the latter is unlikely to thrive in the inimical environment of the global economy.
Of all types of business ownership that are especially popular in the 21st century, private limited companies and franchises deserve a specific mentioning. Though both have their pros and cons, the advantages that an Ltd. organisation has to offer seem to outweigh the ones of a franchise in terms of the control that the company leader has over the operational, financial and organisational processes within the firm, as well as the opportunities that the specified type of business provides.
The toilsome experience that the Rubber Road ltd. meant for its leaders encapsulates the risks and problems that one has to face once the type of business is chosen wrong. What could have worked once established as a franchise and promoted as such turned out a major mess once turned into an Ltd. with a much more complicated setup including a huge increase in formalities and less controllable organisational and production processes.
Introduction
With the concepts o f global economy having become ubiquitous over the past few years and affecting every single company from a SME to a large enterprise consistently, the choice of a type of business ownership has become more than merely a mode of operating within a particular environment.
While the conditions for organisations to evolve in have become admittedly more pliable once the area of companies’ operations was stretched to global levels, the factors that might possibly become the reason for a company’s rapid detriment have also been enhanced; among the key problems that most organisations face nowadays in the realm of global economy, high competition rates and rather terse deadlines for completing the key goals of the action plan established.
As a result, the success of an entrepreneurship often hinges on the type of the business chosen, i.e., the set of liabilities that the organisation accepts, the structure, in accordance with which the company is going to be built, and the assets, which the company wants to utilise in the specified realm.
Though private limited companies (Ltd.) and franchises are often viewed as similar concepts and admittedly have a lot in common, each type still has a set of unique advantages and disadvantages, which makes the choice between the two in the realm of the UK market rather difficult.
Purpose
The purpose of the paper is to evaluate the efficacy of each type of entrepreneurship, as well as assess their viability in the realm of the 21st-century, based on the example of a particular Ltd. company. In addition, the opportunities for both a private limited company and a franchise will be evaluated as applied to the economic and financial environment of the United Kingdom.
There is no need to stress that the success of running a company depends on a variety of factors, including both the internal ones (e.g., the type of business organisation) and the external ones (e.g., the economic climate of a country, the type of market that the company enters in, the amount of competitors, etc.). Therefore, it will be crucial to incorporate the key features of the UK economy into the analysis.
According to the existing data, there are a range of factors that can be viewed as rather favourable for the evolution of SMEs and larger entrepreneurships in the country. Particularly, the growth of the GDP rates (British Chambers of Commerce 2014) must be mentioned (2.5% from 2013 to 2014). In addition, the average number of hours per worker has increased, which, along with reductions of unemployment rates, can be viewed as an upgrade of the state economy (Cohen & Kietzman 2014).
Therefore, the economic environment of Great Britain can be viewed as overall auspicious for the development of a private business. However, the specified characteristics of the British economy may become a major obstacle in promoting an organisation in the environment of the global market and an enhanced competition.
The insouciance of a company that has been accustomed to a relatively calm and nonthreatening world of the British economy may reduce the company’s chances for success in a more challenging environment (Bretani et al. 2010).
Scope
When it comes to defining the scope of the report, one must mention that the focus is going to be on the companies that are identified as the British ones, yet the analysis of their operations is going to be taken to the level of the global economy. In other words, the necessity to evaluate and compare the efficacy of the specified types of businesses emerges.
In order to create the environment that is auspicious to the evolution of a company, one will have to encompass not only the effects of the global factors, but also the impact of the country specific ones, British in the case in point. Hence, the necessity to carry out a vast analysis emerges.
As recent researches show, the British environment incorporates a range of unique features that may either vivify the operational and production processes within an organisation, or to put it to a complete halt, reducing the chances for the specified company to ever succeed (Ladiges 2013).
Indeed, while the British market provides an entrepreneur with enough freedom in their choice of the proper environment for enhancing the performance of their organisations, a large amount of risks that incorporates makes the process of performance enhancing rather toilsome for a range of efficient companies, and nearly impossible for those, whose design is flawed.
Analysis
First and foremost, one must mention that the British market represents a mixed economy, i.e., the one, in which the coexistence of different types of entrepreneurships is possible (Hodgson & Zaborsky 2002). Therefore, the competition rates are most likely to be quite high for the companies belonging to most industries.
In the specified environment, both a private limited company and a franchise stumble upon a range of obstacles on their way to success and at the same time have a plethora of opportunities to explore in the realm of the British market. The same, in fact, can be said about their performance in the global market; however, it should be born in mind that the choice of the organisation type also depends heavily on the assets of the firm in question, as well as the capabilities of its leader.
The company viewed below is a rather sad yet very graphic example of what may occur once priorities are not set straight in a private limited company and the key requirements imposed on the founders by the format chosen are not met. As a concept, Rubber Road, Ltd.
was a perfectly viable venture; more to the point, it could have been turned into an incredibly successful project because of the transfer of gaming into the online territory and, therefore, the increase in the opportunities for attracting a larger amount of customers. Grant and Precious, the company’s co-founders, however, preferred the private limited company design to that one of a franchise, therefore, reducing the chances for the organisation to become successful drastically.
Key features of a private limited company
As it has been stressed above, there is a major gap between a franchise and a private limited company, even though the two traditionally belong to the same realm of private entrepreneurship. However, a closer look at the specifics of a private limited company will reveal that, in fact, the latter has little to nothing to do with a franchise outside of being a company structure.
Indeed, the Ltd. organisation is traditionally characterised by the unlimited number of owners. The latter, in fact, are not called as such – traditionally, the people at the helm of an Ltd. organisation are called shareholders. In addition, from a legal perspective, the company exists outside of the influence of its owners and is recognised as a separate legal object.
Seeing that the organisation of the specified type can have more than one leader, it is controlled by a Board of Directors. As far as the management processes and the supervision of the company’s processes are concerned, though, the managing director is traditionally assigned with the task of controlling the specified processes, thus, facilitating the quality of the product.
The last, but definitely not the least, the fact that a private limited company is legally governed by the Memorandum of Association and the Articles of Association deserves to be mentioned (Riswan et al. 2014). The former is usually defined as the document that is signed by the co-creators of the organisation (subscribers) and is basically a statement of agreement made by the people in question to form an Ltd. The latter, in their turn, incorporate the rules and regulations, in accordance with which the company will be governed.
Key features of a franchise
A franchise, on the contrary, can be viewed as the organisation that pays an extremely close attention to its “exterior” and, therefore, puts a major emphasis on the promotional part of its marketing process. For instance, it is typical of a franchise to have a project in development, which has a brand name and is going to represent the organisation in question in the global market.
In fact, the specified brand name traditionally is not restricted to a specific product and extends to a range of accessories and the goods that are somewhat related to the brand product in question. In addition to the marketing issues, a franchise has very distinct rules about the number of people that can be in charge of it.
While in most organisations, the number of leaders at the helm of a company is not limited, for a franchise, the amount of characters controlling the business is not supposed to exceed two. It could be argued, though, that the specified number presupposes that specific people or groups of people should play the part of the franchisee (Capelli & Harmoni 2008) and the franchiser within a particular organisation, whereas the actual number of the people that partake in governing the firm may remain abstract (Moran-Goodrich 2014).
Finally, a franchise can be characterised by a relatively simple manner of navigating the company’s business and especially financing processes. Traditionally, investors consider the aforementioned characteristics coupled with the fact that the organisation already has a brand name to promote to the target audience as a huge advantage, whereas the lack thereof is traditionally considered a potential detriment; as a result, the preference is usually given to the organisation that already has its priorities in line (Gordon 2014).
The last, but definitely not the least, the fact that a franchise traditionally takes an already existing business and operates under its name deserves to be mentioned. In other words, the product must become poplar before an organisation is formed. Though this characteristic is far from necessary, it still constitutes a major part of a franchise.
A franchise, therefore, can be interpreted as a company that becomes preeminent by putting its all stakes on a specific brand and sells a range of versatile products under the specified name. While this strategy does allow for gaining an impressively huge amount of money within a relatively short amount of time, it does put a pressure on the company in terms of the production quality and the quality of customer service; once either of the two fails, the negative impression will be immediately spread to the entire brand, enveloping every single product and, therefore, jeopardising the success of the entire organisation.
Similarities
Though the two concepts in question may seem entirely different, a closer look at them will help reveal a specific and very strong synapse between them. For instance, both franchises and private limited companies presuppose that the liabilities pertaining to the ownership of the organisation in question should be split among several partners and should not be given to a single leader.
While seemingly restrictive, these similarities give reasons for adumbrating on the enhancement of security that the specified types of entrepreneurship provide. Indeed, handling a large amount of liabilities requires that special attention should be paid to the development of the security system that a company is going to operate in.
As a result, the need to choose an appropriate insurance strategy emerges and is quenched with the choice of such approaches as the products liability insurance, personal liability insurance, etc. (Rejda & McNamara 2014, p. 28), in order to manage the related risks.
In fact, the idea of security as the basis for a private limited company is so strong that the latter is often confused for an insurance policy (Zachary et al. 2011). The franchise form of entrepreneurship can be characterised by the same aptitude for addressing the liability issues by reducing the risks within the organisation, particularly, the area of security and finance.
While the specified feature is one of the few that the specified types of ownership share, it, in fact, allows for pre-empting and, therefore, preventing a variety of financial conflicts, thus, creating premises for safe and secure entrepreneurship. The nature of the security in both entrepreneurship types is, thus, similar in each case (Spandorf et al. 2014).
Differences: where the concepts of an Ltd. and a franchise do not cross
One must bear in mind, though, that, despite the above-mentioned similarities, there is a rather big gap between the two types of entrepreneurship. On a larger scale, the discrepancies between the two types of companies can be viewed as the difference between a franchise and a partnership (Mohammed 2013).
Indeed, apart from the enhanced security, the two types of organisational structure have very few common elements. Unlike an Ltd., a franchise has a limited number of stakeholders; to be more specific, the amount of key stakeholders can be reduced to two key people, i.e., the franchisor (the person owning the name of the company or a specific brand produced by it) and the franchisee.
The specified difference can be traced down in the example considered above; failing to come up with an authentic and marketable product that could have a memorable brand name, the Rubber Road, Ltd. has to choose a private limited company design for its daily operations.
Allegedly, by developing a concept that could allow the organisation promote itself to the target audience, i.e., a specific brand, such as a new tool for testing gaming sounds (Appey Studios), production of officially licensed games and the related goods (Yellow Dog), etc. While the organisation has a range of brand names that are associated with a variety of services, and rather good ones at that, none of them has been marketed efficiently enough to have been finally cemented in people’s memory.
It seems that the specified failure can be viewed is a fault of the type of entrepreneurship chosen by the company leaders. Indeed, by picking a franchise as the means to promote their services, the leaders of the organisation would have made their products easily recognisable.
Advantages and disadvantages of a private limited company
Like any other form of business organisation, a private limited company has its advantages and drawbacks. Though the owners of the Rubber Road, Ltd. are being reasonably reticent about the issues that they have had to deal with over the course of managing a British Ltd. in the global environment, it is obvious that they have stumbled upon a few major issues that could have been detected at the very start if they had given their idea a second thought.
First and most obvious, by choosing the business design in question, the leaders have committed to complying with all the legal formalities related to the specified type, these formalities being quite numerous and rather excruciating. The complexities that one has to go through in order to set up an Ltd. company are rather tedious and traditionally include signing the Memorandum of Association, the articles of association, arranging the issues related to the Corporation Tax, defining shares and shareholders, appointing the company directors and secretaries, as well as distributing responsibilities among them, etc. (Burr 2012).
As a result, the choice of a private limited company as a business design might seem somewhat flawed a solution. In addition, much like a franchise, the Ltd. does not presuppose that its owner should be in possession of the entire control of the company; instead, a private limited company offers a greater amount of liberty in terms of the corporate governance (Lamoreaux 2009).
To be more specific, the solution to one of the key problems that the Running Road has encountered recently hinges on the delegation of power and proper distribution of roles and responsibilities within the company. However, it would be wrong to deny a private limited company some of its positive characteristics merely because it proved inefficient for the Running Road Company.
For instance, an Ltd. company allows for a more efficient use of the financial assets that are at the disposal of the company’s leader. Indeed, unlike a franchise, in which the leader’s control of the financial resources can be described as evanescent, whereas with a private limited company, the leader is perfectly capable of being at the helm of most financial transactions carried out by the organisation in question, as well as the allocation of the corresponding financial resources to the designated departments.
The Rubber Road’s major problem concerned not the unavailability of the monetary resources, but a complete lack of understanding how to distribute them efficiently (Beurskens & Noack 2011). Moreover, a private limited company traditionally presupposes that the extent, to which the leader of the company is liable, is reduced slightly. As a result, the threat of incurring major losses is also brought down a few notches.
The reason for the specified characteristics not to work with the Rubber Road Company, though, is that its leaders obviously lacked both care and understanding of the proper measures for promoting safety within an organisation. For instance, the insurance principle, which the organisation’s financial policies align with, is beyond fatuous – judging by the balance sheet that the company made public in 2014, the company owes around 72,000 GBP to the insurance company (‘Rubber Road Ltd. annual accounts’ 2013).
It seems that the Rubber Road, Ltd. should reconsider the idea at the basis of its insurance policy and limit the latter to liability and causality insurance types (‘Rubber Road Ltd. annual accounts’ 2013). As a result, it will become possible for the organisation to save on the costs that are traditionally spared for the insurance related purposes, at the same time maintaining the level of security high.
Advantages and disadvantages of a franchise
The possibility for creating a brand name and, therefore, becoming the household names for the target audience is definitely the greatest asset of a franchise company design. A closer look at the Running Road, Ltd. will reveal that the lack of a recognisable image is one of the company’s greatest weaknesses.
Certainly, the company did have its problems from the very start, but it could have been rejuvenated with the introduction of a powerful brand into the range of services suggested by the organisation to its clients. After all, created in the environment that can be viewed as rather harsh in terms of rivalry, financing and other economic challenges, as well as supported by a set of strong corporate values that they are based on, British organisations are mostly resilient to the intermittent conditions of the global market (Hawkins 2012).
Another nonetheless essential point in the characteristics of a franchise, the premises for a rapid and consistent growth deserve to be mentioned among the key reasons why it would have been a better choice for the case in point. While admittedly providing fewer options and less safety for an organisation in terms of financial strategy in general and the insurance issues in particular (Carlson 2008), the specified scenario for a company’s development is much viable as a pattern for a British company to operate within the realm of the global economy.
If the company leaders had adopted the company design known as franchise they would have been able to split some of the liabilities with their partners, which would have allowed them to adopt a more flexible financial policy (Bueno 2011).
Grant and Precious could have avoided the imminent economic regression of their company if they had taken into account the fact concerning the chance for a possible upgrade in the company’s reputation that could ensue from creating a partnership with a precarious franchisee. Seeing that at present, their situation is viewed as dreary, the Rubber Road could use some financial support from a wealthy franchiser in order to attract more customers with splendid promotion campaign.
However, it should be noted that the adoption of the franchise structure does not mean that an immediate triumph should ensue (Maureen & Ropen 2011). The last and by far the most dreaded consequence of creating a franchise with an untrustworthy partner, the threat of losing control and allowing an avaricious co-owner to be at the helm of the company is clearly a major disadvantage of a franchise as a concept.
Speaking of the Rubber Road, this is a serious argument against using the specified design in the arrangement of their business, as their organisation has already incurred major losses and does need any other risks that could put it beyond the bankruptcy threshold (Kavaliauskė & Vaiginienė 2011).
Results and Their Discussion
The analysis carried out above shows that the choice of a company type, especially for the organisation that evolved in a naturally sustainable environment of the British economy and was then encouraged for developing in the realm of the global economy, depends heavily on the assets of an organisation in question.
Relying on a stroke of luck and assuming that each type of entrepreneurship listed above can be suitable for setting a company in the environment of global economy is not only unreasonable, but also fraught with serious consequences, down to the destruction of a company and its further elimination from the market (Aliouche & Schlentrich 2011).
One must not consider one of the types of entrepreneurship described above as superior to another one; instead, they should be viewed as the alternatives that can be adopted on par with other entrepreneurship designs and that can be chosen based on the specifics of the company in question. A close observation of the performance that the Running Road, Ltd. Company has been delivering over the past year has shown that the frameworks in question are not the end in itself and should be chosen based on the assets of a specific company.
An analysis of the characteristics of a private limited company and a franchise has proven that the approaches making the basis for each of the strategies are founded on entirely different principles (the separate existence from owners in the former case and the emphasis on promotion and branding in the latter one) (Hsu 2013).
Retrieving the information concerning the principles of a private limited company framework from an obviously belying source, the owners of the Running Road entrepreneurship have failed to understand that they have chosen the wrong framework and, as a result, failed to attain success in the first year of the company’s operation. The case in point, thus, is a graphic example of confusing the similar concepts of a private limited company and a franchise (Santos & Caetano 2014).
When a private limited company type should be chosen
A brief analysis of the issue has shown that the specified design of an entrepreneurship should be used for managing the organisation that is owned by several (more than two) legal persons. As a result, the aforementioned complex concept of organisation existence as a separate entity can be facilitated.
A framework that is far more complex than a franchise, a private limited company can be viewed as an option in case the company in question has been in the home market long enough to have developed certain resilience to the hostile environment of global competition and is governed by several legal persons.
As a result, the premises for expansion are created with the help of a laissez-faire leadership approach and a rather loose set of principles that a company is governed by (Roger 2013). A private limited company, therefore, should be chosen only in case the founder of the organisation is supported by at least fifty other people, who are capable of joining the former in the process of managing the company.
As a result, a specific continuity is created, with each member of the board of directors contributing to the economic, financial and communicational choices made for the evolution of the company. In other words, the limited liability of each of the participants is what holds the value of the entrepreneurship for each of the latter.
Franchise as a successful start of a private business
A franchise, in its turn, can be considered one of the safest ways for a promising and innovative project started in the United Kingdom to become popular worldwide and attract new crowd (Stern 2012). Despite the fact that entrepreneurship often needs to have a specific set of limitations for marking the boundaries of its creative opportunities and operational possibilities, it is the lack of limitations and the chance for indulging in creative liberties that a new entry into the global market needs to attain success.
Thus, it is the franchise that helps locate the watershed moment of a company recognising the upper limit of its creative potential and promotes the feature that will later on become the company’s hallmark among the potential customers (Hui-Heng 2010).
In hindsight, Ben Grant and Matt Precious should have chosen a franchise as the type of their gaming entrepreneurship. To the credit of the very concept of a private limited company, it does provide a range of opportunities for an organisation that is going to enter the global market; however, it only works for the organisation that is entirely secure in terms of the restrictions that the specified entrepreneurial framework imposes on them.
While admittedly more secure, it is also more rigid and does not allow for as much flexibility as a franchise does; more to the point, the possibilities for promotion drop considerably for the organisation that has chosen an Ltd. design. Herein the major failure of the running Road, Ltd. lies; the company’s assets. i.e., the capability of generate potentially trendy products, was not taken into account when choosing the company design (Massey & Rustin 2014).
As a result, what seemed to be a promising and invigorating idea in the gaming industry turned out to be a jejune concept that had worn out its welcome even before it was introduced to the target market.
Conclusion: Business Ownership in the United Kingdom
As an overview of the current situation concerning the Running Road and the adoption of franchise/private limited company design in Great Britain for entering the global market in general, one must admit that business ownership in Great Britain faces very few obstacles, which inhibits its further promotion into the global economy.
This is especially true for the organisations, which have decided to put a stronger emphasis on the leadership issues and the distribution of roles and responsibilities within a company rather than on the promotion of their goods and services to the new target demographics within an entirely alien economic environment.
It is not that the former actions are unnecessary – quite on the contrary, defining the structure of a company is an indispensable element of managing an entrepreneurship. However, addressing the outside factors is an essential requirement for an organisation to succeed.
Recommendations
As hard as it is to admit the ultimate failure of the Rubber Road, Ltd. to become the household name for the very phenomenon of online gaming, the organisation obviously needs to start anew. Because of incredibly high competition rates within the realm of global economy, it is essential for an organisation to be moulded as a franchise and put the stake on a certain brand product that will later on be associated with the firm.
Thus, as far as the recommendations for the Rubber Road, Inc. are concerned, one may suggest a complete renovation of the company’s orientation, including the goals, the number of partners, the distribution of roles and liabilities, etc., as well as the shift in the emphasis regarding the production process.
Once the Running Road, Ltd. focuses on a certain product and turn it into a brand with a series of advertisements promoting it to the target customers, it will be possible to expect certain success. One could argue, however, that a change in the design of the company may not be required, after all; instead, major changes should be made in the arrangement of the production, promotion and communication processes in the Running Road, Ltd. Indeed, the firm might possibly work as a private limited company as long as Grant and Precious set their priorities straight and focus on developing a proper security system for the company to rely on.
By identifying the proper insurance methods, locating the most affordable security upgrades and creating the environment for fast information exchange, Grant and precious might retain the initial design of the company and benefit from it.
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Appendix A: Rubber Road, Ltd.: A Brief History and Official Record
History
Though being a comparatively new entrant in the gaming industry market and having a rather impressive potential, Rubber Road, Ltd. has been a major flop so far. The company was founded in 2012 by Ben Grant and Matt Precious, who used to take the executive’s chair in GAME. The organisation is located in Welwyn Garden City, Hertfordshire, UK and has been attempting at gaining the position of a mother company to numerous companies in the industry.
Inspired by The Beatles’ two famous albums, Rubber soul and Abbey road, the title of the company has failed to become a household name, yet its founders expect their profits to rise exponentially, as the company not only offers support to the existing games related companies, but also investigate the existing pricing options for their clients, engage in applications development, have developed an interface for watching movies online (Nutskull), and have a unique nomenclature of new and used products to offer their customers (‘Other business’ 2014).
SWOT
Strengths
Absence of major competitors in the target market;
Impressive number of services and activities/
Weaknesses
Lack of consistency in defining the company’s structure;
Lack of control over the company’s processes due to incompliance with the premises for developing a Private Limited Company structure;
Poor information management resulting from a wrong company structure;
Inability to choose the proper leadership style that could help address the current issues;
Absence of any major assets.
Opportunities
Creating a merger with a stronger partner;
Redesigning the company’s structure and shifting towards a franchise based business.
Threats
Failure to cover the expenses made so far due to a poor organisational structure and incoherent operation processes;
Being surpassed by a company that was designed in a more adequate manner and choose a more appropriate type of entrepreneurship;
Failure to understand that the organisation suffers from a wrong entrepreneurial design and reorganise it correspondingly;
Incurring losses due to the aforementioned flaws of the company’s design.