Franchising

What is Franchising?

It is  an agreement where the owner (franchisor) of a business with a bundle of IP rights (example copyrights, trademark, patents) agrees to grant to the franchise:

·      To license the Intellectual Property rights

·      To provide training, technical support and mentoring.

·      The right to operate the business,

·      To use the brand name

This is very popular in the food and beverage industry. Eg: McDonald's, Starbucks, Subway.

Advantages & Disadvantages of the Franchisor

Advantages	Disadvantages
Business expansion without too much risk	They have to supply products to franchise
Continuous control over business	Provide assistance/training to franchise
Retain control and ownership over IP rights	Have to provide them with their business concept (IP rights)
Expanding brand equity and image	Their exclusivity lessens

The franchisor owns the IP rights in:

·      Trademark

·      Marketing knowledge

·      Copyright in instruction manuals

·      Patents on equipment and software

Advantages & Disadvantages of the Franchisee

Advantages	Disadvantages
Less risk of failure	Lack of control (many restrictions)
Get the brand recognition	Have to follow the guidelines of the franchisor
Get full training and support from the franchisor	High costs of franchising
Have the experience and know-how	Shared profits (royalty fee)
Defined quality standards	Pay share for advertisement and promotion