Small business plays a special role in the work of large corporations. They sell their products, supply, and service. Therefore, the cars of famous enterprises are assembled in a large factory in Japan called "Toyota" and "Honda", and the majority of parts and parts of these cars are produced by small and medium enterprises.
A good way to sell products through a small business network is to franchise. This type of license allows small companies to sell goods and services in certain areas using the trademarks of large corporations.
One way to set up a new business is to invest in a franchise. For the right to use franchises, the owner (licensee) of a small company pays the company (licensor), which provides the initial payment to the franchise, and then makes a monthly payment.
Franchise is not a new phenomenon. It was in the nineteenth century that companies such as Singer and International Harvester established a global company that allowed them to sell their products. Further development of the franchise occurred in the first half of the 20th century, but the real boom of this phenomenon began in 1957-1959.
In 1990 one third of retailers in the USA (more than 7 million) were covered by franchises. According to experts, the distribution coefficient is five times higher than the GDP growth rate. This situation allows us to predict that such companies will account for half of all retail trade in the U.S. in about five to seven years.
Why is franchising so popular? According to the president of the International Franchise Association, its use has three advantages:
The licensor wins because it lays a solid foundation for its company, and the licensee - because it can use the proven economic methods of the licensor. And the general public benefits from receiving goods and services without interruption.
Small business owners who do not have additional financial resources and economic activities are able to use their own business at low cost under the name of large companies.
The franchise has many advantages for novice entrepreneurs. The owner of a small company saves on advertising and organizational costs, most of which are borne by the licensor. Thanks to the familiarity with well-known brands of consumers, small and medium-sized enterprises can create themselves in markets that are much more difficult for small independent companies to establish themselves.
The fact that the buyer will reach for a familiar brand, a well-known psychological fact - it gives the opportunity for small firms (using franchise) to gain a foothold in the market, where independent companies will be more difficult.
There are four types of franchises, depending on the direction:
- Product franchise;
- production franchise;
- service franchising;
- Business format franchise.
The product franchise is the sale of goods produced by the franchisor and its labeled trademark. In principle, the franchise provides after-sales services.
The franchise of the product is not widespread. In most cases, this relationship is beneficial to the franchisor. It should ensure constant communication with consumers by promoting trademarks and expanding the sales system. A small company is part of a managed sales system. In the vast majority of cases, trading in the selected goods does not correspond to the wishes of small companies, as the assortment is important for the trading companies, not the sale of one type of product.
Product franchises can be used in the sale of petroleum products, especially when a large trading organization's filling stations are located. The use of franchising of goods in this industry is limited due to changes in consumer preferences in the service system at service stations. The most effective relationship here is business format franchising, which will be described below. Franchising in the refining industry is the most common in Australia.
The production franchise is based on the following objectives, which are important for both parties:
- division of labor and specialization;
- Increasing production and expanding the production program;
- Saving resources;
- Increasing the flexibility of production and marketing in line with market requirements;
- production of new products in line with market changes;
The production franchise system can be actually used in all production departments if there is a right confirmed by a security document, including a trademark with intellectual property rights.
A franchise is not just a contract, it is a long-term job, described in detail in a special "franchise manual", which is also the main contract and property of a large company. The terms of the license agreement are only a part of the relationship provided by the franchise system.