• is a method of doing business wherein a franchisor licenses trademarks and methods of doing business to a franchisee in exchange for a recurring royalty fee.
• Unlike licensing which is basically an authorization to use a single IPR – franchising is a license to copy a whole business and hence includes a number of IP rights e.g. trademarks, patent, design rights etc
• Entrepreneur chooses to exploit the success of his business model by cloning that model, e.g. Spar Supermarkets, Coca Cola
The franchisor or its affiliate holds title to all of the IP used throughout the franchise system, and for each franchisee to be a licensee of the franchisor with entitlement to “use” the IP as appropriate.
Through proper exercise of the rights granted under such license the full benefits of the franchise system accrue to the franchisee in the operation of the franchised business for so long as the franchise arrangement subsists and the franchisee maintains itself in good standing. Eg In Zimbabwe people will remember that Rainbow Tourism Group lost the franchise of Sheraton Hotels.
Offers franchisee quick starting up of business based on proven trademark or formula
Franchisees benefit from marketing and training from the franchisor.
Franchisors- obtains rapid expansion of their brand internationally + enormous profits while franchisees do most of the hard work
Franchisor – builds a captive distributor network with little or no financial commitment
For customers – promise of consistent product or service from franchised establishment.
Franchises teach people the use of powerful business systems. You do not need to reinvent the wheel.
Loss of control for the franchisee as approvals for changes are required. Reduces flexibility. Recently Pathfinder coaches used to park at Holiday Inn Harare and when some Holiday Inn clients complained African Sun was served with a seven day corrective order or lose the franchise. So Holiday Inn had to stop the strategic alliance with pathfinder and lost revenue.
Franchisor/franchisee relationship can easily give rise to litigation if either side is incompetent or not acting in good faith
An incompetent franchisee may cause brand dilution at the expense of the franchisor
An incompetent franchisor may destroy its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits e.g. Mobil Oil in Zimbabwe