Paper Example on Challenges Facing Franchises

Introduction

When the name franchise is mentioned the names that immediately pop up include Mac Donalds, KFC and Pizza Hut. These are among the most successful franchises in the world. Although they are all in the fast food industry, franchises are not limited to fast food. An example is Snap-on, a manufacturer, marketer and designer of prime equipment for professional use in the transportation industry including heavy duty equipment, aviation, marine, and railroad industries. Franchising is simply based on a marketing concept that can be adopted as a model for business expansion (Lafontaine & Shaw, 1998). To increase geographical reach or market share, businesses create franchises for their brand name and products.

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The dynamics of starting and operating a franchise are intricate. Franchise contracts are complex and variable. Usually, a franchise contract agreement includes three categories of payment made by the franchisee to the franchiser (Goodwin, 1968). An upfront fee is paid by the franchiser to purchase trademarks or controlled rights. The franchiser also receives payment for business advisory services, equipment, and training. Percentage of sales or royalties are also paid out to the franchiser. Franchise agreements do not represent an ownership of business by the franchiser (Goodwin, 1968). All these dynamics cause many business start-ups that start out as franchises to succumb to the numerous hurdles the model presents.

The relationship in a franchise model is often volatile and a lot of factors influence it. The model's dependent on both the success of the franchiser and the franchisee (Goodwin, 1968). Unfortunately, most franchise owners lack sufficient knowledge to manage a franchise hence the need for a franchise consultancy (Lafontaine & Shaw, 1998). Most of the dilemmas facing start-up and ongoing franchises are avoidable. The wrong choices lead franchise owners into irreparable circumstances that force them to abandon their enterprise. However, alternative approaches to dilemmas facing franchises can salvage an enterprise. Therefore, a meticulous analysis of the different challenges facing franchises is necessary to find to the best solutions.

Water Babies is one of the world's biggest baby and toddler swimming companies. The company began in 2002 in the UK and has since grown into an international business. Currently, the business is well established in Ireland, New Zealand, Netherlands, Canada, and China. In the UK and Ireland, the franchise runs in over 50 territories covering a catchment area of over 500,000 people. In their Franchising model, Water Babies promotes the autonomy of the franchisees with support from the head office. Current the franchise runs a highly efficient system. However, this was not the case.

The rapid growth of the Water Babies franchise led to a huge dilemma in data management and internal communication. This problem threatened the going concern of the franchise. Water Babies was handling numerous customers, bookings, payments, and inquiries. Initially, Excel spreadsheets were used to record clients' personal details, bank details, payment information, and class information. This system was insecure, prone to error and labor intensive. Moreover, there was no management review system. A secure customer relationship management solution which could handle everything from batch repayments to call-handling was necessary. After a careful assessment of all business processes, a comprehensive custom-made CRM system was designed.

The CRM system is secure, multi-currency, multi-lingual and cloud-based. Nemo, the CRM system, decentralizes administration onto franchisees o encourage autonomy. However, the head office supports and monitors everyone's performance, globally. The system manages all internal business processes and interfaces seamlessly with external systems. The result has been better technical and commercial decision making due to access to reliable information. Nemo has provided a reliably consistent resource pool for sales and logistical data as well as print, verbal and electronic communication. The system is scalable and in new countries, currencies, languages and franchise networks can be added. The system has improved overall efficiency by saving time, removing the error, enabling growth, and delivering an exceptional Return on Investment. As new technology becomes available, the system gets new functionalities and performances.

Running a franchise requires a meticulous analysis of the market (Lafontaine & Shaw, 1998). Since franchises extend to international markets, each franchisee has to operate on a business and marketing model that will maximize their area of operation. However, such marketing strategies require a lot of data analysis and expertise on the market forces unique to a particular area. Water Babies has invested in franchise consultants to give them the best professional advice on their marketing strategies. With reliable information on the market dynamics in different areas, the franchise has managed to set up effective marketing strategies to maximize on their business performance.

Speedy Freight is a successful franchise specialized in delivering courier services. The objective of the franchise is to deliver same-day transport solutions. Since 2005, the franchise has consistently delivered same-day courier services and their network has expanded to cover the whole of the UK. At present, Speedy Freight has an excess of 30 franchisees throughout the UK. The franchise has a strong brand name that clients recognize and trust. Speedy Freight runs as a management franchise. A management franchise involves the owner managing the operation of the trade while relying on the employees to perform the work necessary to provide the required service. Usually, the management franchise system operates in business to business environments.

Right from the onset of Speedy Freight, a dilemma between standardization and flexibility was established. Both standardization and flexibility are strongly linked to franchising (Lafontaine & Shaw, 1998). The push for standardization is warranted for brand image, cost minimisation, and innovation. On the other hand, flexibility achieves a higher adaptability to local markets. Moreover, adaptability enhances franchisees' entrepreneurial attitudes. Speedy Freight achieved a healthy combination of both flexibility and standardization. The franchise allows the franchisee to work autonomously and this allows adaptability to the local market. Moreover, through training offered by the franchise, Speedy Freight has achieved to standardize their services. The franchise offers support solutions to all franchisee coupled with a 4-week thorough training through all systems and best practices within the industry.

Like any other business, capital investment sets the foundation for a successful undertaking. Speedy Freight had limited funds at inception. However, this hurdle did not set them back. Lenders can increase capital investment significantly (Chiou et al., 2004). Unfortunately, getting a lender requires a good business proposal backed with financial credibility. The owners of the franchise need to list all their liabilities and assets and prove they are in a position to pay back the loan. A well thought out business plan makes the difference between the rejection and acceptance of a loan application (Chiou et al., 2004). Other forms of financing can also be used including seeking funds from family and friends. Some individuals take a second mortgage on their houses to finance their franchise. A franchise with a good business model is worth the capital investment.

A franchise is contingent on a strong brand name. Franchisee opts for franchises that have a strong brand name that will attract clients. However, the initiation phase of a franchise requires aggressive marketing to establish a wide clientele (Buckley & Casson, 1998). For Speedy Freight, the first 6 months were tough as the franchise sought to attract clients from existing courier companies. A strong sales approach worked to the advantage of the franchise. By focussing on specialist sectors and being tenacious, Speedy Freight was able to establish its name as an efficient one-day courier service provider. The franchise built its portfolio of clients and this allowed expansion of the franchise.

Understanding all the dynamics of starting a franchise is difficult due to the large amount of data that need analysis (Chiou et al., 2004). Due to the lack of knowledge and adequate skills to start a franchise, most owners seek the services of franchise consultants. For a franchise, getting it right from the onset is important to establish a successful business. Both Speedy Freight and Water Babies sought professional assistance during their initial phases of establishing their franchise. Franchise consultants develop efficient franchising models, marketing strategies and management systems that improve business operations (Buckley & Casson, 1998). Franchising models include support systems and review systems that can be adopted for franchisees.

Although Water Babies and Speedy Freight faced a lot of hurdles during their establishment, their business model saved them a lot of trouble. Other franchises face price-related issues, product, and service related problems, local competition, and human resource inadequacies. All these problems need to be addressed before a franchise takes off in order to guarantee a going concern. Franchises are lucrative but they require a professional approach to achieve success. Problems are anticipated but solutions must be sought early or if possible avoid the problems completely.

References

Lafontaine, F., & Shaw, K. L. (1998). Franchising growth and franchisor entry and exit in the US market: Myth and reality. Journal of Business Venturing, 13(2), 95-112.

Goodwin, B. (1968). Franchising in the Economy: The Franchise Agreement as a Security Under Securities Acts, Including 10b-5 Considerations. Bus. Law., 24, 1311.

Chiou, J. S., Hsieh, C. H., & Yang, C. H. (2004). The effect of franchisors' communication, service assistance, and competitive advantage on franchisees' intentions to remain in the franchise system. Journal of Small Business Management, 42(1), 19-36.

Buckley, P. J., & Casson, M. C. (1998). Analyzing foreign market entry strategies: Extending the internalization approach. Journal of international business studies, 29(3), 539-561.