In order to understand the concept of franchising, let us start by studying some definitions of the term franchising:
Webster’s dictionary defines "franchise" as - "1. A privilege or right granted to a person or a group
by a government, state, or sovereign.
2. Authorization granted by a manufacturer to a distributor or dealer to sell his products."
According to the International Franchise Association, a franchise is a "continuing relationshi1 in which the franchisor provides a licensed privilege to do business, plus assistance in organizing training, merchandising, and management, in return for a consideration from the franchisee.' The legal definition expands this meaning - a franchise may also extend the right to use a predetermined method for marketing products or services, through outlets that use a known name or trademark. Franchising is not a business or an industry, but it is a method used by business for the marketing and distribution of products or services
The two parties which emerge are:
1. The Franchisor and
2. The Franchisee
Types of Franchising
The basic objective of franchising is the expansion of a business, by furthering the distribution of products/services. By virtue of this fact, at a very broad level, franchising can be divided into two formats. The first type being a product trade name franchise and the second, a business format franchise.
Under product/trade name franchising, the franchisee concentrates on one manufacturer's product, and thereby acquires the manufacturer's identity to some extent. Typical examples are automobile dealerships and gas service stations. Business format franchising has been defined as the granting of a license for a predetermined financial return, by a franchising company (the franchisor) to its franchisees, entitling them to make useofa complete business package, including training, support and the corporate name; thus enablingthem to operate their own businesses according to exactly the same standards and "format" asthe other units in the franchised chain. Examples of business format franchising include restaurants. convenience stores, and personal and business services.