Name: Ahmad Asyraf Afiq Bin Mohd Suhadi

No Matric: 241609

In 500 words, explain the advantages of franchise business model from the franchisor

perspective.

Cost-effective growth

The most obvious benefit of franchising to a prospective franchisor is the ability to expand a

business by utilizing the manpower and capital of others. The inherent risks usually associated

with expansion are thereby reduced. The franchisor can exploit and market its business more

effectively by increasing the number of its outlets far more rapidly than would otherwise be the

case. The franchisees contribute the bulk of the necessary capital requirement through their

investment in the start-up costs, the payment of initial and ongoing franchise fees, and their own

working capital. They also carry the ongoing expenses, such as the staff salaries of the branches,

as part of their own business removing what can often be a significant overhead in corporate

expansion.

Commitment

A franchisee is the manager and owner of his own business and, therefore, brings a far more

personal commitment and motivation to the job than a mere employee without the same self-

interest. As the owner of a business, a franchisee should be eager to make it succeed, putting in

the hours to ensure that customers and profits are maintained and maximized. There will be none

of the nine to five mentality that is often associated with employees. In theory, a franchisee will
go that extra mile, particularly where he has only himself to rely upon and can see at first hand the

effect his actions have on his gross takings.

Reduced involvement

Once a franchisor is satisfied it has found suitable franchisees to develop and expand its business

it then has more freedom to concentrate on other areas whether it is the improvement of the

franchise concept or potential growth areas of its existing business. Regular periodic checks are

required to ensure that the network consists of dedicated personnel who are working hard to

safeguard their investment, but this is not as time-consuming as managing company-owned outlets.

Co-operative advertising

Franchising grants the franchisor the ability to increase brand awareness by co-operative

advertising. Very often franchisees are required to contribute a percentage of their gross sales

(usually between two to five percent) towards an advertising fund. This offers a formidable capital

resource for a franchisor keen to raise the public’s perception of its business. The power of

advertising should not be underestimated and plays a key role in ensuring the future success of the

franchised business.

Collective bargaining

For product-based franchises, the development of a network can provide a powerful bargaining

tool with suppliers allowing franchisors, or occasionally franchisee associations, to negotiate

extremely favorable rates. This, in turn, reinforces franchisees’ loyalties with the realization that

such bulk purchasing power may not be possible elsewhere.

It is vital, therefore, that to reduce its risk and realize the full potential of franchising that a

franchisor selects its franchisees very carefully, ensuring that the following qualities are present.

 Sufficient financial resources

 Commitment to motivation

 Enthusiasm and willingness to accept the responsibilities of self-employment

 Willingness to adhere to the established format in running the business.