Franchising and Licencing

ACCA P3考试：Franchising and Licencing

Franchising—where a franchisee pays the franchisor a fee for the right to use a business name and format in a particular market. Examples of franchises include McDonald's restaurants. A franchisee sets up and runs one or more McDonald's restaurants for a royalty fee, calculated as a percentage of revenue. In return, McDonald's provides the right to use the McDonald's name, training, marketing materials and other support.

The franchisee operates what is effectively an independent branch of the franchisor.

The franchiser usually ensures that these branches do not cannibalise each other's revenues. The franchisor exerts a considerable degree of control over the operations and processes used by the franchisee.

Licensing—where a licensor sells licences to other (typically smaller) organisations to use intellectual property, brands, designs or software (e.g. Microsoft Office). The licensee has the right to use the licensed property (e.g. to manufacture a product in a particular location) for a royalty (usually a percentage of revenue).

Licenses are usually non-exclusive (i.e. they can be sold to multiple competing companies serving the same market).

The licensor exercises control over how its property is used but does not control the business operations of the licensee.

Advantages and disadvantages of these alliances include the following:

They enable franchisors/licensors to gain access to new markets quickly without having to commit their own resources.

A franchisee can take advantage of a tried and tested business model, which reduces the risk of starting up a new business.

Less formal agreements than for joint ventures mean that agreements can be entered into much more quickly.

The franchisor/licensor does not gain all the financial benefits of expansion as these are shared with the franchisee/licencee.

The franchisor/licensor does not directly control the activities of the franchisee/licencee. This may lead to situations in which the brand is damaged by poor performance.

Franchisees (in particular) will gain knowledge of the processes and technology of the franchisor that may lead to competing with the franchisor at a later date.