Management Notes

Reference Notes for Management

Which of the following is a disadvantage of franchising?

Which of the following is a disadvantage of franchising?

Ans: The franchisee has no flexibility as it is required to follow the franchisor’s procedures to the letter. Franchise issues are handled strictly by the franchisor according to a set of procedures. There is no control over these procedures and they cannot be unilaterally changed by the franchisee.

Other Disadvantages of Franchising are as follows:

a) Franchisees cannot enjoy their creativity as they would if they began their own company. It is their responsibility to follow the format given to them. The Mc Donald’s restaurant organization is a classic example of regimentation in franchising.

b) Franchisees are also subject to a number of restrictions. There may be restrictions relating to remaining confined only to a particular geographic location or product line.

c) Businesses cannot be sold or transferred to family members without the franchiser’s approval.

d) No matter how hard a franchisee works to build a good reputation for himself or herself, the franchiser retains the right to that goodwill.

e) It is also important to note that franchisees may be at risk of failure if the franchiser fails, and franchisers usually reserve the option to purchase back outlets after a contract has terminated. This option becomes vulnerable to many franchisees. Therefore, the franchise agreements are constantly at risk of non-renewal.

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