Franchise Systems

Since the 1950s, franchising has emerged to become one of the most common forms of business organization and a dominant form of global expansion. This dynamic has spanned nations, as franchising is commonly used as an internalization strategy, encompassing industries and even sectors as the development of so-called social franchising has proven to be also successful in the nonprofit sector.

Because of the various options in terms of design and applications, franchising can be defined in a number of ways. Originally, franchising developed as a distribution system for a specific business concept. This so-called business format franchising is the most common form of franchising today. The business concept includes a product or service to be offered, as well as the entire know-how relating to starting and managing a business. It must be distinguished from product franchising, where the dissemination object is a product rather than an entire business concept. In business format franchising, franchisors allow their franchisees to use their turnkey and proven business concept, as well as their brand, in return for franchise fees. In this manner, franchisors obtain a fast and straightforward means of expanding their original concept, due to the support of its franchisees. Franchisees, in turn, are offered an equally rapid and less risky way of becoming self-employed through the turnkey business concept.

Over time, franchising has developed into a more horizontal form of cooperation: a network of equal, independent franchisees that join forces to improve efficiency and effectiveness. In this way, franchising succeeds relatively well in coping with the challenges confronting most global companies today. The process thus ensures efficiency while facilitating local market development and adaptation. This balancing act is facilitated through a cooperative work-sharing process between franchisor and franchisees. The franchisor coordinates these tasks centrally for all franchisees, thus generating economies of scale as in large systems. The franchisees then develop the market effectively and flexibly, as they act as entrepreneurs close to the specific or local market.