Business Model Of The Franchise Model

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Business models exist in many forms, depending on the market they have to fit into, but if we consider the European one, we can state that there are essentially three main business models: the direct sale, the manufacturer and the franchise model. The franchise model, is maybe the most used in the world because of its simplicity and structure. The franchise model takes in consideration two essential ideas: the amplification of a business and the creation of new jobs in a new area. This business model bases it self on the necessity of companies of getting bigger and increasing their revenue. In fact this model is based on the idea of the family tree, where at the top there is the firm and beneath there are all the agencies, agents and managers…show more content…
It also poses a big risk rate, because by opening a new agency, that is still dependent on the bigger company, you risk that if the main company fails, you will fail too, even if your agency is doing more than required. This business model approach is used not only by small companies but also by larger firms, like the ones in the sport industry like Nike, Puma and Decathlon. Nike and Puma are both manufacturers because they produce their goods, but they are also franchisors because they have firm shops almost everywhere in the world. Decathlon, on the other hand, is a pure franchisor because their goods are produced by the multiple companies owned by Decathlon itself but the stores are multi brands. This can be either an advantage or a disadvantage, since working with a big firm means that your products have the chance of becoming as important as all the others in the retail shop, but it may be risky if the quality of your products is inferior or different from the one offered by the other smaller companies. This is why all the brands tend to specialise in a sport or multiple sports, like Kripta for soccer and bTwin for cycling, so that the quality may be a little bit different but the competition in the retail store is…show more content…
‘By franchising, small firms overcome this lack of managerial expertise by attracting a wider pool of qualified managers that self-select into the franchise system (Shane 1996)’. This system differs from the other business models because in the franchise model there are more managers under the boss, which not only makes communication inside the company stronger but it also helps the firm to become bigger and bigger because the demand will increase and the work places will increase too. Managers in this business model can barely do whatever they want, they can approach the same situation in different ways, what matters at the end is the result, this is what they care about in the headquarters. Considering franchising for a big company, it can be a double sided blade because it can help the firm to grow and, at the same time, it may harm the firm because of the high labour cost since this complex network needs lots of people to spread the business, ‘essentially, if a firm is young, small, or growing fast, then it franchises more. As the firm ages and matures, franchising should diminish (Gillis and Castrogiovanni, 2010)’. The most serious problem about franchising is that this model provides a very quick expansion of the business but the costs increase as well, so for bigger firms, running a large franchise may be a loss

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