Franchise Versus Licensing

8/8/2019 Franchise Versus Licensing

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INDEX

OBJECTIVEWHAT IS FRANCHISING?WHAT IS LICENSING?

ADVANTAGES OF FRANCHISINGDISADVANTAGES OF FRANCHISING

ADVANTAGES OF LICENSINGDISADVANTAGES OF LICENSINGCOMPARISIONRECOMMENDATION



OBJECTIVE

The aim is not only to depict the meaningof franchising and licensing but also thecontrasting relationship betweenfranchising and licensing followed by therecommendation.



WHAT IS FRANCHISING ?

Franchising may be defined as a businessarrangement which allows for the reputation,(goodwill) innovation, technical know-how andexpertise of the innovator (franchisor) to be combined

with the energy, industry and investment of another party (franchisee) to conduct the business of providing and selling of goods and services.Franchising encompasses products and services fromthe manufacture, supply for manufacture,processing, distribution and sale of goods, to therendering of services, the marketing of thoseservices, their distribution and sale.



WHAT IS LICENSING ?

A license arrangement is a business arrangement wherea licensor via a monopoly right such as a Patent, a TradeMark, a design or a copyright has to exclusive rightwhich prevents others from exploiting the idea, design,name or logo commercially.

The license allows the licensee to use make and sell, theproduct or name for a fee without censure.In a Trade Mark license, for example, the licensee will begranted full privilege to use the Trade Mark on goods orservices provided that the use is in accordance with

agreed signage protocols and quality guidelines.There is usually no training component, productdevelopment strategy and limited marketing support.



A DVANTAGES OF FRANCHISING

Freedom of employmentProven product or service outcomesSemi-monopoly; defined territory or geographicalboundaries

Proven brand, trade mark, recognitionShared marketing, advertising, business launchcampaign costsIndustry know-how

Reduced risk of failure Access to proprietary products or servicesBulk buying advantagesOn-going research and development



D ISADVANTAGES OF FRANCHISING

High initial investment and ongoing charges.whereas franchisees can expect to pay royaltieson a go-forward basis

The franchise agreement usually includesrestrictions on how you run the business. Youmight not be able to make changes to suit yourlocal market.

Other franchisees could give the brand abad

reput a tion . All profits are shared with the franchisorThe franchisor might go out of b usiness d ue to bad h a ppenings



A DVANTAGES OF LICENSING

A license agreement that gives access to technologies which arealready established or readily available can make it possible foran enterprise to reach the market faster. A license agreement can give an enterprise access to technicaladvances that would otherwise be difficult for it to obtain.

A license can also be necessary for the maintenance and

development of a market position that is already wellestablished .There may also be licensing-in opportunities which, whenpaired with the company·s current technology portfolio, cancreate new products, services and market opportunities.licensees usually don't receive exclusive territorial rights.

licensing company is free to sell similar licenses and products toother people in the same geographic area.licensee is expected to establish its own identity in themarketplace.



D ISADVANTAGES OF LICENSING

The licensee may have made a financial commitmentfor a technology that is not ¶ready· to be commerciallyexploited, or that must be modified to meet thelicensee·s business needs.

An IP licence may add a layer of expense to a productthat is not supported by the market for that product. ILicensing may create technology dependence on thesupplier, who could choose to not renew a licenceagreement, to negotiate licence agreements with

competitors, to limit the markets in which you mayuse the licensed technology or to limit the acts of exploitation allowed under the licensing agreement.The relationship between licensees and the licensingcompany is not strong



COMPARISONF RANCHISING LICENSING

In franchising, the franchisee andthe franchisor are very closely linkedand have better workingrelationships.The franchisee gets to retain the

rights to the franchisor·s logo and

trademark.This also goes a long way inproviding a visible presentation of the relationship between the two.Franchisees are often an extension of the parent company, in that theyrepresent the parent company·sbrand and image.They are usually provided some

level of training and support. Also,they get to leverage some amount of territorial exclusivity in addition tocontrol over the products andservices offered.

The relationship between a licenseeand the parent company is not astight-knit as a Licensee franchisorrelationship.licensee does not hold the rights to

the trademark and logo of the parent

company·s brand.the franchisee is expected to create

its own niche and identity in themarket.licensees do not get to have

territorial rights from the parentcompany. Which means thatlicensing organization gets to sellsimilar licenses and products in thesame geographical area.Licensees also do not receive thesame extent of support and trainingas compared to a franchisee.



RECOMMENDATION

A licensing opportunity seems to be lessadvantageous as compared to a franchisingbusiness, licensing has its advantages as well.One advantage is that licensing costs much lesserin terms of the initial investment and ongoingcharges. While a franchising business mayrequire you to pay royalty every time a profit ismade, a licensing opportunity does not demand

such an expense. Also, once the licensee is able tosuccessfully set up its business and spin off on itsown, the relationship between licensee and theparent company is restricted to the frequentpurchase of products.

Franchise Versus Licensing

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