Franchising

Franchising is a method of business expansion in which a franchisor licenses its brand, business model, and operating system to a third party, the franchisee, in exchange for upfront fees and ongoing royalties. This arrangement enables rapid expansion with relatively lower capital expenditure for the franchisor and growth opportunities for the franchisee. There are two main forms: product distribution franchising, where the franchisee sells the franchisor's products under its brand, and business format franchising, where the franchisee adopts the franchisor's entire system, including marketing, training, and operating procedures.

Key participants include the franchisor, the franchisee, and sometimes master franchisees who grant sub-franchises in a defined territory. A typical package includes an initial franchise fee, ongoing royalties based on sales, and contributions to an advertising or marketing fund. The franchisee operates under a detailed franchise agreement that specifies term length, territorial rights, performance standards, quality control, training, and renewal or termination provisions.

Operating standards, brand consistency, supply chains, and ongoing support are central to the model. Franchises often receive manuals, training programs, and access to suppliers and bulk purchasing. Legal frameworks vary by country and may require disclosure documents, registration, and compliance with consumer protection or competition laws. In the United States, the Franchise Disclosure Document outlines costs and obligations prior to signing.

Potential advantages include accelerated growth, brand recognition, and shared risk, while drawbacks include reduced autonomy, ongoing fees, and dependence on franchisee performance. The franchising sector remains a major form of retail and service delivery worldwide, adapting to digital tools and evolving consumer expectations.