Small Business, Entrepreneurship and Franchising

Benefits and Drawbacks of Franchising in Hospitality Industry

Introduction

Franchising is a form of business model in which a parent company (the franchisor) customarily grants an individual or a relatively small company (the franchisee) the right or privilege to do a business in a prescribed manner over certain period of time in a specified space. Franchising is the most popular way for growing a business today. A company franchises because it wants to quickly and in great numbers replicate its successful company operations without significantly increasing its debt. Because it has been successful at teaching its own employees to operate the business, the company believes it can repeat the same success by teaching others to do it. Franchising is successful because it is based on a strong idea and established brand and customers are brand-driven lay their trust on the brands. However, franchising comes with some disadvantages for the franchisor as well as franchisee too that, if not managed properly, can turn the success of a franchised business upside down. In the following sections of this essay, we have discussed the benefits as well as the drawbacks of franchising in the context of hospitality industry (O'halloran et al., 2006, Pp. 65).

Benefits of Franchising In Hospitality Industry

There are various benefits of franchising in hospitality industry. With the help of franchising the industry can expand and can get built-in support from the parent company. It provides the parent company with additional revenue and the parent company can get itself away from all those tensions of managing it as the franchise owner is made responsible for certain fixed amount that can be based on the mutually agreed percentages. With the help of franchising in hospitality industry the parent company can make its overhead costs lower as compared to the independent small business. Franchising can help the hospitality industry and specifically the parent company in gaining strong and wider customer base. The loyal customers of a particular hotel can get the similar facilities in their reach. Franchising also enhances the brand image and helps in gaining more attention of potential customers in that locality where the franchise is opened (Combs, 2011, p.99).

The franchise is based on a strong idea of “shared success”. That is why the success rate of franchise business model in hospitality industry is much higher than the failure rate. It is due to the fact that the survival instincts and chances to success of franchised businesses improves significantly when the brand is already recognized, established, tried and tested brand coupled with the resources of the Franchisor to support the franchisee on a permanent basis with the help of dynamic employees driven by the spirit of the network (Hartman, 2011, p.68).

Marketing support

Usually in a hospitality industry, Franchises are sold in another country due to “know-who” of culture, suppliers, labor market of franchisees. Therefore, hotels get the most out of their marketing strategy by pursuing an international marketing strategy. For instance, when Ritz-Carlton sold its franchise in Bangalore India, Indian franchisee decided to ...