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Merits and Demerits of Franchising

Following are the merits of  franchising:

1. Easy method of entering foreign markets: There are many methods of entering foreign markets, such as exporting, licensing, franchising, contract manufacturing, management contract, joint venture etc. But franchising is the easiest method as compared to other methods. Because in case of franchising, a business man can enter the foreign market by signing an franchising agreement with a foreign based enterprise which is granted under the terms of agreement of right to use the patents, processing know-how or trade marks of the licenser company usually in exchange for a fee or royalty.

2. Little risk: Through the franchising agreement, the licenser can enter the foreign market at little risk and gets the benefit or gaining the manufacturing, technology and marketing of a well known product or brand. Franchising does not involve foreign investment risk since the franchising agreement sets up its own production and marketing facilities.

3. Quickest: Franchising is the quickest method of entering foreign markets, because within short span of time, the interested parties can enter into an agreement of franchising.

4. Economical: Franchising agreement can be implimented with a limited expenditures without any distribution costs.

Followings are the demerits of franchising agreement:

1. Less Rolyalty: In case of franchising the amount of fees or royalty earned by the licenser or franchiser is comparatively less than the amount of profit earned by the licensee or franchisee.

2. Devoid of secrecy: In case of franchising the franchiser cannot maintain the secrecy of his business because he is to disclose this business secrecy to the franchisee.

3. Create competitor: After completion of license period, the licensee may become a strong compititor of licensor. So, it may loss the base of licensor's business.


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