Types of Franchise Agreements The following are the key methods of franchise arrangements made globally.
- Direct Franchising Format In this franchising the franchiser grants the franchise to a franchisee by the execution of a contract and has direct control over the franchisee. The franchiser specifies operating guidelines and the policies of the franchiser, the consideration being a periodic royalty. He also provides process manuals, shares expertise, monitors and controls the operations. The advantage is that of getting a readymade and established business format that can be replicated. But the franchisees will have to work strictly within specified compartments with little room for flexibility in operations.
- Subsidiary Franchising Wherever laws and regulations allow foreign organizations to set up their subsidiaries in India, franchising is done through a subsidiary. The franchiser controls the subsidiary directly. The major advantage is that the franchiser is present in the country as a corporate body. The franchise rights for retailing and dealerships are given by the subsidiary office in India, which controls all the processes in retail and distribution.
- Regional Franchising or Multiple Franchising Here the franchiser offers franchise rights to a franchisee only for a region or an area. There are separate franchisees for each area or region in the country. This is also known as multiple franchising when more than one franchisee is given the franchise rights for the same brand. Such agreements offer the franchisee the right to open a multiple number of outlets.
- Unit Franchising The franchiser offers rights to a franchisee to open and run just one store through an exclusive agreement which involves many franchisees. It is very difficult to monitor compliance to specified standards and processes. The strength of this format is that each franchisee pays full attention to his store and its performance.
- Master Franchising Here, the franchiser grants the franchise rights to an entire country or territory and the franchisee is permitted to open franchise outlets and grant sub-franchises to others. Two agreements are generally involved — one that is entered into between the franchiser and master franchisee and the other between the master franchisee and sub-franchisees.