By Roger D. Blair
This publication describes in a lot aspect either how and why franchising works. It additionally analyses the industrial tensions that give a contribution to clash within the franchisor-frnachisee dating. The remedy incorporates a good deal of empirical facts on franchising, its value in a variety of segments of the economic climate, the phrases of franchise contracts, and what we all know approximately how these types of have developed over the years, in particular within the U.S. marketplace. a superb many myths are dispelled within the method. the commercial research of the franchisor-franchisee dating starts with the commentary that for franchisors, franchising is a contractual replacement to vertical integration. for this reason, the tensions that come up among a franchisor and its franchisees, who in truth are vendors of autonomous companies, are tested in flip. specifically the authors talk about matters regarding product quality controls, tying preparations, pricing, place and territories, ads, and termination and renewals.
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Extra info for The Economics of Franchising
In his work, The Complete Handbook of Franchising, Seltz (1981) concluded his assessment of franchisor capital requirements with this statement: “As a general rule, then, franchisor initial capital requirements will fall into the range of $150,000 to $1,000,000, plus a properly capitalized functioning prototype operation” (58). In 2001 dollars, this would amount to capital requirements of $320,000 to $2,100,000. S. 45 This amount includes expenses incurred to develop clear and complete operating manuals, contracts, disclosure documents, and so on, as well as franchise sales staff development and training.
To provide a better sense of where entry has been most prevalent in the 1980s and early 1990s, we rely on the number of new franchisors in our data per USDOC sector. Specifically, we present in Table 1-5 the number of franchisors that started franchising in every three-year period, starting in 1980 and ending in 1997. We end with 1997 because we only have a few years of data to identify the new entrants at the end of our sample period and, hence, we do not capture them all. But from our earlier data, more than 90 percent of the franchisors appear in our data within five to six years of when they start franchising.
However, the former was limited to the lodging and restaurant sectors. The CBO survey was not designed to allow inferences on the extent of franchising and has not yet been repeated. Going forward, we will refer to some studies that have relied on some of these data for other purposes. S. S. Census Bureau (for car dealerships and gasoline stations) and the “Annual Survey of Manufacturers” (for soft-drink bottling). The table also shows the proportion of nominal GDP that these represent. 1 Growth: Fact and Fancy April 30, 2005 12:17 29 The data in this table first confirm what we found earlier, namely that sales growth in traditional franchising between 1972 and 1986, although sizable in nominal terms, has more or less followed the growth of the economy as a whole in real terms over this period.
The Economics of Franchising by Roger D. Blair