Q.Explain the meaning and types of franchising, and discuss its merits and demerits.

Franchising lets an established business expand its brand quickly by licensing it to another party, and the syllabus expects both its types and the trade-offs for each side.

Franchising is a contractual arrangement in which a franchisor grants a franchisee the right to use its trademark, brand name, business format and operating know-how to sell goods or provide services within a defined territory, in return for an upfront franchise fee and ongoing royalty payments.

Types: In product/trade-name franchising, the franchisee mainly distributes the franchisor's branded product (for example, a vehicle dealership), with the franchisor exercising comparatively little control over day-to-day operations. In business-format franchising, the franchisor licenses an entire standardised business system — trademark, an operations manual, staff training, marketing support and continuing supervision — so a customer's experience is meant to be nearly identical at every outlet.

Merits: For the franchisor, franchising allows rapid market expansion using the franchisee's own capital, while benefiting from the franchisee's local market knowledge. For the franchisee, it gives access to an established, recognised brand, a business model that has already been tested and proven, and ongoing training and support, reducing much of the risk a wholly independent new business would face. …

Discussing only the franchisor's or only the franchisee's perspective, when the question ex …