Franchising Vs Licensing Essays On Friendship

Over the last few decades, franchising and licensing have become common expansion strategies for many business owners.

If you are reading this, chances are you’re an entrepreneur seeking to make more money, have multiple streams of income, retire early or leave a legacy for your family. Both franchising and licensing can help you get there.

What's the Difference Between Franchising and Licensing?

A franchise is an extension of an already existing brand or business that wants to expand. It is an asset of your brand governed by the federal securities law.

When you purchase a franchise, you pay fees for the right to operate a business, participate in a standard operating system, and use the brand name and proprietary information of the franchise. The diversity of products and services offered by franchised businesses makes the option appealing to many aspiring entrepreneurs or business owners looking to scale and expand their businesses. McDonald's is one of the most famous examples of a substantial franchise business. From extremely modest beginnings, McDonald’s now has more than 36,000 restaurants in more than 100 countries.

Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee. When you franchise your brand or business, you retain an enormous amount of power. You supply the business model, and you can define the territory in which any given franchisee can operate. When you license a business, you sell the rights to use your company's products and trademarks in exchange for some version of royalties, which are usually an agreed-on percentage of the licensee's sales. The licensor retains ownership of the goods or intellectual property involved.

Licensing a Business or Brand

Did you know that when you buy a pair of Calvin Klein underwear, it's not actually made by Calvin Klein? The only clothing that the Calvin Klein company manufactures itself is some of its women's lines. Every other Calvin Klein-branded garment you buy, including perfume and jeans as well as their famous underwear, are a result of a licensing agreement. The makers of these products have licensed the Calvin Klein name and logo to help sell their own products.

One of the most reputable businesses in the licensing world is Disney. The Disney Consumer Products Branch has licensed movie images and characters, including the famous Disney Princesses, to companies selling everything from home furnishings to personal care products, with plenty of apparel thrown into the mix, ranging from T-shirts and kids' pajamas to wedding dresses.

Disney's primary competitor, Warner Bros., also draws a significant amount of revenue from the IP it owns, with DC Comics providing massive toy and apparel licensing opportunities. Even the Wizarding World of Harry Potter, is the result of a licensing deal. Since Warner Bros. doesn't own any theme parks, it chose to license its theme park rights to Universal Studios to capitalize on the Harry Potter IP.

Another interesting licensing example comes from America’s sweetheart, the Girl Scouts. The Girl Scouts uses different cookie bakers around the country, but the organization then licenses its name and its cookie types for use in ice cream, cupcakes, even candles.

Franchising vs. Licensing: Advantages and Disadvantages

If you buy a franchise, you get all the advantages of remaining self-employed, but you mitigate the risks by being part of a proven business that typically has a customer base ready and waiting. You may also gain a monopoly within a particular territory, and your initial investment may be lower than starting a business on your own.

For franchisors, franchising allows them to expand their business for less investment than opening new locations themselves. Other advantages of franchising include the fact that you know what the business looks like when it's successful, and you can often take advantages of economies of scale in your relationships with vendors and suppliers.

The downside of franchising lies mainly in the loss of control you have as a business owner since the franchisor makes a lot of the decisions for you. Of course, some business owners consider this narrowing of control a relief and therefore an advantage. Also, the profits tend to be slightly lower than if you had your own business, because as a franchisee, you typically have to pay franchise fees to the franchisor.

Licensing and franchising share a few similar advantages. Licensees also enjoy lowered risk because they're usually entering the marketplace with a known quantity and a built-in customer base. However, they enjoy a lot more freedom than franchisees.

A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks.

Licensing and Franchising: Which One Is Right for You?

Your choice in the franchising vs. licensing debate rests purely on your desires and needs as a business owner. Ask yourself a few key questions to understand which type of business arrangement is most appropriate for you:

  • Do you find the securities laws that cover franchises to be burdensome?
  • Does the franchise you're considering have a proven record of success?
  • Are you looking for an easier entry into business, with fewer requirements? If so, a licensing agreement is typically much easier to finalize than a franchise agreement.
  • Do you prefer a greater degree of control in managing your business? If so, licensing is again the better choice. If you like having many elements of your business pre-planned for you, head in the franchise direction.

Every business has its potential challenges. As you consider the difference between franchising and licensing, add up the pros and cons of your situation, goals, personality, and products. Also, remember to take into account the resources you have available when making your decision.

Franchising Vs Licensing

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Franchising Vs. Licensing

Franchising and licensing are means of expanding a business. These two terms are often confused with one another. However, franchising and licensing come from two distinct areas. A comprehensive difference is shown in the following table.


Definitions Franchising is a business model in which you purchase a license of a specific business.
The Franchise Fee {Licensing fee} gives you the right to open a franchise of that particular business, using trademarks, signage, products, software, business systems etc.
Franchising is a term which can be applied to just about any area of economic endeavor. Franchising encompasses products and services from the manufacture, supply for manufacture, processing, distribution and sale of goods, to the rendering of services, the marketing of those services, their distribution and sale.

Licensing is granting of permission to use intellectual property rights, such as trademarks, patents, or technology, under defined conditions. It prevents others from exploiting the idea, design, name or logo commercially.
It is a business arrangement in which a local firm in the host country produces goods in accordance with another firm's (the licensing firm's) specifications; as the goods are sold, the local firm can retain part of the earnings.

Agreement A franchise agreement is a specialized license and will cover all aspects of IP, user obligations and use provisions A license agreement is a business arrangement where a licensor via a monopoly right such as a Patent, a Trade Mark, a design or a copyright has to exclusive right which prevents others from exploiting the idea, design, name or logo commercially.

On-going Commitment In franchise agreement there is an ongoing commitment in effect you are:

In business for yourself but not by yourself! In license agreement or business opportunity there is no ongoing "royalty or required relationship" in effect you are:
In business for yourself and by yourself!
Time Required to Finish It takes months for franchises to be done. It takes about ten to fifteen business days to complete.

Distinct Areas of Law Franchising is based on securities law. It means compliance with the franchise laws, like the securities laws, requires registration of the franchise in the applicable jurisdictions
Licensing is a form of contract law. It means licensing is merely a contract between two independent contractors and franchise registration is not required.

Work Load Franchising route creates more work for lawyers in complying with all the registration requirements. Down the licensing road, it requires substantially less legal work.

Amount of Control The parent company keeps very tight controls on every aspect of your business but they also provide a lot of assistance in the management and marketing of your store.

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The control by the franchisor over the franchisee is what is suppose to make the money for the franchisee; i.e. if you do what the franchisor says, you will make money. Buying a franchise is like buying a security; i.e. the control over whether or not the buyer of the franchise or security makes money is in the hands of a third party; for the security situation it is in the control of the people who operate the company that issues the security, and for the franchise the control is in the franchisor who dictates how the franchise operates to make money. The relationship between a licensee and the parent company is not as tight-knit. Once the licensee launches the operation, the relationship with the licensing company is frequently limited to purchasing products.

In a licensing arrangement, you have more freedom in the operation of your business than with a franchising situation, but also more responsibility (there is also more risk and potential reward). You have the freedom to set your own hours, make-money policies, benefits, employment policies, etc.

Relationship with the Parent Company Franchisees can expect to have a much closer relationship with their parent company than their licensee counterparts. First and foremost, franchisees typically retain rights to the parent company’s trademark and logo. This is important because it is a visible representation of the connection between franchisor and franchisee. The relationship between licensees and the licensing company is looser than the relationship between franchisors and franchisees. In most cases, the licensee does not retain rights to use the company’s trademark and logo. Instead, the licensee is expected to establish its own identity in the marketplace.

Training and Support Franchisees are the public face of the company and Franchisors usually provide a certain level of training and support to franchisees and their employees. Licensees don’t receive much in the way of training or ongoing support from the licensing company.

Territorial Rights Franchisees can also expect a certain amount of territorial exclusivity as well as controls over the products and services they offer. Licensees usually don’t receive exclusive territorial rights. This means that the licensing company is free to sell similar licenses and products to other people in the same geographic area.

Cost Difference It is substantially expensive. Franchisees can expect to pay royalties on a go-forward basis i.e. every time a profit is made. License opportunities are often less expensive than franchises in both the upfront investment and ongoing charges.
Franchising vs. Licensing: An Example

Franchising: Some fast-food chicken franchises cost more than one million dollars to get into, a LFC store costs as little as $150,000 to establish a planned restaurant, even less for an existing one. This allows the “small guy” access to a successfully established product with a 30 year track record. Our relatively low start-up expenses have attracted hard working entrepreneurs with limited financial means, and because of this, 90% of LFC owners are minorities, whom many have achieved a high level of financial success. LFC competes directly with the big names like KFC, Popeyes and Churches; our highest volume stores are surrounded by these businesses.

Licensing: The only requirements are that you purchase LFC ingredients (Seasoned Flour, Red Pepper Mix, Dirty Rice Mix) and imprinted items (boxes, bags, and cups with the LFC logo printed on them) through a designated LFC distributor.



References:

http://townsend-law.netfirms.com/franchising.htm
http://www.bizymoms.com/franchises/articles/licensing.html
http://www.gaebler.com/Franchisees-Versus-Licensees.htm
http://www.wipo.int/sme/en/documents/franchising.htm
http://answers.yahoo.com/question/index?qid=20071023091333AAqnb1q
http://www.louisianafriedchicken.com/Difference.html
http://www.evancarmichael.com/Forums/viewtopic.php?t=54



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