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What is Franchising: its pros and cons

Article image: What is Franchising: its pros and cons

Setting up a business is a complex process that requires a competent approach, a well-thought-out plan and certain knowledge. However, there is a scheme that allows future entrepreneurs in the UAE to facilitate their own start. It is a franchising — the type of relationships between two independent business owners, when one company (a franchisor) transfers a set of rights for a fee (the brand name, business model, trademark, etc.) to another company (a franchisee). The franchiser assumes an obligation to provide consulting, technical and legal support to the franchisee.

In other words, you get the right to open a complete copy of the well-known and popular company for a consideration. Among the well-known examples of franchising in UAE are McDonald's, KFC, Burger King, and Baskin Robbins.

Arguments in favour of franchising

When buying a franchise, you do not need to develop a business plan, look for suppliers, establish relationships with partners or determine the assortment and volume of purchases. The company (a copyright holder) provides a full scheme of carrying on business, with the fixed weak points and errors. You will operate using a reliable conception that has already proved its efficiency. Thus, you will save yourself from the risk of failure, which is a characteristic of starting a new company.

In addition, you get support from the franchisor in terms of staff training, creating advertisements as well as in the form of professional consultations and necessary equipment. In other words, you will not be left alone with your problems: the franchisor always helps you if you have any questions regarding carrying on business in UAE.

If the company from whom you bought a franchise is well known and popular, you immediately obtain loyal consumers. It means that you do not have to spend a sight of money on advertising. The franchisor will provide a full marketing plan as well as brochure templates, catalogues and other promotional materials.

Arguments against franchising

Despite the numerous advantages, this business scheme has some drawbacks.

Firstly, you will need a considerable start-up capital. In addition to the lump sum payment (a payment for using a brand) and monthly royalties, you will also have to pay for renting premises. Besides, it must be noted that franchisors usually set high requirements for the place of carrying out business by a franchisee. That is why you will not be able to save money when renting premises. You will also have to purchase the franchisor's products with some margin.

Secondly, you will have to strictly follow the rules established by a franchisor — no rights for embodying own ideas and no freedom of action. You will have to follow the rules in everything, starting from the assortment of goods and services to offer and up to the question of arranging advertising banners. Even if any product will be out of demand in your region, it will be difficult to change the situation.

Thirdly, you will be required to fulfil all requirements stipulated in the contract, regardless of the fact whether your business is running successfully or suffers a setback. Therefore, you will have to pay royalties no matter whether you operate at a profit or at a loss.

After weighing up all the pros and cons and opting for franchising in the UAE, you will have only to find the appropriate franchiser and carefully analyse all the offered conditions.

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