Franchise agreement:
-This contract, known as the franchise agreement, first appeared in the United States in 1920. The number of franchisors from this country reached 295 between 1982 and 1984, with the total value of American investments from franchise contracts amounting to 457 billion dollars during that period. As for France, this contract began to spread there starting in 1970, and after 20 years from that mentioned year, the number of franchisors in France reached 30,000 franchisors.
The concept of the franchise contract is an agreement between the founder of a highly successful business that has gained a significant share of consumers, enabling it to move to the next stage – replicating that success, whether in their own country or in other countries. This is achieved by granting a license to use the brand name, trademark, industrial and commercial methods, and technical knowledge related to the product. These rights are granted through licensing of intellectual property rights.
In order to replicate the success, the franchisee gains access to the knowledge of how the product is made, how it is marketed, and how it is advertised. The operations manual plays a crucial role in this, as it outlines the procedures and guidelines for running the business. Additionally, the franchise often includes replicating the décor and interior and exterior design of the business. Therefore, it can be said that this contract is built on the concept of duplication to ensure the replication of the success achieved by the franchisor when establishing the business, under the supervision and guidance of the franchisor in exchange for a fee from the franchisee.
The advantages of a franchise agreement for the franchisor:
- In a franchise contract, the franchisor can generate significant profits after enlisting multiple franchisees into the franchise network by granting them a license to use the brand name, trademark, technical knowledge, and technology expertise that the franchisor provides to the franchisee in exchange for an agreed-upon fee or periodic compensation received by the franchisor.
- The widespread presence of the franchise network brings a moral gain to the franchisor, which is the reputation of their brand name and trademark associated with their project. This makes them familiar in the minds of consumers because they have acquired a good reputation due to the quality of the product marketed through the franchise network.
- Franchisor oversight of the franchisee is essential in the franchise contract to ensure the quality of the product that the franchisee manufactures, distributes, and markets. If the franchisee does not perform their duties correctly and the franchisor does not monitor this, it can have a negative impact on the franchise network. Therefore, the success of the franchisee is linked to the success of the franchisor as long as the oversight from the franchisor over the franchisee continues.
- There is a symbiotic relationship between the brand name and trademark and the franchise network. The larger this network grows with franchisees, the higher the value of the brand name and trademark associated with the franchisor’s project.
- The franchise contract helps strengthen the franchisor’s economic and legal position as they enter into franchise agreements with franchisees. Therefore, the franchise contract resembles contracts of adhesion because the franchisor presents their offer to the franchisee without modification. The franchisee may either accept the offer with the terms and conditions set by the franchisor or reject it without negotiation with the franchisor.
The advantages of a franchise contract for the franchisee:
- A franchise contract helps small businesses avoid the risks of establishing a project that lacks the trust bridge between them and consumers. This contract serves as that bridge, allowing the franchisee to benefit from the franchisor’s established brand and reputation, ensuring profitability for the franchisee. As a result, the franchisee can be confident of attracting many customers or clients as soon as the business opens its doors due to the presence of the franchisor’s brand name and trademark.
- The franchisor’s supervision of the franchisee ensures that the latter takes the right steps to replicate the success of the franchisor’s project and avoids making mistakes that could negatively impact the franchisee’s project, as well as the reputation and franchise network of the franchisor.
- The franchisee ensures that they are dealing with an experienced and knowledgeable franchisor who fully understands the project they want to replicate. Therefore, the franchisor provides the franchisee with a comprehensive feasibility study of the project the franchisee intends to establish. The franchisor also provides the franchisee with the elements through which the franchisee manufactures the product. The franchisor studies the market in which the franchisee will establish the project and also suggests the location where the franchisee should establish the project to become independent from the franchisor.
- This contract contributes to the economic development of the franchisees’ countries due to the high demand from consumers or clients, increasing the value of the project’s brand name and trademark. Franchisees also benefit from significant profits from the project, which in turn reflects positively on economic development.
