Joint ventures and franchising is a widely spread form of businesses. A franchise is a business based on the use of brand names, promotional logos and trading methods of an existing successful business. In franchising, the franchisee buys the licence to operate the business from the franchisor; e.g: McDonalds. A franchise has many advantages and disadvantages. The franchise is bought to promote a brand name, which benefits the franchisor. The franchisor also benefits as the business expands rapidly, the management and labour is the responsibility of the franchisee and all products sold are to be obtained from the franchisor. It benefits the franchisee, as it has a certain brand image, which reduces the chances of business failure, the franchisor pays for advertising, all supplies are obtained from the franchisor, lesser management is required as important business decisions are taken by the franchiser and the banks are willing to give loans due to relatively less risk. It also has some disadvantages. Once a franchise is established, it represents a brand and mismanagement of an outlet may result in bad reputation of the brand. In a franchise, the franchisee keeps the profit which is a disadvantage for the franchisor. For a franchisee, it doesn’t have complete independence to run the business and also has to pay the licence fees, to the franchisor.
A joint venture is a collaboration between two businesses/companies on a new project. In a joint venture, both companies equally share the profit and loss, and equally invest in the project. However, a joint venture may end up in disagreement of the venture partners over ways of running the business and decision making.
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