Franchising has become the dominant force in the distribution of goods and services in the United States and many parts of the world. It is predicted that it will become the primary method of doing business and expansion worldwide. In order to understand the global impact of franchising, it is essential to fully understand its definition and the way it works. According to a report by the Committee on Small Business (1990), U.S. House of Representatives, “franchising is essentially a contractual method for marketing and distributing goods and services of a company (franchisor) through a dedicated or restricted network of distributors (franchisees).” The International Franchise Association defines franchising as a “continuous relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organizing, training, merchandising, and management in return for a consideration from the franchisee” (International Franchise Association). In short, franchising is designed to provide a symbiotic and mutually beneficial relationship between the franchisor and franchisees. The same guidelines work whether the business is run locally, regionally, or internationally. A distinct differentiation exists between franchising and other business methods. Multiunit operations and groups of restaurants owned by an individual or corporation that have the same trademark may not be franchises. What constitutes a franchise is the legal agreement and bond-
ing between a franchisor and a franchisee for the conduct of specific business, after meeting prearranged sets of legal requirements. A franchise-granting corporation may itself be a wholly owned subsidiary of another corporation. A good example is Pizza Hut, a subsidiary of Yum! Brands, Inc., which also owns Taco Bell, KFC, A&W, and Long John Silver’s corporations. Components of conglomerates are not considered franchises, although some of them may individually be franchise-granting corporations. In summary, under the terms of the franchise contract, a franchisor grants the right and license to franchisees to market a product or service, or both, using the trademark and/or the business system developed by the franchisor. The entire process of franchising starts with a concept, which may be based on an idea, innovation, process, product, service format, or a combination of all these. The franchisor grants a license to another party to use this concept. Due to the legal agreement, room for flexibility is strictly limited, which leaves a distinct impact wherever this concept is carried. Hence this concept in its totality has to survive within the cultural, social, economical, and political environments. In other words, a fairly rigid concept has to flourish in variable environments based on the country in which it is transposed. This results in a sort of give and take, causing positive and negative impacts, which are discussed in this chapter.