Franchising is basically a specialized form of licensing in which the franchisor not only sells intangible property (corporate intellectual property) to the franchisee, but also insists that the franchisee to agree to abide by rules as to how it operates the business.
Franchising is attractive because:
• Firms can quickly build a global presence.
• Low-risk, low cost entry mode (franchisees investing)
• 3% of management fees, Royalties,
Franchising is unattractive because:
• Due to geographic distance of the firm from its foreign franchisees, it can make poor quality of goods and service difficult to detect.
• Lack of full control over franchisee’s operation, which could be challenging.
Franchising is marketing method of selling a business service, often to small independent investors who have working capital but little or no prior business experience.
Franchising is basically a specialized form of licensing in which one party (franchisor) grants another party (franchisee) permission to use its intangible property i.e trademark, business methodologies not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business.
Franchising is a mode of business in which one party (franchisor) allows another party (franchisee) to use its intangible property i.e. trademark
ESSAY 1000 WORDS
The IKEA franchise belongs to the INTER IKEA System B.V in Netherlands. Inter IKEA Systems B.V is the franchisor, which owns the IKEA concept and trademark. Franchisees have authority to operate IKEA stores, under the franchisee agreements established by the franchisor; in terms of operations and methods to use IKEA trademarks, which is consequently determined by Inter IKEA systems B.V. Nonetheless, IKEA franchisees have access to the product range of IKEA’s concept development, manage and also develop in their local stores to suit the local market needs. (INTER IKEA group)
The key objective of IKEA is to expand its market internationally by applying the franchising strategy. Inter IKEA Systems B.V’s purpose is to increase the product availability and the IKEA concept globally through different means such as franchising worldwide. This allows IKEA to operate in the long term. The main factor for ikea to operate in the long term is due to its ownership structure, and independence in the furniture retail market (INTER IKEA Group).
Therefore, IKEA implementing the franchising approach is a way for the company to enable longevity to its concept. For example, new franchisees in different countries are able to implement the concept in order to expand globally under the IKEA concept. (casestudy)
Presently, there are a total of 12 IKEA franchisees that are located in over 38 countries, which include, United Arab Emirates, Kuwait, Saudi Arabia, Australia, China/Taiwan, Cyprus, Greece, Turkey, Israel, Spain and also Dominican Republic. (See Fig1)
IKEA’S franchising strategy, offers the firm high quality control of brand and strategy, however, it is a small financial investment risk therefore allowing the company to benefit from direct local knowledge. Furthermore, extra benefits can include For example, earn additional source of income in terms of franchisee and royalty fees. Franchisees who use the concept and trademarks of IKEA are required to pay 3% of management fee to INTER IKEA Systems B.V annually (Hollensen2014). So, this continually provides another income to the cash flow for the IKEA.
However by using the franchising strategy, this could potentially be a risky strategy to IKEA as there will be difficultly to control the standards and quality of the stores. This would be difficult for INTER IKEA Systems BV to detect, as some franchisees produce the required IKEA standards, therefore due to the geographical distance between the franchisor and the franchisee. This could potentially affect IKEA’s brand and service to their consumers.
The parent company of IKEA, which operates 298 out of 337 worldwide IKEA stores, is INGKA Holding, which is a private Dutch registered company. ING is the first 3 initials of Ingvard Kamprad the IKEA owner. This entirely belongs to the Stiching Foundations, which is a Dutch registered, tax exempt, non-profit making legal entity. Stiching and such foundations are most common form of non-profit organization in the Netherlands. It was given to Kamprad IKEAS share in 1982, which is run by 5 people committee chair by Ingvar Kamprad.