Forms of Franchising

A franchise is a form of business.
A franchise is a form of business. (Image: Jupiterimages/BananaStock/Getty Images)

Franchising is a business method that uses licensing of trademarks and practices of doing business. The forms of franchising may be classified based on a few factors. Some of these factors relate to the kind of franchise business, the control over the franchisees, the involvement by the franchiser, the tactics of the franchiser and the expansion plan of the franchise in the granted territory.


Direct franchising occurs when a franchiser in a country gives franchise rights, along with continuous training and support, to single-unit franchisees. These single-unit franchisees, sometimes called indigenous franchisees, operate in their own countries, according to Fran Excel. A foreign franchiser is in a position to directly support a single-unit franchise from its home country. A foreign franchiser can also provide support by forming a local presence in its host country. Both of these forms are direct franchising; the former is called direct-unit franchising, while the latter is called direct-investment franchising.


Conversion franchising is defined as when a franchisee is already in the same line of business as the franchiser, yet wants to improve through the influence of the franchiser. This influence is represented in the franchiser's promotions, advertisements and marketing, as reported by Fran Excel. Conversion franchising may be appealing to small and independent traders that are attracted to joining up with the power of either an international or a national, branded franchise network. A branded franchise network comes with benefits like promotional and marketing power.

Area Development

Area development franchising starts with the franchisee, or the area developer. The franchisee enters into an agreement where rights are bought within a certain period of time to develop a number of outlets in a specific territory. This type of agreement is typically referred to as the area development agreement, states Fran Excel. The franchisee normally enters into a distinct franchise agreement with the franchiser for each unit that is opened up. The franchisee is obligated to both own and manage every one of the units.

Joint Venture

Joint venture franchising is when a franchiser forms an agreement with a business that is indigenous to start up, and also develop the franchiser's system of business. The franchiser can also enter into an agreement with an indigenous entrepreneur. The two parties may contribute to the enterprise in very different ways, says Fran Excel. Contributions to this form of franchising can include human resources, working capital, facilities and plant, property and intellectual property, which contain knowledge, methodology, processes and trademarks.

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