SOUTHERN CROSS UNIVERSITY

ASSIGNMENT COVER SHEET

Student Name: Student ID No.: Unit Name: Unit Code: Tutors name: Assignment No.: Assignment Title: Due date: Date submitted:

Yuldashev Eldor 22025441 Entrepreneurship in Tourism and Hospitality MNG00427 Terence Goh 3 (20%) Franchising Week 12, January, 2013 January 04, 2013

Declaration: I have read and understand the Rules relating to Awards (Rule 3.17) as contained in the University Handbook. I understand the penalties that apply for plagiarism and agree to be bound by these rules. The work I am submitting electronically is entirely my own work. Signed: Eldor
(please type your name)

Date: 04/01/2013

The following essay mainly focuses on studies about Franchising with support of case study related to one of the famous franchise units in New Zeeland and Australia Pita Pit. As well as based on case example of Pita Pit report covers the three diverse questions asked at the end of case study. In general the answers highlight the pros and cons of franchisor and franchisee operations compared to independently managing the business. The response is obtained after thorough research and backed with relevant examples from reliable sources. I have researched about Pita Pit franchise and analyzed other franchise units across Australia and New Zealand. There are many other franchising opportunities therefore before start working with Pita Pit and acquire this franchise I decided to identify some crucial trends. Before purchasing Pita Pit franchise I would ask few questions mostly related to Pita Pit and Its operations from master franchise team. Three of these questions are as follows. Question 1 Pita Pit position itself as a fresh fast food restaurant and focuses on unlimited segment groups. There are few restaurants such as Subway which offer fresh and healthy food as well. What is Pita Pits competitive advantage and do you have any differentiation strategies that make you differentiate from other competitors? Question 2 By expiring franchise agreement will you provide options of buying back franchise and its assets, including compensation for the goodwill that I made up? Question 3 Under business failure or other circumstances can I assign or sell the franchise to another party? According to Armstrong & Kotler (2011, p. 344 )In the United States alone, some 1,500 franchise businesses and 865,000 franchise outlets account for more than $839 billion of economic output and accounting for 8.1 percent of all private, non-farm jobs. This amounts to 11 million jobs, and 4.4 percent of all private sector output which illustrates tremendous growth in this sphere of commerce. Moreover, franchising is one of the easiest options of entering to business with lower risk and high potentials for growth. It gives fundamental knowledge and

skills for young entrepreneurs as well as provides tested approach of doing business. There are a lot of advantages of acquiring franchise which are basically much beneficial rather than starting own business. First of all, franchising itself reduces risk whereby proven and experienced methods of operation used by original franchisor during the years and has already erased failures and not useful features from its operations. Starting with restaurant business is one of the fast developing spheres of hospitality industry. Hence, there are obvious competitors in this area which requires unique and exclusive approach from entrepreneur in order to overcome those competitive barriers in the market. Continually, does not meter what kind of sphere of business you are going to be involved in, in order to start entrepreneurial activity fundamental experience and specific knowledge is required. Therefore, before making a decision I would first of all analyze personal opportunities including financial, educational and practical options that I have. Additionally, I would make a research on market, economical and political situation in the area where I am going to develop my project as well as identify benefits and failures of being franchisee rather than autonomously organize and operate the business. Besides, there are list of disadvantages of starting independent restaurant business. Indicating few of them, firstly, it is all about experience and practice whereby high risk and number of failures could rise because of lack of experience. Khan (1999, p. 67) Franchising reduces the risk of failure to a great extent. The risks involved are substantially lower than when starting a business from scratch. Start up and operating costs of franchising system probably will be less than independently owned and operated business. Khan (1999, p. 67) stays Compared to independent restaurants, franchise restaurants may require less operating capital. In a franchise restaurant, certain items, like inventory level, can be forecast more accurately than in an independent unit. Subsequently, it could take a long period of time for separately owned business in order to create stronger and recognizable position in the market and even survive in competition among other competitors. Thats why, I believe that franchising is a useful approach to enter into business and start getting practical entrepreneurial experience which will result positively in future. Some of other advantages of being franchisee may include proven standards and quality control. Established standards by franchisor are the main and important reason of brand recognition and value. It spreads exactly the same atmosphere all over franchise units that is why pizza sold by the same franchise in New York looks and tastes exactly like one sold in a franchise in Singapore. Moreover, the most important element of franchising is well planned effective marketing

activities. According to Khan (1999, p. 69) Carefully planned advertising done on large scale by qualified staff and agencies can be a real asset for franchisee. Basically, franchising allows entrepreneurs to growth and develops practical business knowledge at the same time contributes an opportunity for personal advancement which may result in being successful independent entrepreneur in future. Based on mentioned above factors I conclude that it is better to be involved into franchising business rather than start up my own restaurant business.

Above I discuss pros and cons of being franchisee rather than starting up independent business activity. Obviously, there could be a question, what about franchising business itself. Is it beneficial to be franchisor or drive the business autonomously by expanding and controlling the business throughout multiple sites? In order to answer the questions below, it is important to identify both positive and negative sides of franchising business itself and being franchisor than controlling and enlarging the company by own. Kotabe, M & Helsen, K (2007, pp. 294 296) clarify that franchising donates simple and widespread benefits. There are few advantages of franchising which could be divided into four categories which are Financial, Operational, and Strategic and Administrative ones. Financial advantages of franchising may include first of all, additional source of income which also could be achieved through independent operations but the point in here is all about cost and expenditure. Franchising allows getting extra revenues with minimum investment. Khan (1999, p. 75) In fact franchising is the best way to expand with the limited capital investment by the franchisor. It contributes fast development and expansion to the business. It does not require more effort and it is not time consuming. Another category may involve operational procedures whereby reduced actions on centralized organization of the business by the franchisor could be considered as an effective and efficient way of doing business. It provides convenient and organized operational management, where issues related to employee management, their salaries and wages, and small internal problems could be solved out by franchisees. Constantly, strategic advantages may involve, spreading of risk and broad solutions to the problem from franchisees. By creating franchisee units, franchisor will create team which aims to maximize the profits and revenue margins. Hence, in order to keep stable balance within the company and successful business, and sustain brand value, every member of the team whether it is franchisor or franchise will inspired to operate efficiently. Finally, in terms

of administrative procedures it provides an easier retention, recruitment and selection of employees where most of the administrative procedures will be organized by franchisees. However, there are few disadvantages of franchising as well, where controlling and expanding the business independently could be seen better option than being franchisor. Most of the disadvantages are based on communication and relations between franchisor and franchisee. Other disadvantages comprise lack of freedom. It could be difficult to control franchisee units because of conflicts between franchisor and franchise as a result of interaction by franchisor. Moreover, it could be hard to find subjects willing to be franchisee with specific knowledge and experience which may result negatively to the operation and brand value.

In conclusion, simultaneously based on discussed objectives above, it is without a shred of doubt that franchising makes possible the entry of firms and services that are new for the country of entry with future efficient benefits. Franchising is excellent creates potentials for developing of the economy. It is very important to differentiate between franchising activities and further distribution channels when considering competition. Despite the fact that it is apt way for young entrepreneurs starting their business due to its easiness but have some disadvantages represented in loose of independence, decreased outflow. From the franchisor scene I is good way to expand and build network rapidly.

References Helsen, K & Kotabe, M 2007, Global Marketing Management, John Wiley & Sons, USA. Khan, MA 1999, Restaurant Franchising, 2nd edn, John Wiley & Sons, USA. Kotler, P & Keller, KL 2009, Marketing Management, 13th edn, Prentice Hall, Upper Saddle River, NJ. Kotler, P & Armstrong, G 2011, Marketing: an introduction, 10th edn, Prentice Hall, Upper Saddle River, NJ.