BINAYAK ACADEMY,

Gandhi Nagar 1st Line, Near NCC Office, Berhampur

Contact No: 9776486185, 9078876111
FRANCHISING
The term "franchising" can describe some very different business arrangements. It is important to understand
exactly what you're being offered.
Business format franchise
This is the most common form of franchising. A true business format franchise occurs when the owner of a
business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea
- often in a specific geographical area.
The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name
and benefits from the franchisor's help and support.
In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue.
The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and
sold and how their business idea is used.
Well-known businesses that offer franchises of this kind include Prontaprint, Dyno-Rod, McDonald's and
Coffee Republic.
Other types of arrangement
Different types of sales relationships are also sometimes referred to as franchises. For example:
 Distributorship and dealership - you sell the product but don't usually trade under the franchise name.
You have more freedom over how you run the business.
 Agency - you sell goods or services on behalf of the supplier.
 Licensee - you have a license giving you the right to make and sell the licensor's product. There are
usually no extra restrictions on how you run your business.
Multi-level marketing
Some businesses offer franchises that are really multi-level marketing. Self-employed distributors sell goods on
a manufacturer's behalf. You get commission on any sales you make, and also on sales made by other
distributors you recruit.
Advantages of Franchising
Rapid expansion: Today scalability is important to quickly capture market share and establish market
dominance. In traditional business models, the promoters would require large amounts of capital or bank loan
to expand their business. However, in a franchise model, the franchisees provide the capital and the franchisor
provides the brand and technical know-how to quickly expand with minimal capital requirement.
Local business knowledge: India is a diverse country having different cultures, languages and market.
Therefore, most businesses do not have enough business, legal, or real estate knowledge and experience to
invest across States and cities in India. However, in franchising, the franchisors have the ability to work with the
franchisees to become aware of the knowledge about local market conditions.
Lower operating cost: In some franchising models, the franchisor would negotiate volume pricing and group
buying on behalf of the franchisees. This will help lower the the operating cost of a franchisee business. Further,
since the franchisee is aware of the local market conditions, the franchisor can save on doing expensive research
on local markets, business procedures, etc.
Branding: One of the primary responsibilities of the franchisor is to use best efforts in advertising and
promoting its brand name. Therefore, franchise business are typically better advertised and branded when
compared to traditional business. Also, in the case of franchise business since advertising or branding cost is
shared by all the franchisees, the overall cost of branding is lower in a franchise model.
Minimal risk for franchisee: Since the franchisor puts all the effort in promoting the brand, the franchisee is
exposed to minimal risk. Further, in a franchise model since the business model is also proved, the business risk
for a franchisee is minimized.
Easy access to capital: Since most franchise business models are well established and having a proven
reputation, it is easier for the franchisee to obtain bank loan for starting a franchise business.
Training and technical know-how: In a franchising business, the franchisee is provided with training and
technical know-how by the franchisor. Therefore, chances of costly mistakes due to lack of training on the part
of the franchisee is prevented.
Disadvantages of Franchising
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 BINAYAK ACADEMY,
Gandhi Nagar 1st Line, Near NCC Office, Berhampur
Contact No: 9776486185, 9078876111
Independence of franchisee: In a franchise model, though the franchisee is a owner of a business, the
franchisee cannot act independently. The franchisee’s are regulated by the franchisor and have to submit
various reports to the franchisor.
Commitment or lock-in period: Typically franchisees are made to commit to the franchisor a lock-in period
until which they would be mandatorily expected to operate the business irrespective of profits or loss. During
the lock-in period, the franchisee will not be allowed to change the business model or change franchisor.
Negative publicity: In case the franchising business gets negative publicity due to the actions of the franchisor
or another franchisee, the entire brand would suffer. This could lead to loss of sales or customers for a
franchisee that was not involved in that act as well.

OUTSOURCING
Outsourcing refers to hiring out or subcontracting some of the work that a company needs to do on its own.
Most of the time companies outsource their non-core function. The main aim of outsourcing is to reduce cost to
company and improve its profitability.
Companies like Apple outsource most of their products to its Original Equipment Manufacturer (OEM) to
reduce its overall cost. It can then focus more on its core functions of marketing and Research and Development
to maximize its profitability.
On the other hand some companies outsource design and technical work and focuses on manufacturing which
is their core function.
Some of the disadvantages are misuse of IP rights, labour related problems due to job loss at outsourcing
company, Government barriers, etc.
Common Reasons for Outsourcing
Here are some common reasons why companies choose to outsource:
Outsourcing Saves Money: Cost savings could be the biggest reason why businesses choose to look outside to
hire the expertise they need. If work is being performed by someone who is an independent contractor, the
company simply pays the amount agreed to in the contract. No payroll tax or other deductions are taken, which
means that payment processing is streamlined.
Another way that outsourcing saves businesses money is due to the fact that the employer does not have to
provide benefits to outsourced workers. Benefit plans are paid for by employers as a way to attract and keep
quality workers, but they are expensive. If some work can be outsourced, it cuts down on this expense, which
means that the business can operate more profitably.
Outsourcing Gives Employers Flexibility: When a business chooses to outsource some job responsibilities, the
company has the flexibility to buy services only during the times they are needed. Contracts can be written to
hire a contractor for a specific time, for a specific project only, or on as as-needed basis. The employer pays only
for work performed, as opposed to paying a salary to an employee on a regular basis.
Access to a Larger Pool of Workers: During times when the job market is tight, outsourcing means that
companies have access to a larger pool of workers. If the business is open to having some functions performed
offsite, then the organization is not limited to considering local talent only. A good candidate could be located
in another city, region, or even another country and still be able to provide needed services to the company.
Improved Customer Service: The world of business is shrinking, and many companies are offering their
products to a global marketplace. When some functions, like customer support, are outsourced to a provider
operating an a different time zone, the business can continue to look after customer needs outside of regular
business hours.
Outsourcing Means Accessing Expertise Not Otherwise Available: Particularly in the information
technology area, companies may not have personnel available in house to take on certain projects. If a company
is growing rapidly, the organization may not have the time to recruit and train the workers needed. In this
situation, outsourcing makes sense: the business can continue to grow and meet deadlines until they have staff
members in place who can take over these responsibilities.
When the company is in a period of downsizing, it takes time to reassign duties to the remaining workers.
Outsourcing some duties means that progress continues to be made on outstanding projects while the company
restructures job responsibilities.

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 BINAYAK ACADEMY,
Gandhi Nagar 1st Line, Near NCC Office, Berhampur
Contact No: 9776486185, 9078876111
Outsourcing can mean joining forces with another company, rather than an individual service provider. The
outsourcing business can take advantage of the fact that the partner company has already invested the
resources necessary to acquire new technology and train workers in its use.
Shared Risk: Investing in new technology can be a risky proposition for businesses today. Rather than putting
up its own funds, it may make more sense for a business to use outsourcing to ensure that the technology
available to them is always up to date and relevant to their needs.
There are many good reasons for outsourcing, and today's companies will likely continue to use this business
strategy in the future.
Advantages of Outsourcing
 Overall Cost Advantage: It eludes the need to hire individuals in‐house; hence recruitment and operational
costs can be minimized to a great extent. It reduces the cost and also saves time and affording on training cost.
 Stimulates Entrepreneurship, Employment, and Exports: Outsourcing stimulates Entrepreneurship,
Employment, and Exports in the country from where outsourcing is done. Look at the example of India. After
the initial success of call centres, there was a sudden emergence of many small scales and medium scale BPO
and KPO companies.
 Low Manpower Cost: The manpower cost is much lower than that of the host country. This is exactly the case
with India. We have a very large educated workforce. And this causes the labour cost in our country to be
much lower.
 Access to Professional, Expert and High‐quality Services: Mostly, the tasks are given to people who are
skilled in that particular field. This provides us with a better level of service and fewer chances of errors or
misjudgement.
 Emphasis on Core Process Rather than the Supporting Ones: With its help, companies can focus on their
core areas which lead to better profits and increase the quality of their product. They simply outsource
ancillary services.
 Investment Requirements are Reduced: The organization can save on investing in the latest technology,
software, and infrastructure and let the outsourcing partner handle the entire infrastructure.
 Increased Efficiency and Productivity: There is an increased efficiency and productivity in the non – core
areas of an organization.
 Knowledge Sharing: Outsourcing enables the organizations to share knowledge and best practices with each
other. It helps develop both the companies and also boosts goodwill in the industry.
Disadvantages of Outsourcing
 Lack of Customer Focus: An outsourced vendor may be catering to the needs of multiple organizations at a
time. In such situations, vendors may lack complete focus on an individual organization’s tasks. And the
reputation of the organization may suffer as a result
 A Threat to Security and Confidentiality: The inside news of the organization may be leaked to the third
party, so there are security issues. The leak of sensitive information may result in losses to the company and
also be an advantage to competitors.
 Dissatisfactory Services: Some of the common problem areas with outsourcing include stretched delivery
time and sub‐standard quality.
 Ethical Issues: The major ethical issue is taking away employment opportunities from one’s own country.
Instead of creating employment and wealth in the origin country it gets outsourced to another country. In
recent times this has been viewed by many as unethical and even unpatriotic.
 Other Disadvantages: Include misunderstanding of the contract, lack of communication, poor quality and
delayed services amongst others.