Master franchise
Encyclopedia
A master franchise is a person or entity who provides services to franchisees in a specified territory, typically a major market, geographical region or even one or more countries.
Master franchising is a method that has been employed by most franchise systems. The operational efficiency of these systems, with their distinctly complex organizational form, benefits from increased growth rates.
In general, a franchise solves geographic concerns raised by companies and enables their product to be dispersed in more outlets, in more regions. In doing so, it allows the company to retain the economies of a large chain, while allowing for the meticulous management of geographically dispersed individual stores. Generally, a master franchisor will grant the master franchisee, or subfranchisor, the right to third-party operations within a defined territory. And then, with respect to regional issues, the subfranchisor will assume the role of the franchisor, but they typically will not own or operate the franchise. They are removed from a direct management position. This duplication of the franchisor's role forms an additional layer of control in the general franchise system, which results in some small scale inefficiencies on the small, local scale but greatly reduces the large scale inefficiencies. Additionally, a master franchise allows the company holding the franchising permit to benefit from management talent and more and more accessible capital. Combined, these two factors translate into almost instant penetration into the market and a competitive advantage, both of which increase system growth rates. Managerial levels and hierarchical framework exemplify one competitive advantage. By allowing the franchisor to specialize in recruiting, screening and training of subfranchisors, who then develop their area in a similar way, it increases the overall growth rate of chains. Other benefits include faster development, a more comprehensive financial base, specific expansion plans, capital and a regular cash flow, proximity to the customer, some independence, and the ability to address the demands of the customers as well as address the local competition.
Although master franchising can beneficial and advantageous, there are also setbacks. Setbacks can include legal problems and overly long contracts. One specific setback of master franchises is that they raise agency costs. Franchise agreements are needed to codify the enforcement of behavior. But, because all aspects of the franchise cannot be predicted, this requirement raises the opportunity for franchise shirking while reducing the overall ability to monitor all aspects of the franchise. Thus, some scholar hypothesize that "new franchise systems which employ master franchising are more likely to fail than are other new franchise systems."
Generally, master franchises are the organizational structure for domestic cleaners, fast food restaurants, computer equipment, real estate agencies, and convenience food stores.
Master franchising is a method that has been employed by most franchise systems. The operational efficiency of these systems, with their distinctly complex organizational form, benefits from increased growth rates.
In general, a franchise solves geographic concerns raised by companies and enables their product to be dispersed in more outlets, in more regions. In doing so, it allows the company to retain the economies of a large chain, while allowing for the meticulous management of geographically dispersed individual stores. Generally, a master franchisor will grant the master franchisee, or subfranchisor, the right to third-party operations within a defined territory. And then, with respect to regional issues, the subfranchisor will assume the role of the franchisor, but they typically will not own or operate the franchise. They are removed from a direct management position. This duplication of the franchisor's role forms an additional layer of control in the general franchise system, which results in some small scale inefficiencies on the small, local scale but greatly reduces the large scale inefficiencies. Additionally, a master franchise allows the company holding the franchising permit to benefit from management talent and more and more accessible capital. Combined, these two factors translate into almost instant penetration into the market and a competitive advantage, both of which increase system growth rates. Managerial levels and hierarchical framework exemplify one competitive advantage. By allowing the franchisor to specialize in recruiting, screening and training of subfranchisors, who then develop their area in a similar way, it increases the overall growth rate of chains. Other benefits include faster development, a more comprehensive financial base, specific expansion plans, capital and a regular cash flow, proximity to the customer, some independence, and the ability to address the demands of the customers as well as address the local competition.
Although master franchising can beneficial and advantageous, there are also setbacks. Setbacks can include legal problems and overly long contracts. One specific setback of master franchises is that they raise agency costs. Franchise agreements are needed to codify the enforcement of behavior. But, because all aspects of the franchise cannot be predicted, this requirement raises the opportunity for franchise shirking while reducing the overall ability to monitor all aspects of the franchise. Thus, some scholar hypothesize that "new franchise systems which employ master franchising are more likely to fail than are other new franchise systems."
Generally, master franchises are the organizational structure for domestic cleaners, fast food restaurants, computer equipment, real estate agencies, and convenience food stores.