Why might an existing non-franchised business choose to become a Essay

Why might an existing non-franchised business choose to become a franchisor - Essay Example The motive is consistent with the resource allocation theory that stipulates that organizational units are most productive when tightly controlled (Ashar & Shapiro, 1988), although the new resource-based view of the theory advocates value creation by combining local (or franchisee) and central (or franchisor) advantages (Combs, 2003). The motive was a major driver of franchising among American auto manufacturers in the 1900s (Combs, 2003). The auto manufacturers lacked funds to open dealerships across the country. Their workaround to the problem was to create chains of franchises across the US. The franchisees invested in stocks of vehicles and premises. In return, they enjoyed exclusive marketing territories. Although a business may want a franchise in order to use other people’s funds to grow, some scholars have cast doubt over the cherished notion that the ability to expand without investing their money and retain control over operations is one of the main reasons firms fra nchise. Franchisee financial constraints are a major cause of poor relations between the franchisor and franchise and a threat to the survival of both (Dada, et al., 2009). If this argument is true then it defeats the logic of the franchisor seeking to expand using the franchisee’s capital. A number of reasons explain the occurrence of such a situation. First, some franchisees may falsify their financial position in order to meet the stringent requirements of the franchisor. Such falsification of information, coupled with lack of due diligence on the part of the franchisor creates a situation where the franchise starts the franchise with inadequate capital. Shortly afterward, the franchise becomes unable to provide the product they set out to provide. Even in the absence of documented cases of this nature, the risk of such a scenario is real. The implication is that a business that is desirous of adopting a franchise model as a