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MGT211 GDB Solution Feb 2015

THE CASE:

Franchising At McDonald’s Corporation

McDonald’s Corporation’ a largest hamburger fast food restaurant chain in the world that serves in more than 68 million customers in about 119 countries across 35,000 outlets. McDonald’s restaurants are being operated by a corporation, franchisee or franchise that tries to recruit, train and motivate its workforce to learn human resource skills. The commitment of McDonald’s with its franchisees not only recruits or trains but also recognizes the profitability and its success. McDonald’s gets its revenues from the fee paid by its franchisees and company-operated restaurants which are owned by the corporation itself but mostly, the franchisee does not own the location of its restaurants.

REQUIREMENT:

Being a business student, give your opinion on how franchising enables the growth of a corporation like McDonald’s and provide an ongoing support to its franchisees?

Franchising requires less capital than other growth methods.

Franchising permits your company to grow with capital invested by individual franchise owners. For the majority of FranSource clients, the investment required to franchise their business is recouped through the sale of the first two to three franchises.

Rapid expansion

In today’s marketplace, the window of opportunity for a new or unique business concept closes very quickly. Franchising permits multiple units to be opened simultaneously, gaining a foothold over would-be competitors.

Market dominance

Multiple locations increase the company’s competitive advantage over similar type businesses.

Franchising puts a “business owner” in charge.

Franchising ensures that qualified “managers” are operating additional locations rather than employees. A new business demands a great deal of time, effort and sacrifice. Franchisees are motivated by their ownership of the business and the capital they have invested.

Franchise locations may operate better and more profitably than “company owned” units.

Once again, this is due to the fact that a highly motivated owner is running the business rather than an employee. With their capital at risk, franchisees are much more motivated then employees to perform at their highest levels.

Greater buying power

Franchisors that purchase products and services for their franchise network can often negotiate volume discounts from vendors and suppliers. Sharing a portion of the saving with franchisees provides higher operating margins and a competitive advantage over other similar businesses.

Increased name recognition

As additional locations are opened, name recognition increases. In the United States, customer loyalty towards recognized brands is at an all-time high. Consumers typically feel more secure frequenting a business they recognize by name. For the independent business person, it has become difficult to compete against companies that have significant resources to develop and promote their brand. Franchising permits an individual to benefit from the collective power and growth of the franchise network, which in turn leads to greater name recognition and competitive advantages for each individual franchisee.

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