Benefits New Entrants Get from Hotel Franchising - Coursework Example

Benefits New Entrants Get from Hotel Franchising By Author’s Name Name of Class Name of Professor Name of School City/State 28th October 2016 Introduction Franchising refers to the relationship where a brand owner (franchisor) gives a franchisee the right to use his brand name. According to Chathoth and Olsen (2003), the main aim of a franchise is to offer a strategic partnership for the franchisor and the franchisee. There are great opportunities that are emerging in hotel franchises in the UK and around the world. Achrol and Kotler (1999) note that franchising allows the small businesses to retain their managers and to use the franchisor's brand name, which gives it more distribution points. Hotel franchising dates back to 1950s when Hotel Inn came up with a hotel franchise business (Connell, 1999). Business format franchising is commonly used in the catering sector for example McDonalds, Holiday Inn located in the UK and Kentucky Fried-Chicken, which is located in the U.S (Frazer and Weaven, 2006). Franchising offers many benefits to franchisees who are entering the hotel industry they include access to well-established brands, access to capital from banks and the franchisor and it enables the franchisee to be his own boss while still benefiting from the services offered by the franchisor. This paper analysis the reasons why a franchise is the best option for a franchisee who is entering the hotel industry and it also highlights some of the problems that franchisee needs to assess before making any investment. Benefits that New Entrants get from Franchising in the Hotel Industry New entrants benefit from a franchise because they get a sense of ownership while still benefiting from the services offered by the franchisor. The franchisee enjoys economies of scale, continuous advice and support from the franchisor while still operating by as a business owner. Hunt (1997) supports this idea by arguing that franchising offers the franchisees the advantage of large organisations while still operating as an independent business owner. Monroe and Alzola (2005) further argue that the franchisor gives the franchisee access to a proven business concept, constant support, and access to a prestigious brand, thus providing the franchisee with the incentive of becoming a business owner with the support of the franchisor. Newcomers in the hotel industry continuously get advice, support and guidance from the franchisors. This is important because the franchisee is given advice on how to deal with various challenges that arise. The franchisor in some cases organises store visits where on-site mentoring, training and coaching is offered to the franchisee (Altinay, 2006). They benefit because these services are not offered comprehensively to the independent business owners. They also receive advice and support from other franchisees. When a new business owner joins a franchise, he becomes a member of exclusive groups of peers who operate similar businesses. The newcomer shares the problems he is facing, and since the peers may have faced similar challenges, they share the solutions they used thus, helping the franchisee to solve his problems. Also, the franchisor advice the franchisee on the best site to locate his business. Most newcomers in the hotel industry do not know the locations that are strategic for the business. They benefit from the franchisors who have developed significant experience required in selecting a viable business location (Frazer and Weaven, 2006). Good business location increases the chance that the business will succeed. By operating in large scale, the business grows faster as it makes huge profits that help the franchisee to expand his capital and knowledge base. Shane (1996) argues that as the franchisees grow, their internal resources also grow and this will eventually make them less reliant on the franchisor. This therefore, means that with increased resources, the franchisee can become self-reliant and when the contract period end, he will be able to operate independently. New entrants can access cash flow lending from various banks and the franchisors. Major banks around the world establish a risk profile for franchises, which helps the bank to assess the franchise’s capacity to generate cash; this enables the banks to offer them loans without necessarily asking for traditional collaterals such as assets (Flazer and Weaven, 2006). With huge amounts of capital, the business can operate in large scale and adopted new technologies that help it to become more productive thus, leading to profits that would not be achieved in a small-scale independent business. According to Castrogiovani (2006), small business enterprises can resolve resource scarcity problems by joining a franchise system. Franchisors also help the franchisees to raise the capital required (Frazer and Weaven, 2004). Resource scarcity theory views franchising as the action taken by the franchisee and the franchisor to help them deal with resource problems such as lack of enough capital, managerial talent, lack of knowledge of the local market as well as the lack of labour capital (Wang and Altinay, 2008). The access to capital enables the franchisee to improve the quality of the goods and services that he offers. New entrants in the hotel industry can access already established brands. Mendelsohn (2004) identifies an established brand image, independence, training, risk reduction, national promotion and assistance as the main benefits that a franchisee gets from franchising. The franchise that the new business owner joins may already have a high demand for its goods and services, thus, benefiting the franchisee. The products and services that the franchisor offers may be unique and distinctive, thus, creating a high demand for its products. According to Monroy and Alzola (2005), the franchisee benefits from using trademarks, patents, secrets and knowledge of the franchisor. They also benefit from the high technology used by the franchisors because it enables the franchisees to offer better services to the customers. Keegan and Green (2003) argued that franchising enables small businesses to; offer specialised product’s designs, market its products, to have limited financial commitment and it enables the franchisee to enter new international markets. Franchisors carry out centrally organised marketing and brand promotions. The franchisor provides the marketing expertise required, and he organises group wide marketing and carries out other promotional activities. Many business owners do not have enough time to carry out marketing activities; franchisees benefit by outsourcing this important function from the franchisor. The franchisee does not require any marketing experts because he benefits from the knowledge and the experience of the franchisor (Frazer and Weaven, 2009). Also, this system benefits the franchisee because he does not require prior training or experience in the hotel industry. Most franchise systems do not require the franchisee to have any specific qualifications or work experience to qualify for the franchise. The franchisee as well as his staff gets all the required training from the franchisor. The training of the staff by the franchisor ensures that the staff offer good customer service and relieves the franchisee the duty of training his staff (Frazer and Weaven, 2009). Access to the franchisors brand provides the newcomers with an opportunity to grow beyond one outlet thus, giving the franchisee returns that he could not have achieved as an independent business owner. It also offers the franchisee a pre-existing supply chain. According to Monroy and Alzola (2005), franchisors have the ability to expand the firm nationally and international at a lower cost. This benefits the franchisee because franchisors usually establish the supply chain for the network thus, saving time and energy that he could have used to search for the right suppliers this enables him to concentrate on other business priorities (Dant, 2008). Therefore, the strength of the brand, support and the advice that the franchisee gets from the franchisor helps the franchisee to have a better performance than in an independent firm (Monroy and Alzola, 2005). Although there are many benefits that newcomers in the hotel industry get from franchising, they might face some challenges from a franchise as shown below. First, newcomers lack independence to be innovative in a franchise system this is because the franchisee is required to conform to all the policies and procedures that have been established by the franchisor. Failure to do this may lead to termination of the franchise with little or no refund of the money invested. Secondly, the franchise does not guarantee that the business will not fail (Chachoth and Oslen, 2003). Finally, a franchisee pays additional fees that cater for marketing in addition to the franchisors fees, and he is supposed to conduct marketing in his local area thus, making franchising more expensive. According to Gruhagen and Dorsch (2003), franchisees often complain that the entry fees into a franchise system are very high. In addition, some of the services offered by the franchisor such as training, site selection, and guidance might not meet the franchisee's expectations. The franchisee can avoid these problems by ensuring that he conducts extensive research before making any investment. Conclusion Franchising in the hotel industry offers new entrants many benefits like access to already established brands. Using the franchisor's brand name enables the franchisee to sell his goods and services to an already available market. He also gets access to reliable suppliers thus, enabling him to avoid common problems caused by unreliable suppliers. Franchising offers the franchisee access to capital from the banks and franchisee. This enables the franchisee to operate in large scale and to adopt advanced technologies, which leads to increased profits thus ensuring its survival. Joining a franchise in the hotel industry enables the franchisee to be his own boss while still benefiting from the services offered by the franchisor. The franchisor has more experience in this industry, and he offers the new entrant advice and supports he may need. For instance, he advises the franchisee on the best site where the business should be located. From the above discussion, it is clear that new entrants in the hotel industry should join a hotel franchise because it offers them many benefits. However, it is imperative for the franchisee to carry out extensive research so that he can avoid common problems experienced by new entrants before making any investment. References Achrol, R.S. and Kotler, P., 1999. Marketing in the network economy. The Journal of Marketing. Altinay, L. 2006. Selecting partners in an international franchise organization. International journal of hospitality management. Bennett, S., Frazer, L. and Weaven, S., 2009, February. 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