What is the difference between Franchise and Joint Venture?

What is the difference between Franchise and Joint Venture?

Introduction:

Pertaining to the differences between Joint venture and Franchise it’s important to know about the aspects of both and outputs to the business world. This write-up is going to acknowledge about the concept of franchise and joint venture and their benefits respectively along with the differences. It will also allude their relevance to the today’s competitive modern era.

Glance to Joint venture:

Joint investment agreement based on a strategy-alliance between two parties with a same goal is well known as joint venture in terms of business. A joint venture permits two business to cooperate on giving specific investments in terms of goods and services into new business sectors nearby and worldwide regions. In a joint venture, the organizations are pursuing a shared benefit and they concede to comparable functional standards.

Likewise, two sides of a coin there are both positive and negative impacts of joint venture to the business world. It furnishes organizations with the chance to acquire new limit and aptitude along with it empowers organizations to enter related organizations or new geographic business sectors or access present day innovation. It provides an opportunity of admittance to more noteworthy assets including specific s innovation. It also empowers adaptability like a joint venture can have a restricted life expectancy and just cover part of what you do, in this manner restricting both your responsibility and the business opportunities. It requires some investment and work to fabricate the right connections and partnering together with another business can be testing. Issues are probably going to emerge.

Glance to Franchise:

“Two independent parties to the franchise agreement named franchisor and franchisee are under a contractual arrangement that worked as a joint venture and allowed to use their respective trademarks or any sort of human intellect is called as franchise.“Franchises offer the freedom of private venture possession upheld by the advantages of a major business organization. one does not really require business experience to run an establishment. Franchisors as a rule give the preparation you need to work their plan of action. Franchises have a higher pace of accomplishment than new companies. One might think that it is simpler to get finance for an establishment.[1] It might cost less to purchase an establishment than go into business of a similar sort. Franchises regularly have a set up standing and picture, demonstrated administration and work rehearses, admittance to public publicizing and progressing support.”

“Unlike start up or to a new company that can take off on a careful spending plan, a franchise expects you to put your cash on the table like more evaluation of capital. At the point when one owns an establishment, he should be ready to play by specific principles. One can’t add his own contacts with the goal of working on the brand.”[2]

Difference between Joint Venture and Franchising:

The key difference between two distinct significant business organisation lies in their purpose and objective. Joint venture’s mainly focuses about the obligations and self-determination whereas franchise with the help of business strategy, rile and policy focus on business expansion. The franchise relationship constitutes between thefranchisor and franchisee, the whole entity depends on the franchisor’s business rituals and culture which has to adapt accordingly. On the other hand, in joint venture the training and career development is the obligation which lies on the entity itself for their betterment.

Joint venture can be transformed into a risky investment, if it fails to meet their bucket list. On the other hand, franchise won’t face such kind of problem with reference to their franchisee agreement signed by both the parties accordingly. The purpose of franchise is to expand the business so there so always a room left for scope of business expansion in franchise whereas the demand and supply along with the profits and revenue generated will decide the scope of expansion of joint ventures.

On the basis of loss of control both the entity stands different to each other. There is more risk in joint venture where the franchise does not suffer the risk, though there are their own way of struggle. Franchise is a long term planning and need more efforts because the agreement that made between both the parties are for an indefinite period of time as it constitutes through the franchisor- franchisee relationship based on the franchise agreement. On the other hand, joint venture required one time efforts and investment as the contract constitute explicitly define the length of the term deal focusing on the specified objective that the entity has planned to fulfil. The scope of development of entrepreneurs and entrepreneurship is always there in franchise.  Unlike, start up or to a new company that can take off on a careful spending plan, a franchise expects you to put your cash on the table like more evaluation of capital which do not involve any sort of significant challenges before it. Whereas joint venture is the business entity which has to face more struggle and risk so there is no scope for development of entrepreneurship.

Franchise or Joint venture: What to choose?

Likewise, two sides of a coin both franchise and joint venture has their own benefits and risk but franchise business model is more popular. Today not only the young generation but also everybody wants to be their own boss so this model is gaining more attention. After establishment of joint venture the obligation laid down impliedly to share the profits generated with the other business venture[3].

Conclusion:

Both joint venture and franchise agreements are very famous business forms. Before opting for either, enterprises or persons should always be mindful about the purpose they are being undertaken for. As already mentioned, the level of self-determination in question, the risks associated with carrying out each business form and ability to generate returns quickly are some of the factors that should be taken into account before entering into the same. If the same is done the parties will be able to carry on whatever they are traversing into more successfully.

Submitted by- Bijayini Namrata Patel

 

[1] [1]Reasons To Opt Franchising Over Starting Your Own Business, INDIAN FRANCHISE ASSOCIATION https://www.franchiseindia.org/articles.php

[2]Subhomita Bose,10 Challenges Facing Franchise Owners (INFOGRAPHIC), SMALL BUSINESS TRENDS (Sept 30 2020), https://smallbiztrends.com/2017/06/challenges-franchisees-face.html

 

[3]WHAT SHOULD YOU CHOOSE:FRANCHISE VS JOINT VENTURE?,POINTFRANCHISE (Jan 1 2020 10:39:34), https://www.pointfranchise.co.uk/articles/which-is-better-franchising-or-a-joint-venture-4771/