Franchising is the practice of selling the right to use a firm’s successful business model. The word “franchise” is of Anglo-French derivation—from franc, meaning free—and is used both as a noun and as a verb. For the franchisor, the franchise is an alternative to building “chain stores” to distribute goods that avoids the investments and liability of a chain. The franchisor’s success depends on the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business. Essentially, and in terms of distribution, the franchisor is a supplier who allows an operator, or a franchisee, to use the supplier’s trademark and distribute the supplier’s goods. In return, the operator pays the supplier a fee. Thirty three countries—including the United States and Australia—have laws that explicitly regulate franchising, with the majority of all other countries having laws which have a direct or indirect impact on franchising.
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