Difference Between Licensing & Franchising

Franchising

The biggest difference is the cost of establishing and operating the business. With a franchise, there is a significant franchise free paid up front and then ongoing royalties

The parent company keeps very tight controls on every aspect of your business but they also provide lot of assistance in the management and marketing of your store.

Licensing

With licensing agreement, you have more freedom in the operation of your business than with a franchising situation, but also more responsibility.

You have freedom to set your own hours, charge what ever the prices you want, co-brand with whatever food you wish, offer whatever side dishes you prefer, set your own employment policies, etc. You must also make sure that your signs and marketing materials meet trademark specifications. That's all there is to it. It is however, your responsibility to know how to manage and market your restaurant business; Licensor provides you with the training necessary for you to produce a quality product but not how to run a business.

Mass Licensing of Software

Mass distributed software is used by individuals on personal computers under license from the developer of that software. Such license is typically included in a more extensive and end-user license agreement (EULA) entered into upon the installation of that software on a computer.

Under typical end user license agreement, the user may install the software on a limited number of computers. Eg: Microsoft Software

Licensing & Intellectual Property Licensing

The verb or grant license means to give permission

License may be granted by a party (Licensor) to another party (Licensee) as an element of an agreement between those parties.


Intellectual Property

A licensor may grant license under intellectual property laws to authorize a use (such as copying software or using a patent invention to a licensee sparing the license from a claim of infringement brought by the licensor

A license under intellectual property commonly has several component parts beyond the grant itself, including a term, territory, renewal provisions and other limitations deemed vital to the licensor

Term: Many licenses are valid for a particular length of time

Territory: A license may stipulate what territory the rights pertain to
Eg: A license with a territory limited to “North America” (United States/Canada) would not permit a licensee any protection from actions for use in Japan.

Examples for Franchisee Business

• KFC – Cargills is the Franchisee in Sri Lanka
• McDonalds – Abans is the Franchisee in Sri Lanka
• Pizza Hut – John Keels is the Franchisee in Sri Lanka
• Alco – Buddy
• Diva Doghouse
• WSI
• Jackson Hewitt Tax Service
• H & R Block
• Auditel (UK)
• Book-Keeping Network, The (Australia)
• Crunchers (UK)
• AmeriSuites
• AmericInn
• Hilton Inns Inc.
• Wes-State Mortgages
• DHL

Disadvantages to the Franchisee

• Cannot enjoy the full income by him or herself
• Has to run the business under the rules of the franchiser
• Political problems among countries might create barriers for internationally expanded franchisee business

Advantages to the Franchisee

• Get the opportunity to run a famous business
• Can create customers easily for the business of its popularity
• Get the experience of running a business with necessary training and consultancy

Disadvantages to the Franchiser

• If the franchisee does not maintain proper quality it directly affects negatively to the demand, income, and image of the franchiser
• Franchisee can dominate the market even after the franchise agreement is over