Franchising - from the French for 'Free', franchising is a method of doing business wherein a franchisor licenses trademarks and methods of doing business to a franchisee in exchange for a recurring royalty fee.
The term is commonly used to describe a wide variety of business relationships which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty but no method of doing business.
In the US franchising falls under the jurisdiction of a number of state and federal laws. Contrary to what might be expected, there is no federal registry of franchising or any federal filing requirements for information. Instead, states primarily collect data on franchising companies and enforce laws and regulations regarding their spread.
Franchising is at least 150 years old. One early example resulted in the characteristic look of historic hotels (bars) in New South Wales, with franchising agreements between hotels and breweries. An American example was the telegraph system operated by various railroad companies but controlled by Western Union, or selling a certain make of automobiles in a car dealership.
Some people would argue that franchising (in a non-profit sense) goes back even further; science-fiction author Neal Stephenson pointed out a resemblance between franchising systems and churches (specifically the ones that proselytize) in his breakthrough novel, Snow Crash.
Modern franchising came to prominence in the 1950s with the plethora of franchise-based fast food restaurants, of which McDonalds is the first and most globally successful. Many retail sectors, particularly in the United States, are now dominated by franchising to the point where independently-run operations are the exception rather than the rule. As an example, the Sport Clips Franchise (http://www.sportclips.com) organization only opens company owned stores to test new marketing concepts or ideas. As a result, Sport Clips owns very few of the over 200 franchisee owned stores. There is much information on franchising online. You can find a list of current franchisors at sites like Franchise Opportunities (http://www.franchiseopportunities.com)
As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators).
As long as their brand and formula are carefully designed and properly executed,
franchisors are able to expand their brand very rapidly across countries and continents,
and can reap enormous profits in the process, while the franchisees do all the
hard work of dealing with customers face-to-face. See customer service.