

Concept of Franchising and Licensing
Franchising is a type of market distribution where the owner of the business system known as the franchisor, grants an individual or group of individuals the right to run a business, to sell the product and provide serving facilities with the goodwill of the franchisor’s business name.
While licensing is allowing the other person to sell a business’s product. The main difference between franchising and licensing lies here – in the franchising system, you allow the other person to ‘duplicate your business’. In licensing, you permit the other person to merely ‘sell your product’. In both the cases, the franchisor will receive a fee in return of this duplication or sell.
We will learn about the difference in a tabular form in the henceforth section, to have a clear picture in mind.
Difference Between Franchising and Leasing
What is Meant by Contract Manufacturing?
In the contract manufacturing business process, the hiring firm approaches the contract manufacturer with a design or a formula. The contract manufacturer then enters a contract with the firm to produce products for that firm. In the contract, the contract manufacturer quotes the parts based on business processes, labour, other material costs etc.
The hiring firm generally notes down different quotes from different contract manufacturers, then after the bidding process is completed, the hiring firm selects a source on the agreed price and the Contract Manufacturer (CM) acts as a factory for the hiring firm by producing and shipping units of the design on behalf of the firm.
Advantages of Contract Manufacturing
Contract Manufacturing type of business proves to be convenient for a lot of business corporates.
Contract Manufacturing offers a number of advantages, which are listed below:
1. Cost Saving –
The hiring firm saves its capital cost as now they rely on the facility and production done by the CM. The firm saves other costs like – wages and training.
2. Mutual Benefit in the Contract –
The contract is established for several years, both the parties acknowledge the smoothness in the conduct of business, which will be beneficial for both.
3. Advanced Skills –
The hiring firm takes the advantage of the skill that may not be present with them, which the CM may possess in this case. Also, the CM is well connected with the raw material supplier and can be efficient enough in the methods of production.
4. Good Quality –
The contract manufacturers are focused in producing the goods and services all by themselves, hence they do not compromise on the quality and are quite efficient in this field.
5. Focus –
Companies can focus their core competencies better as the major task that is producing is already taken up by the contract manufacturer.
6. Economies of Scale –
The contract manufacturers are in a contract with multiple customers that they produce for. As they serve these bulk numbers of customers, they can offer reduced costs in acquiring those raw materials, leading to economies of scale.
Hence, resources are not wasted and can give an advantage of smart production through economies of scale.
FAQs on Franchising, Licensing and Contract Manufacturing
1. What is Meant By Intellectual Rights, Goodwill and Trademark?
Ans. Intellectual property rights are the legal rights, which provides protection to the creators for their original works or inventions, artistic works, scientific developments, and so on.
Goodwill is the intangible asset which is associated with the purchase of one company by another company. Goodwill is the value of a company's brand name.
Trademark refers to a recognizable symbol, phrase or word that denotes a specific product and this legally differentiates it from all other products of its type.
2. Who are a Franchisee and Franchisor?
Ans. The ‘franchisor’ is the person or corporation who owns the trade-marks and business model. While the ‘franchisee’ is the person or corporation who is the owner of the business using the trade-mark and business model system licensed from the franchisor.
3. Who is a Contract Manufacturer?
Ans. A contract manufacturer is a manufacturer who executes contracts with a firm for producing components or products for the firm. It is a form of outsourcing business. A contract manufacturer performs producing, packaging, and other shipping operations.
4. What are the Core Competencies?
Ans. Core competencies are the resources and capabilities that comprise the strategic advantages of a particular business. Modern Management theory says that a business must clearly define, cultivate and exploit the core competencies in order to survive and succeed the cultivation.

















