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ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies

Which statement about franchising as a growth strategy is correct from the franchisor's viewpoint?

Franchising lets the franchisor expand quickly using the franchisee's capital, earning fees and royalties, but it gives up some operational control. The brand remains at risk if franchisees perform poorly, so the claims of full funding, full control or no reputational risk are incorrect.

  1. AThe franchisor funds all outlet capital investment and keeps all profit
  2. BThe franchisor gains rapid expansion with limited capital, but has less control over operations than with owned outletsCorrect
  3. CThe franchisor obtains full control of local management and pricing decisions at every outlet
  4. DThe franchisor avoids all brand reputation risk because franchisees bear all losses

Explanation

Franchisees provide most capital, so the franchisor expands quickly with little investment and receives fees or royalties. The trade-off is reduced control and exposure to brand damage from poor franchisee performance, so the other statements are wrong.

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