Franchises, Joint Ventures & Social Enterprises

Exam code: 7115

Written by: Ashika|Reviewed by: Caroline Carroll|Updated 2 July 2026

Franchises

Franchising involves a business (franchisee) buying the rights to operate an existing successful business model (franchisor)
- This right includes the use of its branding and software tools as well as business support, in exchange for an initial lump sum plus ongoing royalties

The franchisee operates the business under the franchisor's established system and receives training, marketing support and ongoing assistance
Franchisors usually require the franchisee to operate as a private limited company

Evaluating franchise ownership

Advantages	Disadvantages
A ready-made, recognised brand name which is promoted centrally by the franchisor The franchisor provides training, such as how to make pizzas properly, to ensure consistent quality Equipment and supplies are provided through the franchisor The franchisor guarantees an exclusive geographical area or market to the franchisee so competition is limited Advice, training and the use of software systems The franchisor may also provide loans, insurance and recruitment support	The cost of purchasing a well-known franchise is likely to be high compared to starting a business from scratch Core decisions are made by the the franchisor, reducing the autonomy of business owners Royalties linked to the level of sales must be paid regularly, regardless of profit Required materials, supplies or equipment sold by the franchisor may be sold to the franchisee at inflated prices If the franchisee does not follow strict franchise rules or fails to meet quality expectations, their franchise rights can be removed

Advantages

Disadvantages

A ready-made, recognised brand name which is promoted centrally by the franchisor
The franchisor provides training, such as how to make pizzas properly, to ensure consistent quality
Equipment and supplies are provided through the franchisor
The franchisor guarantees an exclusive geographical area or market to the franchisee so competition is limited
Advice, training and the use of software systems
The franchisor may also provide loans, insurance and recruitment support

The cost of purchasing a well-known franchise is likely to be high compared to starting a business from scratch
Core decisions are made by the the franchisor, reducing the autonomy of business owners
Royalties linked to the level of sales must be paid regularly, regardless of profit
Required materials, supplies or equipment sold by the franchisor may be sold to the franchisee at inflated prices
If the franchisee does not follow strict franchise rules or fails to meet quality expectations, their franchise rights can be removed

For the franchisor, allowing other businesses to buy franchises has a range of advantages and disadvantages

Evaluating the sale of franchises

Advantages	Disadvantages
Rapid business growth can be achieved with less financial risk Earns income from franchise fees and royalties Expands a business's brand presence without directly managing each outlet	The franchisor has less control over day-to-day operations of each franchise There is a risk of franchisees damaging the brand's reputation Time and resources are needed to support and monitor franchisees

Joint ventures

A joint venture is a medium- to long-term agreement for two or more separate businesses to join together to achieve a defined business outcome, such as entry into a new market
- A new combined business structure is formed
- Risks and returns are shared by the parties involved in the joint venture
- Businesses in a joint venture are usually looking to benefit from each others' strengths and resources brought to the venture
Some European companies have set up joint ventures with businesses in China
- Chinese managers and employees understand market needs and consumer tastes, which gives the venture a greater chance of success
- The Chinese government encourages joint ventures rather than foreign direct investment (FDI)
- German car manufacturer BMW and Chinese rival Brilliance Auto Group formed a joint venture called BMW Brilliance in 2003 to produce and sell BMW cars in China

Evaluating joint ventures

Advantages	Disadvantages
Each partner in the joint venture benefits from sharing expertise and resources, such as distribution channels and R&D expertise Joint ventures are less risky than 'going it alone' if entering a new market or diversifying Local knowledge can be accessed when one of the joint venture partner companies is already based in the country Costs are shared between joint venture companies, which is very important for expensive projects	If the joint venture is successful, profits have to be shared between the partner businesses Disagreements may occur between managers in both businesses The objectives of each business may change over time, leading to conflict between joint venture partners If the joint venture fails, it may need to be dismantled, reorganised or sold, which is likely to take significant time and resources

Advantages

Disadvantages

Each partner in the joint venture benefits from sharing expertise and resources, such as distribution channels and R&D expertise
Joint ventures are less risky than 'going it alone' if entering a new market or diversifying
Local knowledge can be accessed when one of the joint venture partner companies is already based in the country
Costs are shared between joint venture companies, which is very important for expensive projects

If the joint venture is successful, profits have to be shared between the partner businesses
Disagreements may occur between managers in both businesses
The objectives of each business may change over time, leading to conflict between joint venture partners
If the joint venture fails, it may need to be dismantled, reorganised or sold, which is likely to take significant time and resources

Social enterprises

A social enterprise is a business that has the primary purpose of creating social or environmental impacts, in addition to generating profits
Cooperatives are a common form of social enterprise
- They are owned and controlled by workers or customers (often called members) who share profits, contribute to key decisions and have the right to elect directors

Objectives of social enterprises

Social	Environmental
Provide jobs and support for disadvantaged groups in society, such as the disabled or homeless	Protect the natural world, animals and their habitats, and reduce the impacts of pollution or overdevelopment
Ethical	Financial
Operate the business in a responsible way by treating stakeholders, including employees and suppliers, fairly	Make a profit to invest back into the social enterprise to expand the social work that it performs

Evaluating social enterprises

Advantages	Disadvantages
Social enterprises often have a good reputation, which can attract highly-qualified employees and encourage customer loyalty Profit-focused rivals may be encouraged to improve their business practices to better compete with social enterprises Deserving causes receive much-needed financial support	Social enterprises may face media scrutiny so must ensure they behave responsibly at all times Profits (surpluses) available for reinvestment are limited as they are shared with members or good causes Decision-making is often slow, as many stakeholders need to be consulted

Franchises

Franchises

Evaluating franchise ownership

Evaluating the sale of franchises

Joint ventures

Joint ventures

Evaluating joint ventures

Social enterprises

Social enterprises

Objectives of social enterprises

Evaluating social enterprises

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