Role of Franchising in Business Growth

Role of Franchising in Business Growth CHAPTER ONE INTRODUCTION INTRODUCTION Franchising has become one of the most recognizable business formats and an internationalization strategy for business practitioners globally and also in the United Kingdom especially in the way entrepreneurs are operating under other peoples business concept. It has emerged over the years as a popular expansion strategy for a variety of product and service companies. This research critically examines how franchising play vital role in retail business growth and expansion in the food industry, using the Strand Mc Donalds as a case study. The research looks at the importance of franchising, and will be very informative for organizations and stakeholders directly and indirectly involves in franchising business. This chapter looks at the research background, organization background, the research problem, the aim and objectives of the study, the scope and limitations, brief introduction of the study area and the structure of the research. RESEARCH BACKGROUND Franchising is basically a specialized form of licensing in which the franchisor not only leases intangible property (normally a trademark) to the franchisee but also insists that the franchisee agree to abide by strict rules as to how it does business. The franchisor will often assist the franchisee to run the business on an ongoing basis, (Hill 2008.pp 408). It is similar to licensing, although franchising tends to involve longer term commitments than licensing. Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise agreement, namely: the Franchisor, who lends his trade mark or trade name and a business system; and the Franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisors name and system of operations, technically, the contract binding the two parties is the franchise. Franchising has emerged in recent years as a highly significant strategy for business growth, job creation, and economic development at both local and international retail business arena, (Hoffman Prebble, 1995.p 80). It has moved from traditional product (trade mark) areas such as automobiles, petroleum and soft -drink bottlers to be a more proven format business concept. Over 80% of Mc Donald restaurants worldwide are owned and operated by local businessmen and women. They adapted Ray Krocs franchising business strategy of providing high standard of quality, friendly services, cleanliness and value, (QSCV). Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary growth strategy globally. Of course, the most well known restaurant franchise in the worlds is McDonalds. So much has been written about Ray Kroc and the McDonalds brothers that McDonalds and Crock have become an institution. The first McDonalds were opened in Des Plaines, Illinois, in 1955 and soon afterward, more McDonalds outlets continued to open. Today there are more than 30,000 McDonalds in 118 countries. There is no doubt that when it comes to franchising and fast foods in general, McDonalds is the leader of the pack. (Teixeira, 2005, p. 20). The international franchise association estimates that American consumers spend approximately 1.3 trillion dollars on franchise goods and services on an annual basis. (Teixeira 2005, p.19). This shows that the franchise strategy is one of the important aspects in expanding business and economic development. Different research methods will be used to analyze data/ findings for this research, and the sources of data will include observations and interviews. This research therefore, focuses on the importance of franchising as a business growth and expansion strategy from both the franchisee and the franchisors perspective. It also examines the relationship that exists between the franchisee and the franchisor .The benefits of franchising to Mc Donalds (franchisors) in expanding its business globally and its international market position through leveraging its brand name and business process through the utilization of the capital and local management of its franchisees will also be examine in this research. ORGANIZATION BACKGROUND McDonalds Corporation (McDonalds) is one of the worlds largest foodservice retailing chain. The company is known for its burgers and fries which it sells through more than 31,900 fast-food restaurants in over 100 countries. The company originated and operates mainly in the US and has expanded globally to over 100 countries including United Kingdom. It is headquartered in Oak Brook, Illinois and employs about 400,000people. The company recorded revenues of $23,522.4 million during fiscal year ending December 2008 (FY2008), an increase of 3.2% over FY2007. The operating profit of the company was $6,442.9 million during FY2008, an increase of 66.1% over FY2007. The net profit was $4,313.2 million in FY2008, an increase of 80.1% over FY2007. (McDonalds Corporation Company profile, (Data monitor) June 2009, p.16) McDonalds restaurants offer a substantially uniform menu, although there might be geographic variations. In financial year 2008, the company operated more than 31,900 fast food restaurants in over 100 countries in the following geographic segments: the US; Europe; Asia Pacific, Middle East and Africa (APMEA); Latin America and Canada. The company is one of the worlds largest food service retailing chain, preparing and serving a range of foods. All McDonalds restaurants offer a standard menu, which comprise food items such as hamburgers, cheeseburgers, chicken sandwiches, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, Chicken McNuggets, French fries, salads, milk shakes, desserts and ice cream sundaes. Some McDonalds restaurants offer additional food items to suit local taste and preferences and sell a variety of other products during limited-time promotions. (McDonalds Corporation Company profile (Datamonitor), June 2009, p.5) McDonalds generates revenues through company operated restaurants and franchisee restaurants where over 6,500 are operated by the company and over 25,400 are operated by franchisees and affiliates. The companys revenue comprises sales from company operated restaurants and fees as well as rent from franchisees and affiliates. Under the franchise arrangement, the franchisees invest in the equipment, signage, seating and decor, while the company owns or leases the land and building. Franchisees pay the company service fees and rent for premises. A service fee is set as a percentage of sales, while rent and other terms of occupancy are stipulated in the franchise agreement, which is drawn for a period of 20 years. (McDonalds Corporation Company profile, June 2009) The company and its franchisees as well as affiliates source purchase food, packaging, equipment and other goods from approved suppliers. The company maintains quality standards through assurance laboratories around the world. A quality assurance board, including the companys technical, safety and supply chain specialists, provide guidance on all aspects of food quality and safety. The major competitors of McDonalds include Starbucks corporations, Burger Kings Inc, Kentucky Fried Chicken (KFC), and other upcoming high streets food restaurants worldwide. (McDonalds Corporation Company profile, (Datamonitor) June 2009) In October 1974, the company opened its 3000th restaurant and the first in the U.K in woolwich, south-east London, (Business franchise, 2009). The U.K headoffice was sited in Hampstead, North London.Web1 Also in 1986, the first U.K franchisee- operated restaurant opened in Hayes, Middlesex, (Business franchise,2009) and the first Drive-thru restaurants opened in U.K at fallowfield, Dudley, Neasden and Coventry. Web1 RESEARCH PROBLEM Research problem forms the basis of most academic research study. It is based on this that the aim, objectives and the research questions of most dissertations are formulated. There must be identified problems that the dissertation seems to tackle, mostly business problems. Despite the popularity of franchising among business organizations and entrepreneurs nowadays as a business expansion and development strategy, it has been unacceptable to some entrepreneurs because of its disadvantages and risks involved. To these groups of individuals, setting up and management of owned business is the best option, no matter which forms it take to start. The assumption is that franchising is a system of building, expanding and adding value to someone else existing business, which many entrepreneurs will always avoid, as Norman(2006) indicated Many conclude the time, effort, money and shift in emphasis from running a business to helping others run businesses is not right for their companies,(p3) On the other side, some individuals choose franchising as their best option to start up business because of its merits and less risk involved in starting business. To these pro-franchising entrepreneurs, it plays a major role in business growth and expansion, especially in retail food industry globally. This research, therefore critically examines these arguments and answer the question how is franchising vital to retail business growth and expansion according to the views of the pro- franchising business entrepreneurs. SIGNIFICACE OF THE STUDY Theoretically, a broad range of literature does exist on franchising concepts and in most instances, there seems to be gap between theory and practice in most business organizations. However, it is significant to find out the practicality of the literature in real life situations. It is essential therefore, to carry out this study in order to find out whether in reality the ideas provided by literatures are actually revolving around management issues and applied to business organizations. The findings of this study will assist a wide range of stakeholders interested in franchising business including the government, private sectors, and local authorities to increase the general understanding and knowledge of franchising particularly in the food sector. To the researchers, academicians, it helps deepen further research in business development who will be interested in franchising in the future. RESEARCH AIM AND OBJECTIVES The main aim of this dissertation is to investigate how franchising play an essential role in retail business growth and expansion in the food industry. Research Objectives In order to achieve the above stated aim, the following objectives will be specified: Analyze the impacts and importance of franchising (business format) on organizations (business) growth and expansion. Assess the benefits of franchised businesses on the socio-economic growth of the economy. To determine whether economic conditions affects the success of franchising as a strategy for business growth and expansion. Investigate the importance of the franchisee-franchisor relationship on the business growth and expansion. Examine the risks involved in the franchising relationship. Examine the effects/impacts of globalization on franchising as a business growth and expansion strategy. To make suggestions and recommendations based on the findings elicited by the study. THE SCOPE OF THE STUDY The study was carried out in London covering using one of the McDonalds restaurants as the study area. The content of the study was to understand how franchising contributes to business growth and expansion in retail business sector. THE STUDY AREA London is one of the cities of England; it is the capital city of England and the United Kingdom. It has 32 boroughs, of which 13 are in the inner London and 19 constitute the outer London. (Office for National Statistics Online). Web2cited. It is a growing city spreading out and swallowing many villages and towns in the south east of England. Because of this, there are many conflicting definitions of London and Greater London and the population of London varies accordingly. As the capital city, London occupies over 6,267 square miles (16,043km2). London population is heavily concentrated at about 4,539 people per sq km/ 11,568 per sq mi. Web3 According to the figure from the April 2001 census, London population was 7,172,000. This represents 14.6 percent of the total population of Britain. The population as of mid 2005 was thought to have been increased to 7,517,700 of which about half of this figure lives in inner and central London and the remaining lives in outer boroughs. Web 3 Londons population has grown every year since 1988, and it is likely that in the years to 2031, it will continue its steady growth. The study area lies in inner London borough of Westminster, which lies in the busy business environment of the city (central business district), It is very close to the seat of power, the parliament, and it is very close to many international business environments, busy London streets, tourist attractions like the London eye, Trafalgar square, British museum, National Gallery, National Art gallery, Covent Garden- since its redevelopment in the 1970s has become a popular piazza and nucleus for visitor activity in Londons cultural district with theatre, opera and ballet venues. (Page et al, 2001.p122). London is a multicultural city, where different people from around the world lives and study, it comprises of individuals with diverse cultural background. Because of the above description about the study area, it has become an important area to carry out this research, because of the concentration of other franchised business in the area. STRUCTURE OF THE RESEARCH Chapter One (Introduction): This state clearly the purpose of the dissertation, it includes the background of the study, significant of study, the statement of the research problems, organization background, the research aims and objectives, scope and limitations of the study. It also describes the study area briefly. Chapter Two (Literature Review): This section deals with the academic review of texts, journals, articles and so on, relevant to this research topic. It also discusses model and relevant theoretical ideas on the subject matter. Chapter Three (Research Methodology): comprises the methodology used for this study. It includes the styles and techniques chosen in collecting primary and secondary data/ informations for this research purpose. Chapter Four (Data Analysis/ Research Findings): The chapter that report and describes the findings of the survey to be undertaken, it describes both primary and secondary findings. Chapter Five (Conclusions and Recommendations): This chapter set out the main findings of the dissertations linking it with the literature reviews and the research findings. It also sets out clear recommendations which came out of the research work. CHAPTER TWO LITERATURE REVIEW INTRODUCTION This chapter provides a review of relevant literatures on franchising. It will be used as a base to throw more light on the importance of franchising concept and the roles it plays in business growth and expansion. The literatures were selected and critically evaluated in a bid to sift the relevant informations, and portray the opinions of relevant authors. It offers academic insight to research previously conducted by authors on the importance of franchising to retail business growth. Lastly, the section acknowledges the principal research questions for this study. DEFINITIONS OF FRANCHISING CONCEPT Hill, (2008) defines franchising as a specialized form of licensing in which the franchisor not only sells the intangible property (normally a trademark) to the franchisee, but it also insists that the franchisee agree to abide by strict rules as to how it does business, (p.408). It usually involves long term commitments than licensing. On the other hand, Business format franchising is a joint venture between an independent person (the franchisee) and a business owner (the franchisor) who wants to expand its activities. The venture is governed by a contract. This gives the franchisee the right to operate using the franchisors trade name/ trademark, in accordance with a business format or blueprint. All aspects of the franchisees business are strictly controlled including image, products or service, systems and administration. (HSBC Bank, 2009.p1) The franchisee pays certain amount of money for the right to use the franchisors trademark. Firms use franchise arrangements to extend scarce firm resources, because the franchisee puts up both an initial fee and much of the capital investment, franchisors are able to expand their markets without having to generate capital by themselves, and in most cases exploit on the knowledge of the local entrepreneurs in expanding their business. This is an attractive option, particularly in mass consumer services such as fast food that require the construction of many units to achieve brand name recognition and increased market share like McDonalds Restaurants. BRIEF HISTORY AND DEVELOPMENT IN FRANCHISING Franchising is highly developed in the USA, although popular in the UK, but a recent phenomenon. Its development dates back to the end of the American civil war (1865), when the singer sewing company franchised exclusive sales territories to financially independent operators. In 1898, General motors used independently owned businesses to increase its distribution outlet. (Lancaster Reynolds, 2005, p160).At some point, there were some form of disagreements and arguments among historians in the United States regarding when the franchise system first started. According to Bythe Bennett,(2008), franchising began to gain acceptance as a viable business arrangement with the growth of automobile industry, and also in the petroleum industry during the 1930s, (p.234) Franchising became one of the fastest growing types of retailing business in the United Kingdom in recent years.It was introduced into the UK in the early 1950s and since those early days, has become respectable and often very profitable business concept as a result of explosion in the number of franchises being operated. Today franchising encompasses products from pipes to pastries and includes such well known names as Body Shop, Kentucky Fried Chicken, McDonalds, and so on. (Lancaster Massingham, 1999, p269). For instance, Over 80% of Mc Donald restaurants worldwide are owned and operated by local entrepreneurs. They adapted Ray Krocs franchising business strategy of providing high standard of quality, friendly services, cleanliness and value, (QSCV). Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary growth strategy globally. The first McDonalds were opened in Des Plaines, Illinois, in 1955 and soon afterward, more McDonalds outlets continued to open. Today, McDonalds has over 300,000 restaurants in 119 countries outside the U.S or in non-traditional site locations in the US. There is no doubt that when it comes to franchising and fast foods in general, McDonalds is the leader of the pack. Of course, the most well known restaurant franchise in the world today is McDonalds and so much has been written about Ray krok and the McDonalds brothers that McDonalds and Crock have become an institution. (Teixeira, 2005. p.20-21). Teixeira, (2005, p21), indicated that during 1960s and 1970s, the growth of franchise industry exploded and continued to gain appeal with a boom mostly in Europe, on an increased rate, and this has been supported also by welsh (1992) in Doole Robin (2004) franchising has grown rapidly during the 1990s due to the strong interest in a variety of franchise formats, (p.230). These successes remain an ongoing process. According to Ghauri Cateora (2005, p.280), franchising has become the fastest growing market entry strategy, it is often among the first types of foreign retail business to open in the emerging market economies of Eastern Europe, the former USSR, and China. It has become successful as it is evidenced in most retail food business, and it has now become a major business growth and development and marketing strategy globally. It can be viewed from these two perspectives. McDonalds is a good example of organization that has grown with franchising strategy, (Hill, 2008.p.408). Franchising explosion in recent years however has increasingly saturated the domestic market, where businesses are opening in airports, sports stadiums, colleges, hospitals, parks, casinos, pools and other strategic locations globally. (Kotler Keller, 2006.p508) Lastly, the surge in franchising has been underpinned by the efforts of different bodies who regulates the activities of franchised organizations, like the International Franchise Association, (IFA), British Franchising Association, (BFA) various franchising organizations globally, which has developed codes of practice for franchising entrepreneurs, and in doing so, has recorded progress and greatly helped to reduce the risks to both franchisees and the franchisors. (BFA NatWest Bank, 1991). TYPES OF FRANCHISING Monir (1999 pp.164) identified two major types of franchising in his book. These include: First Generation/Product Distribution Franchising simply sells the franchisors products and is supplier-dealer relationships. In product distribution franchising, the franchisor licenses its trademark and logo to the franchisees but typically does not provide them with an entire system for running their business. This is often common with soft drink-bottling industries, automobile, and in petrol retailing. Second Generation/Business format franchising by contrast, the franchisor transfers a much more comprehensive business package (the format) to buyers of the franchisee. This contains most of the elements needed by the buyer to establish and replicate the business. The buyer also receives detailed instructions and guidance on how to operate the franchise successfully, managerial expertise, training and perhaps financial support if need be. Diagram 1: Showing Two major types of franchising There have been other divisions of franchising as recognized by other authors identified as important for the understanding of this research. Justis Judd, (2007, p.56) identifies two major types of franchising namely: product and trade name and business format franchising. Nathan, (2008 p.54) also classifies business format franchising into six major groupings as follows: executive, job, investment, management, retail, sales and distribution franchise. Also, on the other hand, Murray (2006, p.23), identifies four major categories as, Job, Retail, Management and Investment Franchising. Franchise Arrangements Beshel (2001,p3), reiterated that because of the possibilities of so many franchisors, industries and range of investments, there exists different types of franchise arrangements available to business owner. Two types of franchise arrangements were identified: Single-Unit(direct) franchise Multi-Unit Franchise ( Area development and Master development franchise) A single-unit (direct-unit) franchise is an agreement where the franchisor grants a franchisee the rights to open and operate one franchise unit. This is the simplest and most common type of franchise. It is possible, however, for a franchisee to purchase additional single-unit franchises once the original franchise unit begins to prosper, it is then considered a multiple, single-unit relationship. A multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate more than one unit. Beshel (2001, p3), also identifies two ways in which multi-unit franchise can be achieved: An area development franchise or A master franchise. Under an area development franchise, a franchisee has the right to open more than one unit during a specific time, within a specified area. For instance, a franchisee may agree to open 5 units over a five year period in a specified territory, while master franchise agreement gives the franchisee more rights than an area development agreement. In addition to having the right and obligation to open and operate a certain number of units in a defined area, the master franchisee also has the right to sell franchises to other people within the territory, known as sub-franchises. Therefore, the master franchisee takes over many of the tasks, duties and benefits of the franchisor, such as providing support and training, as well as receiving fees and royalties, (Beshel, 2001, p3-4). Blair Lafontaine (2005, p.90) and Philip et al, (2006, p.77) also identifies the above four classifications as forms of franchising where all the four were grouped together. Building a strong foundation for a successful franchising strategy A successful franchising concept needs an appropriate business strategy and lots of facts have been identified as making a business appropriate to be franchised and make it worthwhile to invest in. According to HSBC Bank, (2009, p1), a well established and proven business format franchise from the franchisee perspective should provide an established market for the franchisors products and services, proven sales, marketing and operational procedures, the benefit of an established business name, training (ongoing support and help in running the business), also, where appropriate, help in finding, fitting out and furnishing premises. Hoffman Prebble (2008, p.68) also add some factors that influence the appropriateness of a business concept using franchising including; valuable System to sell, proprietary process/ advantage for making the product in getting to the end customers, a satisfactory brand/ trade name like McDonalds which will be acceptable to the larger population, and high Profit Margin business. On the other hand, Murray (2004,p.67), shows some possibilities in which potential franchisee get a proven business format and support from the franchisor, which includes, an entire business concept with no bits missing out, with the aid of the operating manuals, trademarks, logos, patents, and standard designs for the layout of the premises, colour and pattern of staff uniforms, accounting and financial systems, training and help to set up the business, continuing help and back-up once the business is operating, legal right to operate in an exclusive territory and marketing, public relations and advertising support, decor in case of retail franchises, the franchisor will provide design and advice for the fitting and decoration of the shop and the installation of any equipment necessary, records, the franchisor will provide the franchisee with sales report and accounts forms to assist the franchisee maintain accurate financial report. On the franchisors perspectives, Sherman (2003, p414), explains that in order for business growth through franchising, a secure foundation from which companys franchising programme has to be launched. He uses the concept of the responsible franchising as the only way to avoid failure and to ensure a harmonious relationship with the franchisees. He outlines some of the key components of a responsible franchising strategy. These includes, proven prototype location/ chains of stores, strong management team, sufficient capitalization, distinctive and protected trade identity, comprehensive training programmes franchisees, proprietary and proven methods of operation and management, field support staff who are skilled trainers and communicators, set of comprehensive legal documents, demonstrated market demand for the companys products and services, set of carefully developed, uniform site selection criteria and architectural standards, genuine understanding of the competition, relationship s with suppliers, lenders, real estates developers, franchisee profile and screening system, an effective system of reporting and record-keeping, research and development capabilities, communication system, national, regional and local advertising, marketing and so on. Sherman (2003, p.417), went further to acknowledge that Responsible franchising starts with an understanding of the strategic essence of the franchising structure. He identified three critical components of the franchise systems from the franchisors perspective. The brand, which creates the demand, allowing the franchisee to initially obtain customers, the brand includes the companys trademarks and service marks, its trade dress, decor and all of the intangible factors that create customer loyalty and build brand equity, the operating system, which essentially delivers the promise, thereby allowing the franchisee to maintain customer relationships and build loyalty, the ongoing support and training that the franchisors provide, supplying the franchisee with the tools and tips to expand its customer base and build its market share. Sherman, (2003,) also acknowledges the importance of customers in any responsible franchising business concept. He mentions that the responsibly built franchise system is one that provides value to its franchisees by teaching them how to get and keep as many customers as possible who consume as many products and services as possible, as often as possible,(p.417). He concludes that the focus must always be on the customer, where the franchisor essentially licenses and delegates the task of local brand building and market expansion to the franchisee in its local territory. (Sherman, 2003, p.417) Importance of Franchising To Business Growth and Expansion Franchising has gained much popularity in modern business environment over the years, because of its success in contributing to business growth and expansion globally which is the primary aim of this research. This can be viewed from the perspective of the franchisee and franchisor respectively. Sherman (2003) acknowledges the growth of a business via business-format franchising in the United States. He maintains that The ability to obtain operating efficiencies and economies of scale are among the reasons for franchising and one of the key components of a responsible franchising strategy is a proven type of location that will serve as a basis for a franchising strategy, (p.411). Over the past three decades, franchising has emerged as a popular expansion strategy for a variety of product and service companies. Sherman,(2003), points to the importance of franchising, he states that recent international franchise association (IFA) statistics demonstrates that retail sales from franchised outlets comprise nearly 50% of all retail sales in the U.S, estimated at more than $900 billion and employing some nine million people in 2000. (p.411) Also in his view, Sherman,( 2003,p 411), points out to what has made franchising so popular in the U.S. and globally as a business development and expansion strategy, from the franchisors view, franchising represents an efficient method of rapid market penetration and product distribution, without the typical capital costs associated with internal expansion.On the other hand, from the franchisees perspective, franchising is regarded as a method of owning a business but with a less severe chance of failure due to the initial and ongoing training and support services offered by the franchisor. According to Shay (2009, p.6) franchising is the key to Global Economic Recovery and that franchise businesses represent some of the worlds best brands. He went on to explain the rate at which fra Role of Franchising in Business Growth Role of Franchising in Business Growth CHAPTER ONE INTRODUCTION INTRODUCTION Franchising has become one of the most recognizable business formats and an internationalization strategy for business practitioners globally and also in the United Kingdom especially in the way entrepreneurs are operating under other peoples business concept. It has emerged over the years as a popular expansion strategy for a variety of product and service companies. This research critically examines how franchising play vital role in retail business growth and expansion in the food industry, using the Strand Mc Donalds as a case study. The research looks at the importance of franchising, and will be very informative for organizations and stakeholders directly and indirectly involves in franchising business. This chapter looks at the research background, organization background, the research problem, the aim and objectives of the study, the scope and limitations, brief introduction of the study area and the structure of the research. RESEARCH BACKGROUND Franchising is basically a specialized form of licensing in which the franchisor not only leases intangible property (normally a trademark) to the franchisee but also insists that the franchisee agree to abide by strict rules as to how it does business. The franchisor will often assist the franchisee to run the business on an ongoing basis, (Hill 2008.pp 408). It is similar to licensing, although franchising tends to involve longer term commitments than licensing. Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise agreement, namely: the Franchisor, who lends his trade mark or trade name and a business system; and the Franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisors name and system of operations, technically, the contract binding the two parties is the franchise. Franchising has emerged in recent years as a highly significant strategy for business growth, job creation, and economic development at both local and international retail business arena, (Hoffman Prebble, 1995.p 80). It has moved from traditional product (trade mark) areas such as automobiles, petroleum and soft -drink bottlers to be a more proven format business concept. Over 80% of Mc Donald restaurants worldwide are owned and operated by local businessmen and women. They adapted Ray Krocs franchising business strategy of providing high standard of quality, friendly services, cleanliness and value, (QSCV). Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary growth strategy globally. Of course, the most well known restaurant franchise in the worlds is McDonalds. So much has been written about Ray Kroc and the McDonalds brothers that McDonalds and Crock have become an institution. The first McDonalds were opened in Des Plaines, Illinois, in 1955 and soon afterward, more McDonalds outlets continued to open. Today there are more than 30,000 McDonalds in 118 countries. There is no doubt that when it comes to franchising and fast foods in general, McDonalds is the leader of the pack. (Teixeira, 2005, p. 20). The international franchise association estimates that American consumers spend approximately 1.3 trillion dollars on franchise goods and services on an annual basis. (Teixeira 2005, p.19). This shows that the franchise strategy is one of the important aspects in expanding business and economic development. Different research methods will be used to analyze data/ findings for this research, and the sources of data will include observations and interviews. This research therefore, focuses on the importance of franchising as a business growth and expansion strategy from both the franchisee and the franchisors perspective. It also examines the relationship that exists between the franchisee and the franchisor .The benefits of franchising to Mc Donalds (franchisors) in expanding its business globally and its international market position through leveraging its brand name and business process through the utilization of the capital and local management of its franchisees will also be examine in this research. ORGANIZATION BACKGROUND McDonalds Corporation (McDonalds) is one of the worlds largest foodservice retailing chain. The company is known for its burgers and fries which it sells through more than 31,900 fast-food restaurants in over 100 countries. The company originated and operates mainly in the US and has expanded globally to over 100 countries including United Kingdom. It is headquartered in Oak Brook, Illinois and employs about 400,000people. The company recorded revenues of $23,522.4 million during fiscal year ending December 2008 (FY2008), an increase of 3.2% over FY2007. The operating profit of the company was $6,442.9 million during FY2008, an increase of 66.1% over FY2007. The net profit was $4,313.2 million in FY2008, an increase of 80.1% over FY2007. (McDonalds Corporation Company profile, (Data monitor) June 2009, p.16) McDonalds restaurants offer a substantially uniform menu, although there might be geographic variations. In financial year 2008, the company operated more than 31,900 fast food restaurants in over 100 countries in the following geographic segments: the US; Europe; Asia Pacific, Middle East and Africa (APMEA); Latin America and Canada. The company is one of the worlds largest food service retailing chain, preparing and serving a range of foods. All McDonalds restaurants offer a standard menu, which comprise food items such as hamburgers, cheeseburgers, chicken sandwiches, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, Chicken McNuggets, French fries, salads, milk shakes, desserts and ice cream sundaes. Some McDonalds restaurants offer additional food items to suit local taste and preferences and sell a variety of other products during limited-time promotions. (McDonalds Corporation Company profile (Datamonitor), June 2009, p.5) McDonalds generates revenues through company operated restaurants and franchisee restaurants where over 6,500 are operated by the company and over 25,400 are operated by franchisees and affiliates. The companys revenue comprises sales from company operated restaurants and fees as well as rent from franchisees and affiliates. Under the franchise arrangement, the franchisees invest in the equipment, signage, seating and decor, while the company owns or leases the land and building. Franchisees pay the company service fees and rent for premises. A service fee is set as a percentage of sales, while rent and other terms of occupancy are stipulated in the franchise agreement, which is drawn for a period of 20 years. (McDonalds Corporation Company profile, June 2009) The company and its franchisees as well as affiliates source purchase food, packaging, equipment and other goods from approved suppliers. The company maintains quality standards through assurance laboratories around the world. A quality assurance board, including the companys technical, safety and supply chain specialists, provide guidance on all aspects of food quality and safety. The major competitors of McDonalds include Starbucks corporations, Burger Kings Inc, Kentucky Fried Chicken (KFC), and other upcoming high streets food restaurants worldwide. (McDonalds Corporation Company profile, (Datamonitor) June 2009) In October 1974, the company opened its 3000th restaurant and the first in the U.K in woolwich, south-east London, (Business franchise, 2009). The U.K headoffice was sited in Hampstead, North London.Web1 Also in 1986, the first U.K franchisee- operated restaurant opened in Hayes, Middlesex, (Business franchise,2009) and the first Drive-thru restaurants opened in U.K at fallowfield, Dudley, Neasden and Coventry. Web1 RESEARCH PROBLEM Research problem forms the basis of most academic research study. It is based on this that the aim, objectives and the research questions of most dissertations are formulated. There must be identified problems that the dissertation seems to tackle, mostly business problems. Despite the popularity of franchising among business organizations and entrepreneurs nowadays as a business expansion and development strategy, it has been unacceptable to some entrepreneurs because of its disadvantages and risks involved. To these groups of individuals, setting up and management of owned business is the best option, no matter which forms it take to start. The assumption is that franchising is a system of building, expanding and adding value to someone else existing business, which many entrepreneurs will always avoid, as Norman(2006) indicated Many conclude the time, effort, money and shift in emphasis from running a business to helping others run businesses is not right for their companies,(p3) On the other side, some individuals choose franchising as their best option to start up business because of its merits and less risk involved in starting business. To these pro-franchising entrepreneurs, it plays a major role in business growth and expansion, especially in retail food industry globally. This research, therefore critically examines these arguments and answer the question how is franchising vital to retail business growth and expansion according to the views of the pro- franchising business entrepreneurs. SIGNIFICACE OF THE STUDY Theoretically, a broad range of literature does exist on franchising concepts and in most instances, there seems to be gap between theory and practice in most business organizations. However, it is significant to find out the practicality of the literature in real life situations. It is essential therefore, to carry out this study in order to find out whether in reality the ideas provided by literatures are actually revolving around management issues and applied to business organizations. The findings of this study will assist a wide range of stakeholders interested in franchising business including the government, private sectors, and local authorities to increase the general understanding and knowledge of franchising particularly in the food sector. To the researchers, academicians, it helps deepen further research in business development who will be interested in franchising in the future. RESEARCH AIM AND OBJECTIVES The main aim of this dissertation is to investigate how franchising play an essential role in retail business growth and expansion in the food industry. Research Objectives In order to achieve the above stated aim, the following objectives will be specified: Analyze the impacts and importance of franchising (business format) on organizations (business) growth and expansion. Assess the benefits of franchised businesses on the socio-economic growth of the economy. To determine whether economic conditions affects the success of franchising as a strategy for business growth and expansion. Investigate the importance of the franchisee-franchisor relationship on the business growth and expansion. Examine the risks involved in the franchising relationship. Examine the effects/impacts of globalization on franchising as a business growth and expansion strategy. To make suggestions and recommendations based on the findings elicited by the study. THE SCOPE OF THE STUDY The study was carried out in London covering using one of the McDonalds restaurants as the study area. The content of the study was to understand how franchising contributes to business growth and expansion in retail business sector. THE STUDY AREA London is one of the cities of England; it is the capital city of England and the United Kingdom. It has 32 boroughs, of which 13 are in the inner London and 19 constitute the outer London. (Office for National Statistics Online). Web2cited. It is a growing city spreading out and swallowing many villages and towns in the south east of England. Because of this, there are many conflicting definitions of London and Greater London and the population of London varies accordingly. As the capital city, London occupies over 6,267 square miles (16,043km2). London population is heavily concentrated at about 4,539 people per sq km/ 11,568 per sq mi. Web3 According to the figure from the April 2001 census, London population was 7,172,000. This represents 14.6 percent of the total population of Britain. The population as of mid 2005 was thought to have been increased to 7,517,700 of which about half of this figure lives in inner and central London and the remaining lives in outer boroughs. Web 3 Londons population has grown every year since 1988, and it is likely that in the years to 2031, it will continue its steady growth. The study area lies in inner London borough of Westminster, which lies in the busy business environment of the city (central business district), It is very close to the seat of power, the parliament, and it is very close to many international business environments, busy London streets, tourist attractions like the London eye, Trafalgar square, British museum, National Gallery, National Art gallery, Covent Garden- since its redevelopment in the 1970s has become a popular piazza and nucleus for visitor activity in Londons cultural district with theatre, opera and ballet venues. (Page et al, 2001.p122). London is a multicultural city, where different people from around the world lives and study, it comprises of individuals with diverse cultural background. Because of the above description about the study area, it has become an important area to carry out this research, because of the concentration of other franchised business in the area. STRUCTURE OF THE RESEARCH Chapter One (Introduction): This state clearly the purpose of the dissertation, it includes the background of the study, significant of study, the statement of the research problems, organization background, the research aims and objectives, scope and limitations of the study. It also describes the study area briefly. Chapter Two (Literature Review): This section deals with the academic review of texts, journals, articles and so on, relevant to this research topic. It also discusses model and relevant theoretical ideas on the subject matter. Chapter Three (Research Methodology): comprises the methodology used for this study. It includes the styles and techniques chosen in collecting primary and secondary data/ informations for this research purpose. Chapter Four (Data Analysis/ Research Findings): The chapter that report and describes the findings of the survey to be undertaken, it describes both primary and secondary findings. Chapter Five (Conclusions and Recommendations): This chapter set out the main findings of the dissertations linking it with the literature reviews and the research findings. It also sets out clear recommendations which came out of the research work. CHAPTER TWO LITERATURE REVIEW INTRODUCTION This chapter provides a review of relevant literatures on franchising. It will be used as a base to throw more light on the importance of franchising concept and the roles it plays in business growth and expansion. The literatures were selected and critically evaluated in a bid to sift the relevant informations, and portray the opinions of relevant authors. It offers academic insight to research previously conducted by authors on the importance of franchising to retail business growth. Lastly, the section acknowledges the principal research questions for this study. DEFINITIONS OF FRANCHISING CONCEPT Hill, (2008) defines franchising as a specialized form of licensing in which the franchisor not only sells the intangible property (normally a trademark) to the franchisee, but it also insists that the franchisee agree to abide by strict rules as to how it does business, (p.408). It usually involves long term commitments than licensing. On the other hand, Business format franchising is a joint venture between an independent person (the franchisee) and a business owner (the franchisor) who wants to expand its activities. The venture is governed by a contract. This gives the franchisee the right to operate using the franchisors trade name/ trademark, in accordance with a business format or blueprint. All aspects of the franchisees business are strictly controlled including image, products or service, systems and administration. (HSBC Bank, 2009.p1) The franchisee pays certain amount of money for the right to use the franchisors trademark. Firms use franchise arrangements to extend scarce firm resources, because the franchisee puts up both an initial fee and much of the capital investment, franchisors are able to expand their markets without having to generate capital by themselves, and in most cases exploit on the knowledge of the local entrepreneurs in expanding their business. This is an attractive option, particularly in mass consumer services such as fast food that require the construction of many units to achieve brand name recognition and increased market share like McDonalds Restaurants. BRIEF HISTORY AND DEVELOPMENT IN FRANCHISING Franchising is highly developed in the USA, although popular in the UK, but a recent phenomenon. Its development dates back to the end of the American civil war (1865), when the singer sewing company franchised exclusive sales territories to financially independent operators. In 1898, General motors used independently owned businesses to increase its distribution outlet. (Lancaster Reynolds, 2005, p160).At some point, there were some form of disagreements and arguments among historians in the United States regarding when the franchise system first started. According to Bythe Bennett,(2008), franchising began to gain acceptance as a viable business arrangement with the growth of automobile industry, and also in the petroleum industry during the 1930s, (p.234) Franchising became one of the fastest growing types of retailing business in the United Kingdom in recent years.It was introduced into the UK in the early 1950s and since those early days, has become respectable and often very profitable business concept as a result of explosion in the number of franchises being operated. Today franchising encompasses products from pipes to pastries and includes such well known names as Body Shop, Kentucky Fried Chicken, McDonalds, and so on. (Lancaster Massingham, 1999, p269). For instance, Over 80% of Mc Donald restaurants worldwide are owned and operated by local entrepreneurs. They adapted Ray Krocs franchising business strategy of providing high standard of quality, friendly services, cleanliness and value, (QSCV). Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary growth strategy globally. The first McDonalds were opened in Des Plaines, Illinois, in 1955 and soon afterward, more McDonalds outlets continued to open. Today, McDonalds has over 300,000 restaurants in 119 countries outside the U.S or in non-traditional site locations in the US. There is no doubt that when it comes to franchising and fast foods in general, McDonalds is the leader of the pack. Of course, the most well known restaurant franchise in the world today is McDonalds and so much has been written about Ray krok and the McDonalds brothers that McDonalds and Crock have become an institution. (Teixeira, 2005. p.20-21). Teixeira, (2005, p21), indicated that during 1960s and 1970s, the growth of franchise industry exploded and continued to gain appeal with a boom mostly in Europe, on an increased rate, and this has been supported also by welsh (1992) in Doole Robin (2004) franchising has grown rapidly during the 1990s due to the strong interest in a variety of franchise formats, (p.230). These successes remain an ongoing process. According to Ghauri Cateora (2005, p.280), franchising has become the fastest growing market entry strategy, it is often among the first types of foreign retail business to open in the emerging market economies of Eastern Europe, the former USSR, and China. It has become successful as it is evidenced in most retail food business, and it has now become a major business growth and development and marketing strategy globally. It can be viewed from these two perspectives. McDonalds is a good example of organization that has grown with franchising strategy, (Hill, 2008.p.408). Franchising explosion in recent years however has increasingly saturated the domestic market, where businesses are opening in airports, sports stadiums, colleges, hospitals, parks, casinos, pools and other strategic locations globally. (Kotler Keller, 2006.p508) Lastly, the surge in franchising has been underpinned by the efforts of different bodies who regulates the activities of franchised organizations, like the International Franchise Association, (IFA), British Franchising Association, (BFA) various franchising organizations globally, which has developed codes of practice for franchising entrepreneurs, and in doing so, has recorded progress and greatly helped to reduce the risks to both franchisees and the franchisors. (BFA NatWest Bank, 1991). TYPES OF FRANCHISING Monir (1999 pp.164) identified two major types of franchising in his book. These include: First Generation/Product Distribution Franchising simply sells the franchisors products and is supplier-dealer relationships. In product distribution franchising, the franchisor licenses its trademark and logo to the franchisees but typically does not provide them with an entire system for running their business. This is often common with soft drink-bottling industries, automobile, and in petrol retailing. Second Generation/Business format franchising by contrast, the franchisor transfers a much more comprehensive business package (the format) to buyers of the franchisee. This contains most of the elements needed by the buyer to establish and replicate the business. The buyer also receives detailed instructions and guidance on how to operate the franchise successfully, managerial expertise, training and perhaps financial support if need be. Diagram 1: Showing Two major types of franchising There have been other divisions of franchising as recognized by other authors identified as important for the understanding of this research. Justis Judd, (2007, p.56) identifies two major types of franchising namely: product and trade name and business format franchising. Nathan, (2008 p.54) also classifies business format franchising into six major groupings as follows: executive, job, investment, management, retail, sales and distribution franchise. Also, on the other hand, Murray (2006, p.23), identifies four major categories as, Job, Retail, Management and Investment Franchising. Franchise Arrangements Beshel (2001,p3), reiterated that because of the possibilities of so many franchisors, industries and range of investments, there exists different types of franchise arrangements available to business owner. Two types of franchise arrangements were identified: Single-Unit(direct) franchise Multi-Unit Franchise ( Area development and Master development franchise) A single-unit (direct-unit) franchise is an agreement where the franchisor grants a franchisee the rights to open and operate one franchise unit. This is the simplest and most common type of franchise. It is possible, however, for a franchisee to purchase additional single-unit franchises once the original franchise unit begins to prosper, it is then considered a multiple, single-unit relationship. A multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate more than one unit. Beshel (2001, p3), also identifies two ways in which multi-unit franchise can be achieved: An area development franchise or A master franchise. Under an area development franchise, a franchisee has the right to open more than one unit during a specific time, within a specified area. For instance, a franchisee may agree to open 5 units over a five year period in a specified territory, while master franchise agreement gives the franchisee more rights than an area development agreement. In addition to having the right and obligation to open and operate a certain number of units in a defined area, the master franchisee also has the right to sell franchises to other people within the territory, known as sub-franchises. Therefore, the master franchisee takes over many of the tasks, duties and benefits of the franchisor, such as providing support and training, as well as receiving fees and royalties, (Beshel, 2001, p3-4). Blair Lafontaine (2005, p.90) and Philip et al, (2006, p.77) also identifies the above four classifications as forms of franchising where all the four were grouped together. Building a strong foundation for a successful franchising strategy A successful franchising concept needs an appropriate business strategy and lots of facts have been identified as making a business appropriate to be franchised and make it worthwhile to invest in. According to HSBC Bank, (2009, p1), a well established and proven business format franchise from the franchisee perspective should provide an established market for the franchisors products and services, proven sales, marketing and operational procedures, the benefit of an established business name, training (ongoing support and help in running the business), also, where appropriate, help in finding, fitting out and furnishing premises. Hoffman Prebble (2008, p.68) also add some factors that influence the appropriateness of a business concept using franchising including; valuable System to sell, proprietary process/ advantage for making the product in getting to the end customers, a satisfactory brand/ trade name like McDonalds which will be acceptable to the larger population, and high Profit Margin business. On the other hand, Murray (2004,p.67), shows some possibilities in which potential franchisee get a proven business format and support from the franchisor, which includes, an entire business concept with no bits missing out, with the aid of the operating manuals, trademarks, logos, patents, and standard designs for the layout of the premises, colour and pattern of staff uniforms, accounting and financial systems, training and help to set up the business, continuing help and back-up once the business is operating, legal right to operate in an exclusive territory and marketing, public relations and advertising support, decor in case of retail franchises, the franchisor will provide design and advice for the fitting and decoration of the shop and the installation of any equipment necessary, records, the franchisor will provide the franchisee with sales report and accounts forms to assist the franchisee maintain accurate financial report. On the franchisors perspectives, Sherman (2003, p414), explains that in order for business growth through franchising, a secure foundation from which companys franchising programme has to be launched. He uses the concept of the responsible franchising as the only way to avoid failure and to ensure a harmonious relationship with the franchisees. He outlines some of the key components of a responsible franchising strategy. These includes, proven prototype location/ chains of stores, strong management team, sufficient capitalization, distinctive and protected trade identity, comprehensive training programmes franchisees, proprietary and proven methods of operation and management, field support staff who are skilled trainers and communicators, set of comprehensive legal documents, demonstrated market demand for the companys products and services, set of carefully developed, uniform site selection criteria and architectural standards, genuine understanding of the competition, relationship s with suppliers, lenders, real estates developers, franchisee profile and screening system, an effective system of reporting and record-keeping, research and development capabilities, communication system, national, regional and local advertising, marketing and so on. Sherman (2003, p.417), went further to acknowledge that Responsible franchising starts with an understanding of the strategic essence of the franchising structure. He identified three critical components of the franchise systems from the franchisors perspective. The brand, which creates the demand, allowing the franchisee to initially obtain customers, the brand includes the companys trademarks and service marks, its trade dress, decor and all of the intangible factors that create customer loyalty and build brand equity, the operating system, which essentially delivers the promise, thereby allowing the franchisee to maintain customer relationships and build loyalty, the ongoing support and training that the franchisors provide, supplying the franchisee with the tools and tips to expand its customer base and build its market share. Sherman, (2003,) also acknowledges the importance of customers in any responsible franchising business concept. He mentions that the responsibly built franchise system is one that provides value to its franchisees by teaching them how to get and keep as many customers as possible who consume as many products and services as possible, as often as possible,(p.417). He concludes that the focus must always be on the customer, where the franchisor essentially licenses and delegates the task of local brand building and market expansion to the franchisee in its local territory. (Sherman, 2003, p.417) Importance of Franchising To Business Growth and Expansion Franchising has gained much popularity in modern business environment over the years, because of its success in contributing to business growth and expansion globally which is the primary aim of this research. This can be viewed from the perspective of the franchisee and franchisor respectively. Sherman (2003) acknowledges the growth of a business via business-format franchising in the United States. He maintains that The ability to obtain operating efficiencies and economies of scale are among the reasons for franchising and one of the key components of a responsible franchising strategy is a proven type of location that will serve as a basis for a franchising strategy, (p.411). Over the past three decades, franchising has emerged as a popular expansion strategy for a variety of product and service companies. Sherman,(2003), points to the importance of franchising, he states that recent international franchise association (IFA) statistics demonstrates that retail sales from franchised outlets comprise nearly 50% of all retail sales in the U.S, estimated at more than $900 billion and employing some nine million people in 2000. (p.411) Also in his view, Sherman,( 2003,p 411), points out to what has made franchising so popular in the U.S. and globally as a business development and expansion strategy, from the franchisors view, franchising represents an efficient method of rapid market penetration and product distribution, without the typical capital costs associated with internal expansion.On the other hand, from the franchisees perspective, franchising is regarded as a method of owning a business but with a less severe chance of failure due to the initial and ongoing training and support services offered by the franchisor. According to Shay (2009, p.6) franchising is the key to Global Economic Recovery and that franchise businesses represent some of the worlds best brands. He went on to explain the rate at which fra

How to Avoid High Turnover Essay

Employee turnover is a ratio comparison of the number of employees a company must replace in a given time period to the average number of total employees. † In the recent years Operation department of Caulfield Racecourse experienced problems associated with high turnover, which is a pervasive and serious issue resulting in high direct expenditure as well as intangible costs, low performance level and job dissatisfaction. Operation department is looking after large numbers of employees: event managers and supervisors, administration and operation assistants, staff coordinators, caterers, set up teams, cleaners. The problem is not the lack of job applicants: the company receives endless stream of applications. The problem is that the quality employees are hard to keep. The talented employees do not stay for long before they get employed somewhere else. As an Operation Manager Executive Assistant the author has been asked to examine and analyse factors that may impact on staff turnover. Applying a combination of quantitative and qualitative techniques (form of structured questionnaire) to determine the reasons why workers leave their jobs at Operation department, this research tries to identify the root causes of job dissatisfaction leading to turnover and provides managerial implications that may assist managers in dealing with labor-related risks. 1. 1 Objectives This report is identified to achieve the following objectives: 1. To identify general factors that may cause high turnover within Operation department. 2. To examine and analyse levels of staff job satisfaction. 3. To suggest some measures in order to improve overall job satisfaction, performance and reduce high turnover. 1. 2 Methodology * Structured questionnaire (consist of multiple choices, ranking and descriptive questions). The survey method was selected to gather primary data by administering the structured questionnaire among the employee in Operation department of Caulfield racecourse. The questionnaire is chosen because of its simplicity and reliability. We can expect a straight answer, which is directly related to the questions asked. Interpretation of data under this can also be done correctly. An organisation perceived to be in economic difficulty will also raise the specter of impending layoffs. Workers believe that it is rational to seek other employment. 3. The organisational culture. Much has been written about organisational culture. It is sufficient to note here that the reward system, the strength of leadership, the ability of the organisations to elicit a sense of commitment on the part of workers, and its development of a sense of shared goals, among other factors, will influence such indices of job satisfaction as turnover intentions and turnover rate. . The characteristics of the job. Some jobs are intrinsically more attractive than others. A job’s attractiveness will be affected by many characteristics, including its repetitiveness, challenge, danger, perceived importance, and capacity to elicit a sense of accomplishment. A job’s status is also important, as are many other factors. 5. Unrealistic expectations. Another factor is the unrealistic exp ectations and general lack of knowledge that many job applicants have about the job at the time that they receive an offer. When these unrealistic expectations are not realised, the worker becomes disillusioned and decides to quit. 6. Demographics. Empirical studies have demonstrated that turnover is associated in particular situations with demographic and biographical characteristics of workers. But to use lifestyle factors (e. g. smoking) or past employment history (e. g. many job changes) as an explicit basis for screening applicants, it is important for legality and fairness to job applicants to verify such biodata empirically. 7. The person. In addition to the factors listed above, there are also factors specific to the ndividual that can influence turnover rates. These include both personal and trait-based factors. Personal factors include things such as changes in family situation, a desire to learn a new skill or trade, or an unsolicited job offer. In addition to these personal factors, there are also trait-based or personality features that are associated with turnover. These traits are some of t he same characteristics that predict job performance and counterproductive behaviors such as loafing, absenteeism, theft, substance abuse on the job, and sabotage of employer’s equipment or production. These traits can be measured and used in employee screening to identify individuals showing lower probability of turnover. It is important to note that the factors we have listed above can be classified as being within or beyond the control of the employing organisation. In order to actively participate in reducing costs associated with turnover, organisations need to identify those factors over which they do have some control and initiate necessary changes to reduce turnover attributable to these â€Å"controllable† factors.

Against Euthanasia

1. 20. 13 I AM AGAINST EUTHANASIA voluntary: when a person is asked to be killed because the pain could not be handled any longer non-voluntary: when a person is killed by the decision of another person because the patient is incapable to do it himself/ herself. Euthanasia  is: 1. â€Å"A quiet, painless death. †Ã‚  or 2. â€Å"The intentional putting to death of a person with an incurable or painful disease intended as an act of mercy. † BIBLICAL POINTS: -Euthanasia is considered MURDER One of the Ten Commandments is â€Å"Thou shall not kill† and life is a gift from God that should not be destroyed – God has given us life to live, and SHOULD NOT BE TAKEN AWAY on purpose – God is in everyone and every living thing. If you harm a living thing, YOU ARE HARMING GOD. – Paul stated (1 Corinthians 6:19) that our bodies are temples of our Lord. In VOLUNTARY EUTHANASIA, we should not destroy ourselves because our life contains God’s Holy Sp irit – WHEN JOB WAS GOING THROUGH SUFFERING, he still refused to TAKE HIS OWN LIFE. He argues that we must accept the suffering as we accept happiness and joy.SUFFERING IS AN OPPORTUNITY FOR SPIRITUAL GROWTH. – No man dies unless God allows it (Job 2:6) Therefore, according to the Bible, a person SHOULD NOT be killed because of a certain condition they have. Although they WILL DIE, euthanasia should not take place. IT IS MURDER. Yes, God has planned that they will be terminally ill, and he knows when they will die. But only HE has the right to take their life, not doctors. OTHER POINTS: -the power to play with people’s lives should not be handed out under a legal and /or medical disguise. – it promotes abuse and gives doctors the right to urder. – doctors are people who we trust and cure us, but euthanasia gives them the opportunity to PLAY GOD -It’s not only Christians who are against euthanasia, but other religions too. (Musilim, Jews, Hin du, Buddhist) -UNBEARBLE PAIN- pain cannot be all eliminated, but killing is not the answer! The solution is to command better education of health care professionals, expand health care, and inform patients about their rights to be alive. – Euthanasia is not about the right to die. It’s about the right to kill. OTHER RELIGIONS AGAINST EUTHANASIA: Roman Catholic Church: direct euthanasia consists in putting an end to the lives of handicapped sick or dying persons. IT IS MORALLY UNACCEPTABLE. Muslim: -All life is a gift Allah, so it is sacred and Muslim have a duty to respect it and submut to his will -Only ALLAH can choose when a life will end -The reason for any suffering will be known to Allah, there must be a reason for pain Jews: – Anything which shortens life is forbidden, only God could decided when a person’s life should end Hindu: -Euthanasia goes against the belief of Ahimsa (non-violence) Buddhist: -voluntary euthanasia is wrong, it shows that th e person’s mind is in a bad state.

The Law On Exclusion Clauses - Free Essay Example

Sample details Pages: 12 Words: 3504 Downloads: 4 Date added: 2017/06/26 Category Law Essay Type Critical essay Did you like this example? Critically examine how the law on exclusion clauses in contract has developed and the key issues of legal policy to which the present law gives rise. ANSWER Introduction An exclusion (or exemption) clause is a term in a contract that purports to exempt or limit the liability of a party to the contract or to restrict the rights of a party to the contract.[1] Exclusion clauses are commonplace. They may be incorporated in standard form contracts or in standard terms and conditions, they may be printed on tickets or displayed on notices. Usually exclusion clauses are imposed by the party in the strongest bargaining position with a view to protecting his or her own interests.. Don’t waste time! Our writers will create an original "The Law On Exclusion Clauses" essay for you Create order There are essentially three forms of exclusion clause: 1. Pure exclusion clause: This form of clause identifies a potential breach of contract (for example for the negligence of one of the parties) and purports to exclude liability for the breach, preventing the other party from suing to remedy the breach in question.. 3. Time limitation clause: This species of exclusion clause sets down the stipulation that any action to claim for breach under the contract must be commenced within a specified period of time, on the expiry of which the claim is extinguished. 2. Monetary limitation clause: This form of clause imposes a limit on the amount claimable for a particular breach of contract, regardless of the loss actually sustained. Whatever the particular origin or nature of an exclusion clause three questions will be asked before a court will be moved to enforce it. The first question is whether the exclusion clause has been effectively incorporated into the contract? The second is whether the exclusion clause should be interpreted so as to effectively cover the breach in question? Finally, whether the Unfair Contract Terms Act 1977[2] (and see also the Unfair Terms in Consumer Contracts Regulations 1999[3]) permits the exclusion of liability?[4] Traditionally the courts have proved reluctant to enforce exclusion clauses and as a matter of course such clauses are restrictively interpreted and applied. The reason for this should be obvious. The raison d’à ¯Ã†â€™Ã‚ ªtre of an exclusion clause is to limit the scope of the law and the courts of law and to reduce legal liability. As will be discussed below the judiciary is typically predisposed to resist such self-imposed limitations on their room for legal manoeuvre and juristic power. In terms of the development of the law on exclusion clauses, while relevant case law and precedent stretches back into the nineteenth century, the bulk of the case law on the issue is of a twentieth cent ury provenance. This paper will discuss aspects of the law on exclusion clauses and address certain important issues of legal policy to which the present law gives rise. Analysis of the Case Law on Exclusion Clauses In order for a person to rely on an exclusion clause he or she must prove that it formed part of the contract struck between the parties. Case law indicates that an exclusion clause may be incorporated in a contract by means of signature, by effective notice, or by a previous course of dealing. These are discussed in turn below. Incorporation by signature may occur if a document having contractual effect and containing an exclusion clause is signed by the parties. In these circumstances the clause may be binding on the parties regardless of whether it has been read or even fully comprehended by one of the parties. A case in point is LEstrange v Graucob[1934][5]. Clearly there are important and pragmatic public policy reasons to justify the courts treatment of si gned documents as sovereign and these can hardly be criticised in this context. That said however, where one party has made a misrepresentation concerning the nature of the document or the clause in question incorporation would not be deemed effective even if the document was signed, see: Curtis v Chemical Cleaning Co [1951][6]. In Curtis v Chemical Cleaning Co [1951] The plaintiff took a dress to the defendants to be cleaned. She signed a document entitled â€Å"Receipt† after being advised by the defendants employee that it protected the cleaners from liability for damage to beads and sequins. In fact the receipt included a clause excluding all liability: â€Å"for any damage howsoever arising†. In the event the cleaning process badly stained the dress. The court held that the cleaners could not avoid liability for the damage to the fabric of the dress by reference to the exclusion clause because its scope had been misrepresented by the defendant’s agent. In some circumstances an exclusion clause may be included in an unsigned document such notice or a ticket.. In these situations, the court will expect that reasonable and sufficient notice of the existence of the exclusion clause is offered. In order to achieve this requirement the existence of the exclusion clause must be brought to the attention of the other contracting party before or at the point in time when the contract is formed. This rule reflects the fundamental rule of contract law that a contract is made at the moment that an offer is met by a valid acceptance conforming to all the other conditions necessary for contract formation. At that point in time the obligations and rights entailed in the agreement crystallise forming a binding agreement. Nothing can thereafter be unilaterally added or taken away from the contract at any time. Any attempt unilaterally to vary the contract thereafter will fail, and this includes any attempt to introduce an exclusion clause into the terms. The case Olley v Marlborough Court Ltd (1949)[7] is instructive on the point. A couple arrived at a hotel and paid for a room in advance at the reception desk. On the wall of their room a notice was displayed purporting to exclude the hotel’s liability for personal belongings stolen or lost from the room. Personal valuables were later stolen. When the matter came to court it was held that the hotel could not rely on the exclusion clause to avoid liability because the disclaimer had not been observed until after the point of contract formation. Moreover there is a general rule that an exclusion clause will only be incorporated into the contract if the party seeking to rely on it took all reasonable steps to bring it to the other parties’ attention. In Thornton v Shoe Lane Parking [1971][8], Thornton was permitted to enter a car park after taking a ticket from a machine at the gate. The ticket issued by the machine referred to the applicability of ce rtain conditions. These conditions, one of which purported to exclude liability for damage to cars and personal injury, were displayed on a notice inside the car park. Thornton sustained injury while in the car park and sued for compensation.. The operators of the car park sought to rely on the stated exclusion clause but the court ruled that it was ineffective. The contract was formed when Thornton took the ticket at the gate (a form of acceptance by performance or conduct) before he gained access to the car park and before he had seen the notice bearing the exclusion clause. It is submitted that Thornton v Shoe Lane Parking Ltd seems to suggest that the broader the exemption clause, the more the party relying on it will have had to have done to bring it to the other parties’ attention.. That said however, the courts have confirmed that only â€Å"reasonably sufficient† notice of the exemption clause must be given. It is pertinent to note that â€Å"actual noticeâ₠¬  is not in fact required, as the case Thompson v LMS Railway [1930][9] testifies. It is submitted by this commentator that the failure to specify that actual notice is necessary can be criticised as a weakness in the law, a potential loophole or lacuna that could allow terms that have not been fully considered into a binding agreement unfairly. It is argued that a requirement to provide actual notice would better reflect the fundamental rule of contract formation on certainty of terms. The question as to what is reasonable is one of fact which is dependent on all the circumstances of the case and the situation of the parties involved. The courts have repeatedly ruled that notice should be drawn to the existence of an exclusion clause by means of clear and categorical words on the front of any document delivered to the other party. However, it does seem that the degree of notice required by the court may increase according to the gravity or commonality of the exclusion clause a t issue.. On the point as to the â€Å"unusualness† of the clause Interfoto v Stiletto Ltd [1988][10] offers good authority. In Interfoto, the defendant advertising agency, ordered 47 photo transparencies from a photo library. The transparencies were delivered with a note which included certain conditions. One term sought to impose a punitive holding fee of  £5 per day for any transparency retained after 14 days. In fact the defendants failed to return the transparencies on time and the plaintiffs sued for a total sum of  £3785 under the said condition. It was held that the clause had not been incorporated into the contract between the parties. Interfoto had not taken reasonable steps to bring such a draconian and unusual term to the notice of the defendant. This decision was underpinned in substance by Thornton v Shoe Lane Parking [1971]. In addition it is clear that for incorporation to be deemed effective a clause must be printed in a contractual document or one whi ch a reasonable person would expect to include contractual terms, and not, for example, merely in a document that acknowledges payment such as receipt as in Parker v SE Railway Co (1877)[11]. See also Chappleton v Barry UDC [1940][12], in which deck chairs were stacked by a notice asking those who wished to use the deck chairs to obtain tickets and retain them for inspection. The plaintiff bought tickets for two chairs, but did not read the tickets. On the reverse of the ticket was an exclusion clause purporting to exempt the council from liability over the use of the chairs. In the event the plaintiff suffered injury when the deck chair he was sitting on collapsed. The court held that the clause was not effective. The ticket was found to be a mere receipt, the object of which was that it might be produced to prove that the hirer had paid for the chair and to indicate the duration of the hire. The court noted that an individual might sit in a chair for a considerable length of time before an attendant took his money and provided him with a receipt containing the clause. Even in circumstances where there has been insufficient notice an exemption clause may be deemed incorporated into a contract where there is evidence of a previous course of dealings between the parties on terms that include the exclusion clause. It is submitted that the law in this field has developed along similar lines to that of the general law of contract. In order to qualify as substantial enough to introduce an inference that an exclusion clause should be included in a contract the previous course of dealings must be regular and consistent over a reasonable period of time and transactions.. In Spurling v Bradshaw [1956][13] the defendant delivered barrels of orange juice to the plaintiffs. Several days later the defendant received a document from the plaintiff acknowledging receipt of the barrels. The document contained a clause excluding the plaintiffs from liability for damage or losses occasioned by the negligence, wrongful act or default caused by the plaintiffs, their agents or employees. Later, when the defendant collected the barrels some were empty, and some contained dirty water. Accordingly, the defendant refused to pay the storage charges and the plaintiffs sued. The court held that, despite the fact that the defendants did not receive the document containing the exemption clause until a point in time after the conclusion of the contract, the clause in question had in fact been incorporated into the contract as a result of a regular course of dealings between the parties over the years. It was proved that the defendant had received similar documents on the occasion of previous dealings and that he was now bound by the terms they contained. Spurling can be contrasted with McCutcheon v MacBrayne [1964][14]. In McCutcheon exclusion clauses were included in 27 paragraphs of small print on notices displayed both outside and inside a ferry booking office and in a â€Å"risk note† which was occasionally signed by passengers. Here the exclusion clauses were held not to have been incorporated in the contract because there was no course of conduct substantial or consistent enough to infer a consistency of dealing. It is submitted that where a party seeks to enforce an exclusion contract against a private consumer it will normally be necessary to point to a greater number of past transactions than where the clause is enforced against a trading partner or commercial undertaking. This point is illustrated by Hollier v Rambler Motors [1972][15]. In Hollier the plaintiff had used the defendant garage on approximately four occasions over a period of five years and had sometimes signed a contract which included a term excluding the defendants from liability for damage by fire.. On the relevant occasion no contract was signed and the plaintiffs car was seriously damaged by a fire at the premises. The court held that there was no r egular course of dealing, and that the exclusion clause could not be deemed incorporated. This case can be contrasted with Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association (1969)[16] in which in excess of 100 contractual notices including an exclusion clause had been given over a period of three years. Unsurprisingly this was found to amount to a course of dealing. It is argued that this rule of policy is both well founded and pragmatic, given that private individuals cannot be expected to behave with the same legal and commercial uniformity as companies. Furthermore the courts have, rightly it is submitted, ruled that the disparity in bargaining power between the parties is a factor that may be taken into account. Finally, where there is no course of dealing or other form of direct incorporation it is possible to infer the existence of an exclusion clause by means of cogent evidence of trade usage or custom. In the case British Crane Hire v Ipswich Plan t Hire [1974][17] both parties were undertakings in the business of hiring out earth-moving equipment.. The plaintiffs supplied equipment to the defendants on the basis of a telephone contract made without reference to any of the conditions of the hire. Later, the plaintiffs dispatched a copy of their conditions to the defendants but before the defendants had signed them, the crane sank into weak ground. The unsigned conditions included a clause in standard use by all firms in the business, namely that the hirer should indemnify the owner for all expenses in connection with the use of the equipment. It was held that the terms should be deemed included in the contract, not on the strength of a course of dealing, but because it was fair to assume that there was a mutual understanding between the parties, who were after all in the same line of business, that any contract for hire would be concluded on these standard terms. On its facts British Crane Hire v Ipswich Plant Hire was cle arly fairly decided, but it is submitted that exclusion clauses incorporated merely on the strength of trade usage or custom will be rarities and that this method of incorporation would not and should not be employed in the typical context of the private consumer. Exclusion Clauses: Scope of Interpretation In common with the development of the normal principles of general contract law, the meaning of an exclusion clause is interpreted and construed along the lines of its ordinary and natural meaning and in the context of the contract in question. That said however, if after construing the contract in this manner, ambiguity still remains in relation to the exemption clause, the contra proferentem rule will be applied. This has the effect that the clause is construed in favour of the party whose rights are being restricted and against the party attempting to take advantage of the rule. The case of Canada SS Lines Ltd v. The King [1952][18] offers authority on this point. In B aldry v Marshall [1925][19] a clause excluded the defendants liability for any â€Å"guarantee or warranty, statutory or otherwise†. However the Court of Appeal found that the breach in question involved a condition of the contract. In light of the fact that the clause failed to exclude liability for breach of a condition expressly, the defendant could not rely on it. Exclusion Clauses: Compatibility with Statute and Regulation Overlaying the common law rules restricting the operation of exclusion clauses, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 also limit their application. Whereas the Unfair Contract Terms Act 1977 is (generally) applicable to all contracts, although private consumers are offered more protection, the Unfair Terms in Consumer Contracts Regulations 1999, are concerned only with private consumer contracts and with the protection of the private consumer.. This reflects the case law on exclusion clause s that offers private parties a higher degree of protection, such as: Hollier v Rambler Motors [1972]. Under section 2(1) of the 1977 Act no one â€Å"acting in the course of a business can exclude or restrict their liability in negligence for death or personal injury by means of a term in a contract or by way of notice†. Section 2(2) provides that â€Å"liability for negligence for any other kind of loss or damage can be excluded provided the term or notice satisfies the requirement of reasonableness†. This is clearly important given that the law of negligence offers a different and complimentary liability stream to that of contract law. It is submitted that it is entirely appropriate for the law to draw this distinction and prevent contracting parties from unduly insulating themselves against liability that would ordinarily apply universally to all individuals in society outwith the contractual context. In addition, the Unfair Terms in Consumer Contracts Reg ulations 1999[20] apply, with certain exceptions, to unfair terms in contracts between a private consumer and a seller or supplier and stipulate that unfair terms not individually negotiated and which, cause a significant disparity in the balance between the respective parties’ rights and obligations under the contract to the disadvantage of the consumer will not be deemed binding. These may often include exclusion clauses deemed to wide or unfair in the context of the transaction. Commentary The title to this paper asks for an examination of how the law on exclusion clauses in contract has developed and the key issues of legal policy to which the present law gives rise. It is clear that the judiciary do not welcome exclusion clauses with open arms and this is understandable, given that the raison d’à ¯Ã†â€™Ã‚ ªtre of exclusion clauses is to exclude normal legal liability and thus to fetter both the reach and scope of the law and the ability of the courts to int ervene between the parties properly to resolve a case. It is clear that the law on exclusion clauses is wedded closely to the ordinary and natural rules of contract formation. Examples of this include the insistence that notice of the exclusion clause must be communicated to the other party prior to contract formation and that adequate notice is provided. However, there is also some jurisprudential dislocation between the streams of law and an example being that â€Å"reasonably sufficient† notice rather than â€Å"actual notice† of an exemption clause must be given as found in Thompson v LMS Railway [1930]. In terms of current legal policy a delicate balance has been struck between the interests of those seeking to enforce exclusion clauses and those whose right to sue may be excluded by them. Generally speaking the current stance of relevant legal principle favours the latter interest because that line enhances the scope efficacy and utility of the general law. THE END GLOBAL DOCUMENT WORD COUNT : 3473 BIBLIOGRAPHY Exclusion Clauses and Unfair Contract Terms, Lawson R., (2005) Sweet and Maxwell Smith and Keenan’s Advanced Business Law, Keenan D, (2000) Longman Contract Law, McKendrick E., (2003) Palgrave Macmillan Unfair Contract Terms Act 1977: https://www..netlawman.co.uk/acts/unfair-contract-terms-act-1977.php Unfair Terms in Consumer Contracts Regulations 1999: https://www..netlawman.co.uk/acts/the-unfair-terms-in-contracts-regulations-1999.php Business Law, Keenan, D. and Riches S., Seventh Ed, (2001) Longman Principles of Business Law, Kelly A., and Holmes D., (1997) Cavendish Publishing Outline of the Law of Contract, Treitel G.H., (2004) Lexis Law Cases drawn from original law reports as footnoted. 1 Footnotes [1] Exclusion Clauses and Unfair Contract Terms, Lawson R., (2005) Sweet and Maxwell, Chapter 1. [2] See: https://www.netlawman.co.uk/acts/unfair-contract-terms-act-1977.php. [3] As amended, see: https://www.netlawman.co.uk/acts/the-unfair-terms-in-contracts-regulations-1999.php. [4] Contract Law, McKendrick E., (2003) Palgrave Macmillan. [5] 2 KB 394. [6] 1 KB 805. [7] 1 All ER 127. [8] 2 QB 163. [9] 1 KB 41. [10] 1 All ER 348. [11] 2 CPD 416. [12] 1 KB 531. [13] 2 All ER 121. [14] 1 WLR 125. [15] 2 AB 71. [16] 2 AC 31. [17] QB 303. [18] AC 192.. [19] 1 KB 260. [20] Which replaced the Unfair Terms in Consumer Contracts Regulations 1994.