What Is The Difference Between A Franchise And A Joint Venture?

What is a Joint Venture?

A joint venture is known as a joint investment agreement based on a strategic alliance between two interested parties that may have similar objectives and goals. A joint venture allows two business to work together on providing certain goods and services into new markets local and international territories. In a joint venture, the companies are working towards a mutual profit and they agree on similar operational principles.

Joint Venture

What is a Franchise Business?

A franchise business is referred to as a commercial association contract between two or more independent and legal organisations. Under a franchising agreement, the two parties mutually agree to provide product or services through the franchisor business model after paying a royalty fee. Most of the new franchises UK are comprised of three main elements:

  1. The franchisee is granted permission to use trademark of the original franchisor
  2. Use the same business model as the franchisor
  3. The provision of providing training and guidance needed to run the business

The Difference Between Joint Venture and Franchising

Both franchise and the joint venture are two distinct partnership systems. The success and failure of both depend on several factors including but not limited to the investment perspective, management participation, risk and responsibility. Some of the main differences between a joint venture and a franchise are as follows:

Higher Level of Self-Determination

One of the biggest difference between a joint venture and a franchise UK is that a joint venture will usually have a higher level of self-determination as compared with a franchise. Joint ventures offer a new market for products or services. Joint ventures are not obligated to follow the partner firms standards and regulations unless the agreed upon terms of sales state otherwise. Whereas a franchise has to follow the plan and the regulation of the franchisor, particularly in food franchises UK where all franchises across a country will offer similar menu items and services.

Training and Professional Development

In a joint venture, the companies have their own set of training practices and professional development options for employees. One partner in the joint venture is not obligated to train the employees of the other partner firm. Whereas in a franchise business, the franchisor has to provide training and guidelines to regular or home based franchises.

Risks Associated with the Business

A joint venture is considered as a risky investment if the venture fails expectations and underperforms in the market. Joint ventures carry more business risk as compared to a franchise. On the other hand, franchises work under an already tried and tested business formula, which will prove to be a success as a franchise.

For example, if you are a part of a leading group of coffee franchises, then the franchisor will provide you with the business model and the trademarks that made the original brand a success. A franchise is a less risky investment as compared to a joint venture. Due to the less risk involved in franchising people prefer to invest in low-cost franchises as their initial choice for investment.

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