Why might a parent company like McDonald's choose to franchise its local outlets rather than own them and staff them with employees?In many small towns, all McDonalds are owned by the same...

Why might a parent company like McDonald's choose to franchise its local outlets rather than own them and staff them with employees?

In many small towns, all McDonalds are owned by the same franchise.  I am trying to determine why these large companies allow franchises rather than owning the stores themselves?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

The major reasons for doing this are efficiency and motivation.  

One thing that franchising does is to reduce the need for a large and cumbersome bureaucracy for the franchiser.  If McDonald's had to manage every McDonald's restaurant in the world, it would need a huge bureaucracy that would have to be overseen centrally.  This could create inefficiencies within the company.

Another thing that franchising does is to provide the firm with highly motivated operators.  A person who puts her own money into owning a McDonald's is likely to be very highly motivated to make it work.  Of course, a hired manager would be motivated as well, but a person with their own money in the franchise is likely to be even more highly motivated than an employee.

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