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Gabhawala breached the contract by not running the business according to companystandards. In another case, Dunkin’ Donuts sued Chris Romanias, its franchisee inPennsylvania, alleging that Romanias intentionally underreported gross sales to thecompany. Romanias, on the other hand, alleged that Dunkin’ Donuts, Inc., breachedthe contract because it failed to provide assistance in operating the franchise. Otherfranchisees claim that contracts are unfairly tilted toward the franchisors. Yet othershave charged that they lost their franchise and investment because their franchisorwould not approve the sale of the business when they found a buyer.To arbitrate disputes between franchisors and franchisees, the National FranchiseMediation Program was established in 1993 by 30 member firms, including Burger KingCorporation, McDonald’s Corporation, and Wendy’s International, Inc. Negotiatorshave since resolved numerous cases through mediation. Recently, Carl’s Jr. brought inone of its largest franchisees to help set its system straight, making most franchiseeshappy for the first time in years. The program also helped PepsiCo settle a long-termcontract dispute and renegotiate its franchise agreements.Because disagreements between franchisors and franchisees have increased in recentyears, many franchisees have been demanding government regulation of franchising. In1997, to avoid government regulation, some of the largest franchisors proposed a newself-policing plan to the Federal Trade Commission.Franchise holders pay for their security, usually with a one-time franchise fee andcontinuing royalty and advertising fees, collected as a percentage of sales. A SUBWAYfranchisee pays an initial franchise fee of $15,000 and an annual fee of 8 percent ofgross sales. In some fields, franchise agreements are not uniform. One franchisee maypay more than another for the same services.Even success can cause problems. Sometimes a franchise is so successful that the franchisoropens its own outlet nearby, in direct competition—although franchisees may fightback. For example, a court recently ruled that Burger King could not enter into directcompetition with the franchisee because the contract was not specific on the issue. Aspokesperson for one franchisor contends that the company “gives no geographical protection”to its franchise holders and thus is free to move in on them. Franchise operatorswork hard. They often put in 10- and 12-hour days, six days a week. The InternationalFranchise Association advises prospective franchise purchasers to investigate before investingand to approach buying a franchise cautiously. Franchises vary widely in approachas well as in products. Some, such as Dunkin’ Donuts and Baskin-Robbins, demand longhours. Others, such as Great Clips hair salons and Albert’s Family Restaurants, are moreappropriate for those who do not want to spend many hours at their stores.Globa l Perspectives in Small BusinessFor small American businesses, the world is becoming smaller. National andinternational economies are growing more and more interdependent as politicalleadership and national economic directions change and trade barriers diminish ordisappear. Globalization and instant worldwide communications are rapidly shrinkingdistances at the same time that they are expanding business opportunities. Accordingto a recent study, the Internet is increasingly important to small-business strategicthinking, with more than 50 percent of those surveyed indicating that the Internetrepresented their most favored strategy for growth. This was more than double thenext-favored choice, strategic alliances reflecting the opportunity to reach both globaland domestic customers. The Internet and online payment systems enable even verysmall businesses to serve international customers. In fact, technology now gives smallbusinesses the leverage and power to reach markets that were once limited solely tolarge corporations. No wonder the number of businesses exporting their goods andservices has tripled since 1990, with two-thirds of that boom coming from companieswith fewer than 20 employees.22The SBA offers help to the nation’s small-business owners who want to enter theworld markets. The SBA’s efforts include counseling small firms on how and where to155market overseas, matching U.S. small-business executives with potential overseas customers,and helping exporters to secure financing. The agency brings small U.S. firmsinto direct contact with potential overseas buyers and partners. The SBA InternationalTrade Loan program provides guarantees of up to $5 million in loans to small-businessowners. These loans help small firms in expanding or developing new export markets.The U.S. Commercial Service, a Commerce Department division, aids small andmedium-sized businesses in selling overseas. The division’s global network includes morethan 100 offices in the United States and 151 others in 75 countries around the world.23Consider Daniel J. Nanigian, President of Nanmac Corporation in Framingham,Massachusetts. This company manufactures temperature sensors used in a wide rangeof industrial applications. With an export strategy aimed at growing revenues in diverseforeign markets including China, the Nanmac Corporation experienced explosivegrowth in 2009. The company nearly doubled its sales from $2.7 million in 2008 to$5.1 million in 2009. The company’s international sales, at $300,000 in 2004, reached$700,000 in 2009 and $1.7 million in 2010. Its administrative, sales, and manufacturingemployees have increased by 80 percent.The company has a strong presence in China and is expanding in other markets, aswell, including Latin America, Singapore, and Russia. Under Nanigian’s guidance, thecompany has developed creative solutions and partnerships to help maximize its presenceinternationally. As part of its China strategy, Nanmac partners with distributors,recruits European and in-country sales representatives, uses a localized Chinese Website, and relies for advice on the export assistance programs of the Massachusetts SmallBusiness Development Center Network’s Massachusetts Export Center. The strategy,along with travel to China to conduct technical training seminars and attend tradeshows and technical conferences, has helped to grow Nanmac’s Chinese client list from1 in 2003 to more than 30 accounts today. Mr. Nanigian received SBA’s 2010 SmallBusiness Exporter of the Year Award.24International trade will become more important to small-business owners as theyface unique challenges in the new century. Small businesses, which are expected toremain the dominant form of organization in this country, must be prepared to adaptto significant demographic and economic changes in the world marketplace.This chapter ends our discussion of American business today. From here on, we shallbe looking closely at various aspects of business operations. We begin, in the next chapter,with a discussion of management—what management is, what managers do, and howthey work to coordinate the basic economic resources within a business organization.156
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