A franchising company is a company that has bought into a business idea that is already established by another or other companies. Under this, a company buys the blueprint and the rights for that given franchise business instead of starting from scratch with a new idea. The advantage of a company buying a franchise is that the business becomes less risky as the day to day activities have already being carried out successfully and the idea have been fully established (Fernandez 2010, p. 2).
Even with the successfulness of franchise companies, many of them have ended up failing and collapsing due to various reasons like poor management, financial problems and unfair competition. An example of such a franchise company is the Blockbuster Inc, a chain of DVD, video games, VHS and blue-ray rental stores based in America. On year 2009 they had over 60,000 employees in about 5,000 stores in 17 countries. But on 23rd September 2010 they filed for liquidation due to various reasons.
Competition from other companies offering the same services as Blockbuster like Netflix at very competitive prices that Blockbuster could not keep up with made the company suffer significant losses in terms of revenue. The management of blockbuster made wrong decisions by venturing in markets of various countries where piracy through the internet was highly practiced. Moreover, they introduced additional daily rates to fine those who overstayed with the movies they had borrowed, a move that discouraged many customers.
The continued use of large capital trying to overcome the competitors, with the great decrease in revenue returns, made the Blockbusters investments become a white elephant. Due to this, shareholders started selling their shares at a throw away price hence the company's capital decreased greatly. This is said to have been triggered mostly by the board of the company according to the director of Blockbusters Inc. Another reason why it did not succeed is that they focused on venturing into new markets instead of first improving and widening the already existing markets and they also had a lot of debts.
In my opinion, the company's management is questionable because the management and the board did have many disagreements and conflicts. Moreover, when the business was failing, instead of the board giving the management time to recover, they fired and replaced most of them, a move that was not good. If the company had stuck to its earlier plan of improving their services instead of competing and venturing into new markets in countries with no internet restriction policies, may be it could not have ended being bankrupt.