Final answer:
Parent companies create multiple chains to diversify their market reach and capitalize on local demands, which leads to risk spreading and economies of scale. Fast-food chains like McDonald's exemplify successful franchising.
Step-by-step explanation:
Why Do Parent Companies Create Multiple Chains?
Parent companies create multiple chains as a strategic approach to expand their market presence and increase their revenues. This process is known as franchising, where a company offers similar products or services in many locations. One of the key reasons for creating multiple chains is to diversify their market reach, tapping into different customer segments and geographical areas.
By doing this, companies not only spread their risks across a wider portfolio but also capitalize on local market trends and demands. Additionally, multiple chains allow for economies of scale in advertising and supply chain operations, minimizing costs and maximizing profit potential.
McDonald's is a prime example of a franchise that has successfully implemented this strategy, allowing it to become a global powerhouse in the fast-food industry. However, not all chains seek economic profits; for instance, small 'Mom and Pop firms' like inner city grocery stores may operate despite not earning significant profits due to non-economic reasons, such as community service or personal fulfillment.