All About Franchising: Interesting Facts

Be your own boss. Now is the time to make your franchise a reality.

Basically, franchising is not a business itself rather an innovative marketing concept that paints a picture on how to do business. The International Franchise Association clearly defines it as a continuing relationship in which the franchisor provides a licensed (yes, it’s legit) privilege to do business, plus assistance in organizing training for business owners and their franchising team , merchandising and management in return for a consideration from the franchisee. 

The Franchise Council of Australia identifies the different franchising formats via these franchise relationships:

1. Manufacturer-Retailer: Where the retailer as franchisee sells the franchisor's product directly to the public. (eg. New motor vehicle dealerships).

2. Manufacturer-Wholesaler: Where the franchisee under license manufactures and distributes the franchisor's product (eg. Soft drink bottling arrangements).

3. Wholesaler-Retailer: Where the retailer as franchisee purchases products for retail sale from a franchisor wholesaler (frequently a cooperative of the franchisee retailers who have formed a wholesaling company through which they are contractually obliged to purchase. (eg. Hardware and automotive product stores).

4. Retailer-Retailer: Where the franchisor markets a service, or a product, under a common name and standardized system, through a network of franchisees. This is the classic business format franchise.

The first two categories are most commonly identified as Product and Tradename Franchises where franchisees are granted the rights to distribute or sell a manufacturer’s products within a specific location, in exchange for fees and royalties.

The Business Format Franchise, meanwhile, provides the franchisees with the entire system for operating the business or concept from the franchisor: products, service and trademark, marketing strategy and plan, operational standards, systems and formats, training, quality control and ongoing assistance and supervision.

Business format franchising undergoes a legal process with the detailed obligations and responsibilities of the franchisor and franchisee outlined in a franchise agreement. 

In the local arena, the Philippine Franchise Association, the face of franchising in the Philippines, defines franchising as the method of practicing and using another’s business concept. It is a growing relationship in which the franchisee is granted the right to market a product or service under a marketing plan or a system that uses the trademark, name/brand, logo and advertising owned by the franchisor. 

Franchising consultants and franchise associations have organized themselves to boost the industry via mounting franchising expos that highlight consultancy, business opportunities, introducing and identifying franchising trends - to promote success of homegrown and international brands. The PFA, for one, promotes growth in the industry by churning out programs that will open opportunities for expansion of Philippine franchisees here and abroad by assisting micro, small, and medium enterprises (MSMEs). Moreover, the premier franchise association promotes cream of the crop Philippine franchisees to the international market, and promotes the Philippines as a good soil for investment for top international franchise brands. Members of this organization will be assisted on their franchising endeavors.

Here is PFA’s helpful guide on franchising: 

THE ADVANTAGES

1. The Experience of the Franchisor

When an individual acquires a franchise, he purchases the years of experience and the proven methods of the franchise system. In any new business, much time and money are spent in trial and error. A proven franchise may eliminate many of the start-up problems. This reason permits one to open a franchise business with little or no previous experience in a given industry.

2. Training

A franchise system will provide training for the new franchisee which is usually done at the home office and at the franchisee’s place of business. 

3. Buying and Advertising

Most small-business people cannot afford inventory products in bulk or extensive advertising. The franchisee buys this advantage when he or she purchases the right to use the franchise system’s purchasing power and advertising. Most system provide advertising. Most systems provide advertising help and direction. Furthermore, as the number of franchisees increases, so does public awareness of the franchise. This can be tremendous advertising advantage. Also, franchisees that are located near one another can advertise together thus reducing cost.

4. Ongoing Advise, Research and Development

Franchisees need assistance throughout the term of their business endeavors. The franchise system’s staff of experts can give this needed help in all aspects of the business. The franchisor is also in a position to provide on-going research and development on new products and services.

5. Business Synergy

Synergy refers to the idea that the sum of the whole is greater than the separate parts. This principle can be applied to franchising. Those who buy a franchise become a part of a “family” where all members work together for the good of the whole. Indeed, there can be support and assistance in a franchise organization that assists everyone in becoming successful. Often, some of the most effective ideas come from franchisees who in turn share their ideas with the corporate office and with other franchisees.

THE CHALLENGES

1. Working Within the System

People who have difficulty following directions or who dislike working within a system may find franchising extremely frustrating. Conformity to the franchise system is critical if consistency among franchises is to be maintained. 

2. The Risk

Because you own the business, you, to a great extent, determine the success of your venture. The franchisor may have a great program and a respected name, but in the final analysis much of the risk is in your hands.

3. Working With the Franchise System

Get to know the franchise system through the following methods.

A. Visit the corporate headquarters. Seek to get a feel for the staff and how smoothly the     operations runs.

B. Talk to other franchisees. Ask what their relationship with the franchisor like.

C. Read as much about franchise as possible.

4. False Expectations

Franchising, like any other business, requires tremendous time, initiative and industry. Obtain from the franchisor a realistic picture as possible as to what is required in operating that particular franchise.

5. Managing the Business

Some individuals are more prepared to manage a business than others. They have some business experience and have learned to get along well with people. Other individuals may find that managing a franchise is a tremendous burden. You must honestly assess your preparation to run a business. If you find that you have little or no experience, you may want to seek special assistance from the franchisor in the business management. (www.pfa.org.ph)

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