AN INTRODUCTION TO

FRANCHISING
FRANMA
Dorelene Villanueva Dimaunahan, MScM, CFE

Franchising
Franchising is a form of business organization in which a firm that already has a SUCCESSFUL product
or service (FRANCHISOR) licenses its trademark and method of doing business to another business or
individual (FRANCHISEE), in exchange for a franchise fee and ongoing royalty payment
International Franchise Association (IFA): A franchise operation is a contractual relationship between
the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing
interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee
operates under a common trade name, format and/or procedure owned or controlled by the franchisor,
and in which the franchisee has or will make a substantial capital investment in his business from his own
resources.
Franchising is MORE than just distributorship because it extends to an ENTIRE operation or method
of dong business, involves greater assistance, control and longer duration, whereas the distributor
merely re-sells products to retailers or customers

Growth of Franchising
The word franchise comes from an old dialect of French and means
privilege or freedom
Singer Sewing Machine - first franchise (mid 19th century)
Automobile - Ford, Petroleum Products - Shell, Softdrinks - Coca
Cola, Food & Restaurants - McDonalds & Starbucks
Home markets became saturated, resulting in attractive opportunities
overseas, paired with the expansion of international trade and media
Lack of regulations in most countries

Types of Franchises
Product & Trademark

Business Format

Management Franchise

An arrangement under which the An arrangement under which the An arrangement under which the
franchisor grants to the franchisee franchisor provides the formula franchisee provides the management
the right to buy its products and use for doing business to the expertise, format and/or procedures
its trade name
Here, the franchisee merely sells
the franchisors products, including

franchisee along with training, in conducting the business

advertising and other forms of
assistance

some form of integration of the Here, the franchisee not only

business activities
It is very much like a supplierdealer relationship

distributes the franchisors

products and services under the
franchisors trademark, but also
implements the franchisors
format and procedure of

It is a form of service agreement

Types of Franchises
Product & Trademark

Business Format

Management

Types of Franchise Agreements

Individual Franchise - involves the sale of a single franchise for a
specific location
Area Franchise - allows a franchisee to own and operate a
specific number of franchisees in a particular geographic area
Master Franchise - allows a franchisee to own and operate a
specific number of franchises in a particular geographic area
PLUS provides the franchisee the right to sell to others
(subfranchisees) who find and manage their own franchise

Types of Franchise Agreements

Individual Franchise

Area Franchise

Types of Franchise Agreements

Master Franchise

Advantages and Disadvantages of Franchising

Advantages
Rapid, low-cost market expansion

Disadvantages
Profit-sharing

Income from franchise fees and royalties Loss of control

Franchisee motivation

Friction with franchisees

Access to ideas and suggestions

Managing growth

Cost savings

Differences in required business skills

Increased buying power

Legal expenses

Advantages and Disadvantages of Buying a Franchise

Advantages

Disadvantages

Proven product or service within an Cost of the franchise

established market
Established trademark or business
system
Franchisors training, technical support
and managerial expertise
Established marketing network
Availability of financing (varies)
Potential for business growth

Restrictions on creativity
Duration and nature of commitment
Risk of fraud, misunderstanding, lack of
franchisor commitment
Poor performance on the part of other
franchisees
Potential for failure

Misconceptions about Franchising

Franchising is a safe investment
A strong industry ensures franchise success
A franchise is a proven business system
There is no need to hire a franchise lawyer or an accountant
The best systems grow rapidly and it is best to be part of a rapid-growth
system
I can operate my franchise outlet for less than the franchisor predicts
The franchisor is a nice person - hell help me out

Franchising in the World

Franchising in the US
Nearly 910,000 franchise outlets operate in the US
Franchises account for 1/3 of all retail sales
Franchising in the Philippines
Evolved from the US franchise system
However, no laws regulate franchising
Companies and franchise developers use franchise practices as reference and guide in pursuing franchising
Franchising for years has been the monopoly of the food sector; It was only in the mid-1990s that service and
retail entrepreneurs used franchising
Franchise Conferences & Seminars started only in the mid-1990s; Franchise Associations were formed with
the vision of professionalizing franchising
Goal: To make the Philippines the Center for Franchise Development in Asia

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