Franchising Strategies

THE BORIVLI EDUCATION SOCIETY’S
MATUSHRI PUSHPABEN VINUBHAI VALIA COLLEGE OF COMMERCE
M.K.SCHOOL COMPLEX, FACTORY LANE, BORIVALI (W), MUMBAI-400092.

A PROJECT
ON
FRANCHISING STRATEGIES
In the subject STRATEGIC MANAGEMENT

SUBMITTED TO

UNIVERSITY OF MUMBAI
FOR SEMESTER-II OF
MASTER OF COMMERCE
BY
KISHORE SUSHIL AGARWAL
DIVISION –B, ROLL NO- 201

UNDER THE GUIDANCE OF

Prof.Sumita Shankar
ACADEMIC YEAR 2013-14

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Franchising Strategies

THE BORIVLI EDUCATION SOCIETY’S
MATUSHRI PUSHPABEN VINUBHAI VALIA COLLEGE OF COMMERCE
M.K.SCHOOL COMPLEX, FACTORY LANE, BORIVALI (W), MUMBAI-400092.

DECLARATION BY THE STUDENT
I KISHORE SUSHIL AGARWAL student of M Com Part-1 Roll Number 201 hereby declare that the
project on “FRANCHISING STRATEGIES” in the subject STRATEGIC MANAGEMENT
Submitted by me for Semester-II during the Academic year 2013-14, is based on actual work carried out by
me under the guidance and supervision of Prof.Sumita Shankar. I further state that this work is original
and not submitted anywhere else for any examination.

Signature of the Student

EVALUATION CERTIFICATE
This is to certify that the undersigned have assessed and evaluated the project on “FRANCHISING
STRATEGIES” in the subject STRATEGIC MANAGEMENT submitted by Kishore Sushil Agarwal,
student of M Com Part-1.
This project is original to the best of our knowledge and has been accepted for Internal Assessment.

Prof.Sumita Shankar
Internal Examiner

Prof. V. Manikandan
External Examiner

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I/C. Principal

Franchising Strategies

PREFACE
I am pleased to write a Project Book on the subject called „FRANCHISING
STRATEGIES‟. This book is basically written by the students of M.COM-I for their
semester studies under the guidelines of University of Mumbai. As I am well known
about the fact that writing a project book is obviously a challenging task under any
certain circumstances, henceforth I have tried my level best to pull up certain realistic
details with regards to some valuable statistics & also included good number of research
based examples, which is definitely going to be a better scope for them to grab the subject
matter much more easily & efficiently. I hope that the readers will find these useful for
different purposes.
I hereby would like to thank one and all, from the bottom of my heart, those who have
helped me & constantly motivated me for writing this Project Book. I also thank each &
every resources from where I collected all the information & certain numbers of
innovative idea to end up writing this one.

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Franchising Strategies

ACKNOWLEDGEMENT
The satisfaction and euphoria that accompany the successful completion of any task is
incomplete without the mention of people who made it possible.
So I take this as a great opportunity to pen down a few lines about the people to whom
my acknowledgement is due.
It is with the deepest sense of gratitude that I wish to place on record my sincere thanks to
my project guide Ms.Sumita Shankar for providing me inspiration, encouragement,
guidance, help and valuable suggestions throughout the project.
I extend my gratitude towards the Principal V. Manikandan for his timely suggestion and
guidance throughout Semester II of M.Com Part I.
I hereby would like to thank one and all, from the bottom of my heart, those who have
helped me & constantly motivated me for writing this Project Book.

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..................................................7 3 OBJECTIVES OF THE PROJECT………………………………………….................60 16 FINDINGS OF THE INTERVIEWS ..............................….................11 7 BUSINESS GROWTH ................................7 4 SCOPE OF STUDY…………………………………………………………8 5 IMPORTANCE OF PROJECT………………………………………...12 8 FRANCHISING AS A GROWTH STRATEGY..........................42 11 THE ROLE OF THE FRANCHISOR AND FRANCHISEE……..........74 18 CONCLUDING REMARKS ......................................................................................................64 17 DISCUSSION AND RECOMMENDATIONS ......................................................................................80 BIBLIOGRAPHY ...81 5 ...................................................................Franchising Strategies TABLE OF CONTENTS 1 INTRODUCTION.........................47 13 FRANCHISING IN INDIA………………………………………………………50 14 KEY SUCCESS FACTORS IN FRANCHISING……………………………….............. 6 2 METHODOLOGY OF DATA COLLECTION………………………….....................8 6 LIMITATIONS OF THE STUDY…………………………………….....….........16 9 HOW TO FRANCHISE YOUR BUSINESS………………………………35 10 STRATEGIES TO COMBAT EMPLOYEE TURNOVER………………..............................………………45 12 HOW TO FRANCHISE YOUR BUSINESS……………………………………......................................….......................56 15 RESEARCH PROCESS ..............................

belts. Then the theory concentrates deeper to franchising operations. they even organise fashion nights. Even to the extent that the future options of growing the operations interest the owners and this thesis will provide information on one of the possibilities. 6 . During the process of writing the business plan also franchising was brought up as a possible strategy in the future. Behind the business operations are Riikka Pitkänen along with her mother Ulla Pitkänen.Franchising Strategies INTRODUCTION Aku & Ada is a clothing store that sells brand clothes in Leppävirta. contract types. In addition they give clothing advice to people with strong experience in fashion. The research question was what requirements are needed for Aku & Ada to become a franchise business. a town of a little over 10 000 inhabitants close by Kuopio. The target group for the company are young and youthful adult women and men. accessories (bags. This thesis is a qualitative research on what requirements are needed for a company in a clothing industry to expand its business operations by becoming a franchise business. Aku & Ada provides all encompassing clothing services. A year ago Riikka Pitkänen. 2009. the chief executive officer of Aku & Ada was writing a business plan for a clothing store which was also her bachelor thesis. The main focus of this research is to introduce franchising as a potential growth strategy for the company. The owners are a mother and a daughter. The purpose guides the strategies for the research (Hirsjärvi et al. After pondering with the idea of opening the store up again and considering the experience Riikka Pitkänen has received of the industry and the BBA degree they decided to go for it and start Aku & Ada again. both of them having a strong experience of the industry and a business education as their background. terminology. its history. The former owned a clothing store in the same town with the same name during the 1990‟s. franchising in Finland and the current state of franchising. and jewellery) and shoes. they sell clothes. help customers to find their personal style etc. The new store opened in March 2010 and so far the business has been operating satisfyingly. First covered are the theoretical aspects of growth of a company and different options for growing. advantages and disadvantages. Research always has a purpose or a function. As well as analyse what possibilities franchising offers for Aku & Ada. 137). women and franchising. this time as an ltd.

METHODOLOGY OF DATA COLLECTION The methodology of data collection I have used for my project is secondary data and it is collected from various sources like books. Finally there are the analysis and conclusions with recommendations for the company. journals etc.ond one the executive manager of the Finnish Franchising Association. To study the position of existing units who have undertaken franchising strategies. In a nutshell franchising is examined from theoretical perspective. Secondary data largely collected from different websites of the Internet. To get the knowledge of new concepts of franchising strategies 4. The research is based upon two qualitative interviews. 7 . first one of the two owners of the company and sec. from authoritative perspective and applied to a growing company‟s perspective. As a result from all the three perspectives are gathered the conclusions and summarised the requirements for beginning franchise operations. To gain in-depth perception about franchising strategies 2.Franchising Strategies After the theoretical part there are presented the research methods and findings. To study the changing trends of franchising strategies 3. OBJECTIVES OF THE PROJECT 1.

you'll quickly find yourself on the road to career satisfaction and financial success. and you may have a substantial sum of money riding on that outcome. and your direct involvement will make you the owner. "We're a young franchise program. Here are five other strategies to get you in the game. IMPORTANCE OF PROJECT Five Franchising Strategies Owning and operating isn't the only way to build a franchise biz. and prepare to be flexible. This is how most people think of franchise opportunities: You buy a new franchise. Florida. Newer (and hotter) franchise offerings usually provide the classic route to business ownership." says Tyler Allen. CEO and franchisor of a new publishing venture. You don't inherit anyone else's problems or hiring mistakes. any mistakes made in the establishment of the business will be your own. If you think of franchising in one dimension." Among the advantages of this approach is the full new term of the franchise agreement. based in Orlando. and it describes how much of the franchise world still operates.Franchising Strategies SCOPE OF STUDY The result of this study is applicable to different firms of business organizations. It can also apply to the customers. It's not "one size fits all"--not even close. and we're opening new markets all over the country. You roll up your sleeves and plunge into your new business as an owner/operator. It can make or break a retail business. it's brand-new and ready for business. There are so many ways to get into franchising beyond building and operating a new pizza restaurant. With the classic route. find the location and build it out yourself. You'll find many routes to owning a small business and several intriguing paths to participating in a franchise business. Most of our owners have no experience in publishing a fashion magazine. Second. You hire your entire team. "Opening a new market and starting from scratch is currently the only way someone can own anIndustry magazine franchise. of course (business imitating life?). When you open the location. you'll limit your opportunities. the biggest possible downside is the untried location. Here are the five most common ways you can participate in a franchise program: Go the Classic Route. With the right approach to franchising. Keep your ears open for opportunity. manager. and it's all yours. The best upside: The new concept could take off and become a smash success--and you got on the elevator at the lobby level. allowing you the maximum time you need over the term of the agreement to recoup your investment. This is the classic route because it is precisely how so many thousands of franchisees built their multiunit empires. 8 . There is always a downside. You also have the opportunity to build your business from scratch. financial institutes and to the government. Industry magazine. boss and unquestioned captain of the ship. students. It's all new.

and reap the financial benefits. ." says Mike. so the training and opening support had better be solid. purchasing another in Florida. which can be very restrictive. the couple was confident in the system since two of their family members were already FastSigns franchisees and could testify to the franchisor's willingness to help. If you're successful. This will. Mike used his previous 20 years of experience as a general manager at hotels in the Hilton chain to his advantage. They had been looking for an existing franchise to purchase when a FastSigns franchise went on sale in Gainesville. so the couple targeted the hospitality industry as primary customers. You might also negotiate with the franchisor on the transfer fee. interview key employees and observe the operation. They range from unhappy supply vendors to dishonest employees to defective equipment--and they simply come with the territory. Many franchisors reserve the right of first refusal on all proposed transfers. they ended 2004 with estimated sales of $800. Your major risk: hidden problems of the previous owner's making. since it was close to Mike's family.Franchising Strategies your team is untried. especially if you're buying a troubled franchise. The de Lugos' success has solidified their opinions about existing franchises. Some may call the act of selling a house in California. You have an opportunity to discuss the business with the owner. In an important sense. and buying a franchise--all within a two-month period--a midlife crisis. you'll build a strong business out of a weak one. "There may be locations where there's not much competition and it would make sense to put in a new one. The startup phase of the franchise at a new location will drain your cash until the operation's growing revenue begins to carry the payroll. inventory and other expenses. and these hidden problems will cost you money you didn't plan on spending. He knew the business. so it's possible that you can end up putting a big effort into a formal purchase offer only to have the franchisor match it and take you out of the picture. Taking over a franchise that had been in business for seven years granted the de Lugos. the de Lugos had managed to triple the revenue from the year before. but for Sonja and Mike de Lugo. and your own risk. of course. enthusiastic owner may be the answer to the franchisor's prayers. so include it in your calculations and your price negotiations. knew how to talk to people and had contacts. "But it's just my own personal opinion that I would stick with the resale. However. so plan carefully. due to what Mike calls "lack of managerial enthusiasm. both 41. it was an opportunity they couldn't pass up. Within eight months. . The franchise agreement might also impose a hefty transfer fee. You can research the industry and gain an understanding of objective valuations in that business sector. No one likes surprises in a new venture. A new. Buy an Existing Franchise The strongest advantage of buying an existing franchise business is that you have a chance to examine its performance numbers. Though nervous about buying a failing franchise.000." They immediately purchased new equipment to increase their production rate and informed the community of the change in ownership. often expressed as a percentage (5 to 15 percent) of the purchase price. Add an "unexpected problems" line to your opening budget." 9 . fall on your shoulders. and never go into a startup franchise undercapitalized. Where will you make your money? Maybe you can identify a struggling franchise that needs a new shot of leadership and enthusiasm for the business. You know what the sales and expenses were in the past year--and even earlier. the company may be more than willing to lower or eliminate the transfer fee altogether just to help you take over the ailing franchise. Florida--an ideal location. assuming the records are accurate (ask the franchisor to provide a royalty payment record so that you can cross-check the key sales numbers). and plan for the unexpected. they were also left with a negative reputation to correct. Buying an existing franchise business means that you're subject to the transfer provisions of the existing franchise agreement. Also. you also lower your investment's uncertainty . a comprehensive database of existing customers who were already familiar with the FastSigns franchise--which specializes in signs and graphic solutions.

including a real estate and investment business. The details of the master franchisee concept differ from one system to the next. a master franchisee does not sell franchises directly. a hands-on business coaching franchise. he can juggle working at Action's head office--helping other master franchisees--with running additional businesses on the side. finding entrepreneurs to purchase franchises.Franchising Strategies Buy Master Franchise Rights If you're looking for a more aggressive role in the franchise system." says Giannini. with the right employees running that business. whatever it takes. and is compensated for those services. meets with and qualifies prospective franchisees. "There's a fairly quick educational process. Giannini says of becoming a master franchisee. and it is there that the law imposes the most restrictions. often by receiving a percentage of the royalty revenue generated in the assigned territory. for its own account." says Giannini. Nevertheless. A master franchisee typically generates leads. but the basics are the same: A master franchisee is appointed to serve as a local or regional representative of the franchisor. therefore. a regular franchisee chooses the monthly rate to charge clients and is. Giannini advises potential master franchisees to look ahead 10 years. providing training and field support. It's the involvement in franchise sales that draws many investors to master franchise programs. the master franchisee will be considered a "franchise broker" and. 34. and." He points out that his royalty from the sale of each franchise is fixed. examine their vision. in 1999. "As a master franchisee. but there's one important distinction: A subfranchisor offers and sells franchises directly. As a third party participating in a franchise sale. not only did he lack any previous franchise experience--he barely understood the franchising concept. you could check into becoming a master franchisee. The master franchisee may also have recruiting responsibilities. The franchisor must submit a "salesman disclosure" form to most registration states. while continuing to operate your own franchise business successfully. The appointment as a master franchisee is usually extended to existing franchise owners who prove successful in their operations and are interested in expanding their involvement in the system. My vision better suited the master franchisee side than the individual franchisee side. of course. "I [believed] I could help people more by being able to sell multiple franchises and have a lot of people helping business owners rather than just me. the second is to help them become successful. Because he is free to set his own schedule. he confidently assumed the role of master franchisee of the Nevada territory and took on the responsibilities of marketing the business. A master franchise is often confused with a subfranchising program." Giannini enjoys the freedom that being a master franchisee grants him. inquire about master franchise programs. generating commissions on franchise sales made from his or her efforts. For the right kind of business. In contrast. Success is measured by the ability to manage. "What's important is that you've got that entrepreneurial attitude--that you'll go out there and get it done." Absentee Ownership & Conversion Franchises Be an Absentee Investor. teach and recruit. it is entirely possible--though rare--to own a franchise business and 10 . and sends them on to the franchisor for closing. as such. When Rich Giannini became involved with Action International. disclosing business experience and litigation history. and providing success coaching to franchisees. then speak with different franchisees. A master franchisee is the utility infielder of franchising. If you enjoy teaching and want to super-size the return on your franchise investment. "The first is to find suitable franchisees. you have two fundamental roles. a broker must independently register with state authorities. more in control of his or her income. must be included in the company's Uniform Franchise Offering Circular. In a few states.

The lesson is clear: Keep looking until you find an investment that's well-structured for your interests and needs. So many franchise businesses have razor-thin margins that allow for the owner to take out not much more than a modest salary. Lee Konowe. doesn't insist on rigid uniformity with the solitary display of the Envirian name. Buy Into a Conversion Franchise. because it is hard enough to own and operate a successful small business even when you're on the floor every day. 11 . and you'll probably find it in the franchise arena. I think. you may want to consider joining a franchise affiliation program in your business category. "We are flexible on how the Envirian name is combined with the broker's name or the town name. I once had a senior executive of a muffler franchisor tell me his shops couldn't be run by employee managers because too much of the inventory would leave at the end of the workday." says Konowe. So the key question then becomes: What drops to the bottom line for the owner? Service businesses with training programs that can support an employee manager may meet these qualifications. A conversion franchise allows an existing independent business to affiliate with a national brand. which converts independent real estate brokers and allows them the benefits of a strong brand affiliation while allowing them to continue using their individual identification. so they can maximize their marketing power as members of the Envirian system. Affiliation programs have been launched by a variety of professional service providers. The real estate affiliation programs often split the identification between the national brand and the name of the broker/franchisee. it can work. home-repair programs and hotel chains. or do you have to completely identify with the franchisor's brand? That depends entirely on the system. What type of business lends itself to absentee ownership? First. Virginia. reflecting the fact that the franchisee is an experienced business owner and needs less training and less support than someone new to the business. The classic conversion program is Century 21 Real Estate Corp. Can you use your current business name. The process and topic is very lengthy but few words of procedure are explained in the project. LIMITATIONS OF STUDY Since the study is short term project and due to money and time problem it was not possible to conduct and collect information through primary data for completion of the project. Franchising doesn't exist in a single investing dimension.. "We want our brokers to capture the value they've built in their names. the fees paid for an affiliation program are considerably lower than those of traditional franchise systems. founder of Envirian. Only an owner on the premises is sufficiently motivated to prevent that from happening. or both. in Reston. Second." Often. It would be a mistake to assume that any franchise can prosper with an uninvolved owner. Conversion franchise programs offer an attractive balance of brand identification and buying power. it must be a business that doesn't have valuable inventory. If you're operating an independent business and long for the competitive advantages of being tied in to a national reservations system or receiving local leads generated by a national or regional advertising campaign. the business must have sufficient margins to be profitable after the expense of having a reliable manager. but with the right program and a handpicked management team. Envirian LLC. such as handymen. This is the approach taken by one of the newest real estate franchise systems in the market. it has developed in ways that allow virtually any level of investor in any business situation to participate. Rare.Franchising Strategies not be directly involved in its management.

national production and productivity. Therefore the ability to operate in the global markets is essential for a growing company. Growth is not the purpose for a company but a result of competitiveness. Before getting into the theory of franchising.Franchising Strategies BUSINESS GROWTH The main theme of this thesis is franchising. Growth enterprises also typically have cooperation with universities and universities of applied sciences as well as research institutes. and as a result growth enterprises employ highly educated labour force more often than other companies (MEE Publications Innovation 42/2009 -The report of the growth and entrepreneurship monitoring group). knowhow and innovativeness. For high risk projects it can be difficult to get a loan which is why venture capital finance is popular and essential for growth enterprises. some other aspects of growing the business and options for growing the operations are presented. At the same time the same economy might only be producing few innovative companies that might grow their turnover by 100 per cent (MEE Publications Innovation 42/2009 The report of the growth and entrepreneurship monitoring group). Especially in small home markets growth requires a fast internationalisation. The growing companies that have the exact goals of growth and innovativeness. It is typical for a growth enterprise that the possible profits of the company are kept for the growth and development of the company rather than taken out as revenue and salary for the 12 . and invest into the right knowhow will affect the economy around them by increasing employment. Fast growth also requires attitude and knowledge. Therefore humane capital that is ready to adapt to a fast pace of change is an essential factor in growth. G r o w t h entrepreneurship Growth entrepreneurship is usually described as a company that is innovation based and has internationalisation as a wider goal. which makes it difficult to give a specific definition for the concept. In some economies when a company‟s turnover exceeds 20 per cent on average it can be called a growth enterprise. Another requirement for growth is finance.

2010. et al. Growth can be in turnover. etal. which makes this a slower way to grow in size and the return on investments are slower compared to franchising.Franchising Strategies entrepreneurs (MEE Publications Innovation 42/2009 -The report of the growth and entrepreneurship monitoring group). On the other hand there are no middle men (franchisees) in between if/when the profits start to flow in (Barringer. 13 . revenue and profitability of the company. Also the definition of growth enterprises varies which makes it very difficult to compile statistics on the subject (MEE Publications Innovation 42/2009 -The report of the growth and entrepreneurship monitoring group). Keup 2007. Internal growth can mean several improvements and/or operations implemented within the company in order to increase sales. which both can lead to increased sales (Barringer. 521). 482-486). 467. et al. it can be fast or long-span. 1998. 471. Product development can mean to come up with a whole new product in order to extend the product line or improve an already existing product or service. 2010. 65. G r o w t h in smaller scale Before going international it is typical for the business first to expand the operations in the home country‟s markets. When opening a company owned unit in another location the manager has to balance between the already existing and the new unit. revenue or personnel. To compare the magnitude of the growth internationally can be demanding due to the differences in measuring growth. it can be organic or base on buy-outs. Company owned outlets require large capital and direct managing on all the aspects of the business. This can cause a lack of attention to the original unit and be harmful for the business operations. This can be done in several ways and the same operations can be executed in a larger scale as well. Geographic expansion is considered when the company cannot expand in the present location but has reasons to believe that product/ service attracts the consumers in other location as well. Increasing market penetration could be achieved by greater marketing efforts or increasing production capacity and efficiency. Barringer.

acquisitions. licensing.Franchising Strategies An alternative that does not grow the business but can be considered an option is to continue the business in the same way as before and avoid the hassle of expanding production. and franchising (Barringer. Starbucks Coffee Company). The downside is that the companies that do not develop often fail in their businesses and the business owner also loses out on all the good aspects of growing for example trough franchising (Keup 2007. licenses. Downsides are the compromises. One successful company that has only a few franchised outlets out of the thousands of stores around the world is Starbucks Coffee Company. strategic alliances. They have made agreements with companies such as United Air. incentive programs. These are often results in negotiations and cooperation of two parties that have same interests and become to agreement through compromises on how to settle things. the company may reach for international markets and seek expansion prospects with other companies. In an acquisition one company that wants to benefit from another outrightly 14 . The costs stay the same and the owner gets all the profit that come in. They also operate side by side with Chapters and Costco (Evancarmichael. G r o w t h with bigger goals After the company has grown from the inside and desires to grow even larger. The first one is more like melting two or more companies that have similar interests together. starting franchising operations or other cooperation with other entrepreneurs. Some partnerships and sister corporations may easily seem like franchising which can cause problems with law at least in the US (Keup 2007. External growth strategies are based on developing a relationship with third parties.lines. joint ventures. 65). of which in the case of franchising the franchisors are safe. Association alternative consists of dealerships. 489). Merges and acquisitions are both ways to grow for entrepreneurial companies. Barnes & Noble and Wells Fargo Bank. et al.com. 2010. 66-67). partnerships and joint ventures. Nordstrom. they do not have to be so flexible since they are the one‟s setting down the rules and franchisees simply sign the papers. this can be done for example through mergers.

et al. Barringer.Franchising Strategies purchases the other. It offers a little bit different approach to business ownership. 514). 15 . 2010. gaining access to distribution channels. 491). 11. Franchising allows a business to get its products or services to wider markets through the endeavours with the business partners (Murphy 2006. This subject will be discussed in detailed in the following section. et al. The company implementing acquisitions can accomplish a number of the company‟s goals for instance expanding its product lines. Acquisitions can also be used to buy out the competitors like when Google acquired YouTube in 2006 (Barringer. The latter is more commonly used among entrepreneurial companies. 2010. achieving economies of scale. but cannot create immediate miracles. and/or spread out the company‟s geographic area. Franchising is a way to grow business operations as are the former presented strategies.

franchisor (owner) who seeks to grow the existing business with little financial input and franchisees who are ready to spend the money in order to do a business without having to start from scratch (Bennett. History The way franchising works is nothing new to our civilisation. et al. et al. 2008. In 1845 brewers and tavern owners started conducting business relations in a way of exclusive distribution rights of beer (Bennett. In this way the business expanded rapidly and is still well known in many parts of the world (Dugan 1998. After beer came sewing machines. – 1453 A. Singer lacked the capital for mass production and the customers did not know how to use the machines. 2010.Franchising Strategies FRANCHISING AS A GROWTH STRATEGY Franchising has been conquering the world during the past few decades without the masses really knowing of its existence.D.) when the feudal lord gave rights to the crafts men and other professions to do business such as operate ferries or hold markets. 7). 16 . A more recent and recorded early form of franchising took place in Germany. 2008.D. 512). 10). It is a poorly comprehended type of business ownership and method to grow existing business. In order to completely understand what franchising is all about one really has to closely study the concept and/or throw oneself in and experience it first handed (Barringer. The first commercial franchise came from Isaac Singer after he developed his first sewing machine in 1858. 11-12). The earliest rights to do business in other parties names dates back to the Middle Ages (476 A. et al. There were two problems to be solved before Singer Sewing Center could exist. When he got money from the licensing fees he could finance the manufacturing and he did not have to figure out the cost or time of hiring. Today it is studied by business students and also entrepreneurs are aware of the term. He grasped the idea of selling the rights to other business men to sell the machines and also train the new users. The beauty of franchising is in the win-win situation that both parties have in the business. Mr.

In the early 1940‟s a lot of business started blooming. somewhere along the way they dropped the “A” from the Mac. Mr. All in all there are thousands and thousands of franchisors and franchisees around the world. Now people could live in a larger area. Back then it was called MacDonald‟s. cars need gasoline. The early franchisees in the 1940‟s did not look alike. parts and services. drive to other towns. places to eat and so on. There were cars accessible for the masses. from how to run it to the decor of the store and everything in between will make the business successful when expanding it to new locations. The idea is to make sure the customers gets the same thing every time they walk into a McDonald‟s. As Henry Ford started mass producing his cars in the assembly line in a pace one had never seen before everything had to adapt to the new culture. 8). Kroc brought the assembly line method to food industry and created the concept of fast-food. Several countries have their own local franchising associations and even outside of the official associations there are individual franchisors operating franchised businesses. He is also the founder of the world‟s most well known business and franchise. travel lodges. After the finding of cloned franchising business some have tried to franchise without cloning the business and mostly failed. From the mid 1900‟s franchising has come a long way. In the 1960s already existing franchise businesses started adapting to the cloning method by wearing same uniform and standardising their businesses. just like McDonald‟s and their golden arches have proven (International Franchising Association). He was right. About 10 years later Ray Kroc introduced the cloning method to franchising. they had characteristics of their own and the franchise agreements were about 3 pages long. He believed that controlling every single aspect of the business. Today the franchise agreements are a lot longer than 3 pages (Dugan 1998.Franchising Strategies The next big step in franchising came because of a need for a huge distribution network. It all started with milkshake mixing machines and 15-cent hamburgers in San Bernardino. This started the expansion of franchising the way we know it today (Dugan 1998. today there are more than 75 industries operating in the franchising format. 17 . automobile dealers. The International Franchising Association (IFA) was founded in 1960. nothing too strict or complicated. 9-10). Franchising is the easiest way to spread the business around the world. they needed accommodation. oil companies made deals with convenience stores etc.

then different definitions for the concept of franchising from different points of view and finally presented are the two parties in a franchise agreement. The different ways to describe the term franchising are in the table 1.org). (2008. Bennett. privilege. Finnish.Franchising Strategies The key concepts In order to be able to discuss more deeply about the franchising concept it is good to start with the basic terminology. Hungarian and German and has similar spelling styles in other world languages (sanakirja. Franchise. is also a word in English. 2010. Tuunanen (2005. The term Franchising can be opened up in several ways. First there is the introduction of the word franchise and the origin of it. 513). 55) sums the term in a practical way. et al. 19) takes more technical point of view in his version whereas Keup (2007. spelled as in French. et al. franchisor and franchisee. director of the International Institute for Franchise Education as Nova Southeastern University in Fort Lauderdale gives quite comprehensive definition and also notes the existence of the two parties in the operation. 9) quoting Cheryl Babcock. and exemption (Barringer. 18 . Franchise is actually a loanword from the French language and it translates to freedom.

513). 2010. Once successful in the business. often. (2008. 19). an initial fee. the business owner lends rights to do business under the same name to another business owner using the original method and/or trademark for a predetermined period of time set in a contract (Barringer. 19). operating system. Franchisee can also be called a franchise owner (Tuunanen 2005. and ongoing support. et al.Franchising Strategies Table 1. Bennett. et al. 9) quotes Babcock summarising the roles of the two parties: “Franchisee pays the franchisor a royalty fee and. for the right to utilize the franchisor‟s brand name. the one that has developed and launched the operations (Tuunanen 2005. and agrees to conform to quality standards. Franchising definitions from different perspectives Franchisor is usually the creator of the business concept.” 19 . Franchisee is the receiver of the right to conduct business invented by the franchisor.

In return of a complete (and successful) business model the franchisee pays royalties and franchising fees for the franchisor. bottle it and sell it to the retailers who then sell it to the end-users. Singer had sewing machines and GM had cars. newer product and trade name franchisors are Coca Cola Company and British Petroleum (BP). this has not changed. Barringer. The Coca Cola Company gets their income from selling the concentrate/syrup to the factories and the factories get their income from selling the drink to the retailers. et al. Coca Cola Company does not give rules on how the company should be run etc. As mentioned earlier. Coca Cola Company gives the right to bottle the cola drink in various countries around the world and sell the drink as Coca Cola. 2008. The factories buy the concentrate/syrup from the Coca Cola Company. In the US both are equally seen as franchising and since there would not be the latter without the former here are explanations for both. Even though this 20 . The franchisor has a product that is distributed to the end-users by the franchisees. 18. training on how to operate the business. In Europe only business format franchising is regarded as franchising and the former is not included in the statistics. Tuunanen 2005. 2010. et al. This is a good example of how the franchisor (Coca Cola Company) gives the licensed Coca Cola trade name and logo to the use of the franchisee (the bottling factories that also distribute the drink to the retailers) and the franchisees (factories) run their business the way they please and sell the product to whom they please. This time all aspects of the business are determined by the franchsor. add filtered water. and depending on the business even the words that are used in the cus. this comes with a specific plan on how to conduct business.tomer service might be supplied by the franchisor. (Coca Cola Bottling Franchise. Bennett. The main separation is between product and trade name franchising and business format franchising. Product and trade name franchising is franchising as it was in the early days.Franchising Strategies D i f f e r e n t types of franchising There are different ways of implementing franchising type business. sometimes the franchisee can market the local business as well but mainly the marketing is nation wide and conducted by the franchisor. The franchisor pro. 141. so basically everything is covered. McDonalds was the first company to start business format franchising and is a perfect example of this type of franchising. Also marketing is done by the franchisor. 514. support along the way. 9) In business format franchising the idea is taken a step further from product and trade name franchising.vides the entire formula of the business to the franchisee.

The franchisor controls and monitors franchisees‟ business operations on a continuing basis. 514-515. A written (standard) franchise contract exists between the parties. 11. et al. 8. The franchisee pays an initial franchise fee and/or s/he pays royalty on continuing basis to the franchisor. The franchisor offers an operational manual(s) to guide franchisees‟ business operations. The franchisee may not sell. 18. The franchisees operate under the same brand/trade name and their outlets have a uniform outfit. The franchisor acknowledges franchising as its operational form and/or searches for new franchisees. 3. Bennett. and 5 or 6. The franchisor provides relevant and classified know-how by training and/or other significant assistance to the franchisees.e. 2. and 7. 5. There are outlets operated by the franchisee(s) – i. 4. 1. lend. 7. transfer or grant the franchise or any related rights to a third party without franchisor‟s approval. An exclusive right for a territory may be granted to a franchisee in the franchise contract. 2010. 9-10). In order to pass as a franchise in the screening the minimum requisites to fulfil are 1 to 4. 21 . 9. ongoing services) to the franchisees. 2008. The franchisor does not own (substantial) share of the franchisees‟ companies. 6. not totally company owned channel of distribution. 10. Barringer. Criteria 2 to 7 deal with the legal criteria. 68) has listed criteria to check in order to find out if the operations fulfil the qualifications for business format franchising. Tuunanen (2005. Criteria 1 and from 8 to 12 cover the theoretical/practical side. The franchisor supplies technical and/or commercial support (i.Franchising Strategies type of franchising might be demanding and inflexible for the franchisee it is more commonly used among the entrepreneurs than the former (Tuunanen 2005. et al.e. 12.

Here the three main contract types between the franchisor and franchisee are introduced. Bennett. Area franchise agreement covers more than one location in one address. et al. et al. where the people doing the business are professionals in doing it already and only need to change into a different coat to sell real estate under a bigger name (Murphy 2006. One way of implementing this is that the franchisee must operate at least one unit themselves and at the same time act as franchisors for the others in the area. The other way of executing this is that the franchisee becomes a franchisor and only takes care of the franchisor‟s job in the area. 164. 2008. 282). Bennett. Keup 2007. Barringer. Another functioning way of utilizing this concept is for example real estate business. 90). 2010. 22 . 283. With this kind of agreement the franchisor sells the franchisee rights to own and operate predetermined number of units in a specific territory (Barringer. 2008. 515. 515. et al. et al. This is a popular type of franchising agreement because it gives exclusive rights (no competitors from other franchisees of the same franchise) for the area and it gives challenge for the franchisee by increasing the responsibilities etc. In a nutshell the franchisor sells the franchisee the right to become a franchisor in a specific geographic area in exchange for royalty payments or a portion of the franchise fees collected from these additional franchisees. This type of arrangement is usually used when expanding to other countries after the original franchisor has successfully expanded the business through franchising in smaller area. area franchise agreement and master franchise agreement. 515). there are different ways to conduct the cooperation between the parties. 2010. 2010. In this simple cooperation a franchisor sells a single franchise to a franchisee for one specific location (Barringer. Master franchise agreement also known as subfranchising can work in two different ways. individual franchise agreement.Franchising Strategies Different types of franchising arrangements In franchising like in any kind of business. et al. Individual franchise agreement is the most widespread type of contract between franchisor and franchisee.

515. whether through an area or a master franchise agreement. 516) has visualized the different agreement types with organization charts. In this chart all the 3 franchisees are operated by the same franchisee individual in the specific area under the same contract. Barringer. 2010. First is the individual franchise agreement. there is reduced total number of franchisees to manage. et al. which involves the sale of a single franchise for a specific location. Figure 1. Individual franchise agreement (Barringer. in figure 1. 283). Here are only two parties and they are directly connected with each other. 2008. et al. Both of these two multiple-unit franchising techniques have their shortcomings to the original franchisor who may lose control of the sales process and will have his/her hands bounded in terms of expansion in that area for the time set in the franchising contact.Franchising Strategies Multiple-unit franchisee is a term used for an individual who owns and/or operates multiple units of the same franchise. (2010. et al. 2010. Bennett. also less training and other tasks concerning starting up a new franchise when every new unit will not need the guidance from the original franchisor (Murphy 2006. Barringer. 516) The second type is area franchise agreement (figure 2) which allows a franchisee to own and operate a specific number of franchisees in a particular geographic area. On the other hand. 165. et al. 23 .

et al. 516) 3. Figure 3. the same goes with franchising. et al. who find and manage their own franchisees. 2010. 516) Thirdly there is the master franchise agreement (figure 3) in which a franchisee owns and operates a specific number of franchisees in a particular geographic area AND provides the franchisee the right to sell to other new franchisees (=subfranchisees).Franchising Strategies Figure 2. Area franchise agreement (Barringer.5 Advantages and disadvantages For every type of business and organization there are advantages and disadvantages. 2010. In franchising there are two parties in the contract 24 . Master franchise agreement (Barringer.

183). franchisors and franchisees. et al. where franchisor does not invest own money in the same quantity as opening company owned branches. 56-58. 19-21. Barringer. + - Figure 4. 14-15. 2010. The greater amount of business units getting their supplies from a same source also cuts down the 25 . Here the main concern is the franchisor and there for the advantages and disadvantages are presented from the franchisors point of view (Murray 2004. Murray 2004. Advantages and disadvantages from growth perspective Franchising can also be seen as a method to raise capital. Franchising expands the business much faster than growing through company owned units. 522). Keup 2007. Figure 4 shows the good and bad sides of the expansion aspect. Murphy 2006. 185-193. On the other hand there might be a loss of control over the network if it grows so big that the franchisor cannot handle everything anymore. Murphy 2006. because every franchisee brings their capital to start their part of the business. 16. This also guarantees a set income from the fees and royalties for the franchisor. this is because there is a greater amount of money and individuals involved in franchising operations than if company should invest own resources in growing the operations.Franchising Strategies which means that there are good and bad sides from both view points. The franchisor might also create an illusion where he/she would not have to take that much interest in the daily operations of the business because of the franchisees are doing all of that kind of work (Francoise 1997.

which makes the profits smaller for the franchisor than if the business would only have company owned units. In figure 5 there are the financial aspects gathered from both positives and negatives. Murphy 2006. 26 . 522). as most of the franchises take at least half a year to break even (Francoise 1997. Murray 2004. Barringer. so be. 185-193. When the franchisees deal with hiring and other direct managing responsibilities of the business it gives more time for the franchisor to concentrate on the big picture of running the company. the franchisor is required to invest on these aspects. this show franchisees importance especially when entering to new countries. All in all the financial risks are rather small.Franchising Strategies costs in the same way as handling the financials through the same channels etc. time and work effort in marketing. + - Figure 5.fore getting any profits. 56-58. 14-15. Similar to other kind of business operations. 2010. Advantages and disadvantages from financial perspective When growing business to new geographic areas through franchising the franchisees from new locations bring local knowledge from the local markets. one town/nationwide advertisement that works for all the stores and saves in costs. Not to mention the efficiency of marketing that affects every business operating under the same name. The downsides are that the profits that do come are not all for the franchisor. Keup 2007. it takes time to start making a profit. Another good aspect of the relationship between franchisor and franchisee are the research and development facilities that come in in form of reports from the franchisees. in franchising. There are also costs of operating franchised business such as legal expenses and training etc. but the franchisees get their portion of the profits as well. et al. 19-21.

in franchising the franchisor and franchisee look at issues from different points of view and might have different goals in operating their part of the business. But the differences that they bring can be the cause of friction when everyone thinks they know the best (Murray 2004. 56-58. Barringer. franchisor needs to be able to trust to the franchisee and give up part of the business operations to a stranger. Keup 2007. if disputes that cannot be agreed upon when they arise. Murray 2004. Keup 2007. 27 .56-58. In figure 7 are shown the both sides of the background that the franchisees bring to the business with them. 19-21. marketing. et al. Murphy 2006. Barringer.ple usually also mean problems. fresh motivation etc. especially when things do not work the way one ex. 185-193. 522). + - Figure 6. Lastly. The franchisor needs to keep in mind that franchisees are not their employees but independent operators with a franchising contract. the franchisee might leave and use the experience in opening own business and become a competitor with knowledge of your business (Francoise 1997. Just like in any relationships there will be disagreements on various issues. 2010. The relationship is a leap of faith in a way.pects them to.Franchising Strategies Peo. 19-21. these are problems that just need to be faced and solved as they come. 2010. 14-15. 522). Advantages and disadvantages from relationship perspective In any relationship both parties come to it with their own history and experience of life. et al. Figure 5 sums up the dilemmas and the benefits of the relationship between franchisor and franchisee. In franchising a good aspect is that every franchisee has knowhow and ideas on management.

Franchising Strategies

+
-

Figure 7. Advantages and disadvantages from experience perspective

In business there are always risks involved, that is what business is about, taking risks.
In franchising a lot of negatives originate from the relationship between the franchisor
and the franchisee. If the relationship works the business will work more smoothly as
well. Franchising really is like marriage; it all comes down to selecting the right
“partner” to grow together. When there is trust and agreement between the parties life
is much easier and everyone is heading to the same direction. In franchising, no matter
how perfect the concept is, if you argue with the franchisee constantly it will be unsuccessful in implementation (Murray 2004, 21). An important matter to remember is
that if it is not broken, do not fix it. If you are not ready to expand, and yet you try, you
might end up ruining a good thing, so be prepared. (Murphy 2006, 183)

Reasons for starting franchising

Tuunanen in his research conducted in 1999 looked for reasons why entrepreneurs in
Finland have started franchise operations. The questions were open questions so
Tuunanen has arranged 13 different groups from the results, and they are as follows:

1. Rapid growth, Geographical spreading, Market coverage (14%)
2. Solution to the principal-agent problem (12%)
3. “Copycat Strategy” – method copied from abroad or competitors (7%)
4. Economies of Scale, Benefits from Co-operation (7%)
5. Control and organizational issues (7%)
28

Franchising Strategies
6. Cost management and efficiency (6%)
7. Do not know/decline to answer (6%)
8. Access to financial capital (5%)
9. Access to human capital, Local market knowledge (5%)
10. Pilot operations and R & D (3%)
11. “Go with a flow”, no specific reason (3%)
12. Risk sharing (2%)
13. Miscellaneous reasons (1%)
(Tuunanen 2005, 70)

A company‟s growth is followed by two factors. Firstly, their product or service is
successful and becomes well known. Secondly, when the company has been making
profit and has the financial capability to expand. The companies should consider
franchising as an option to grow when they have something that others do not in terms
of trademark and a strong, well designed business model. The willingness to grow
ought not to be underestimated either. One important aspect of the business is that is
should be able to be standardized; this is the core idea in franchising, no matter where
you walk into a store under certain name you expect to receive the same product,
service, atmosphere etc. (Barringer, et al. 2010, 518; Murray 2004, 13).

Franchising suits best for young companies that might lack the financial capital where
the franchising fees and royalties will bring in some of the needed funds. It is also
important to keep in mind that franchisees are looking for a proven product at least to
some extent, so when beginning franchising the business should have been well tested
and the company should have experience of outlets that are company owned and
successful (Barringer, et al. 2010, 518, 523).
Not always is franchising the way to grow. Franchises that are sold need to be
affordable for the franchisees and the concept needs to be able to be written open in
the con- tract. In huge chains that have large units such as Wal-Mart (comparable to
Prisma in Finland) it is not possible to keep the opening costs in reasonable limits for
an entrepreneur nor is it achievable to write down all the policies and procedures there
are to run such a business. For this kind of cases franchising rules out of options
(Barringer, et al. 2010, 518).

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Franchising Strategies
An important aspect of deciding on starting a franchise is whether the entrepreneur is a
business person fit to be a franchisor. It is different to run a business from running a
franchise; franchisor is a business person as well as an educator, trainer, psychologist,
perpetual hand-holder and looking after what/how things are done. A franchisor needs
to remember that he/she is not looking for employees but independent business people
who will be part of the franchising chain as individuals operating the business
according to the instructors given by the franchisor (Keup 2007, 59).

W o m e n and franchising

IFA, The International Franchise Association was founded in 1960, it is a US based
organization and it is a membership organization for all the parties of franchising;
franchisors, franchisees and suppliers. In 1996 they formed a WCF, Women‟s
Franchise Committee to inspire and courage in franchising (International Franchise
Association). Nowadays women in franchising are so common that they are not
considered as a minority. As a matter of fact women are establishing new business
operations twice as fast as men. Before there were more obstacles for women to be part
of business life such as getting finance and recognition (Bennett, et al. 2008, 272-277).
These reasons are still behind the willpower for women to want to be their own bosses
by starting businesses. The attraction to franchising for women is that even though
they are running a business on their own they are not alone but have diverse support
net- work behind them (especially as a franchisee). Women are also better fit for the
role of franchisee due to the general nature of female being able to listen, follow
detailed pat- terns to work and implement business and accept that franchisor has the
experience and knows what is talking about. In addition franchising offers flexibility
for mothers with a family to run (Murray 2004, 111-112; Tuunanen 2005, 106).
Moya Hammond, a managing director of a British wedding bouquet franchise says:
“Women have the skills to manage and grow a small business, but some lack the
confidence to try...Women do not always recognise their capabilities – particularly if
they have taken a career break lasting several years. For such people franchising is
ideal. It can provide the support necessary to enable the individual to develop her skills
within a safe environment.” (Murray 2004, 113).

30

Franchising Strategies

Franchising in Finland
Compared to the history of franchising in US and Europe, Finland is a beginner in
franchising with the first franchising concepts from 1970s (Tuunanen 2005, part II/I
47). In his doctoral thesis Tuunanen, discusses closely the franchising scene in
Finland. According to the statistics from 2003 there were 177 operating franchise
systems with a total of 6 608 outlets in Finland, from the fields of retail, service and
restaurant. Retail being the biggest individual segment with 76 chains, service
following not much behind with 71 chains. The total number of franchise systems in
Finland has grown from 30 chains in 1999 to 177 in 2003. When looking at the
increment of the franchise outlets by business categories from 2002 to 2003 retail
grew the most by
15,2 per cent (871 outlets). The Finnish franchising association was founded in 1988,
so this was just a small example of how fast franchising has been growing in Finland.
Tuunanen also explains how the numbers are only directional because during the years
from 1999 to 2003, 10 franchise systems had been ceased, only one due to bankruptcy.
This also tells how “safe” franchising is; even if the franchising system would end, the
business often still continues. In addition, sometimes the franchise systems might
emerge what happened with the example of the 10 franchise systems mentioned
(Tuunanen 2005, 71-75).

Tuunanen compares the amount of domestic franchises and foreign franchises in
Finland. In 2003 out of 177 franchise systems 133 (75, 1 %) were Finnish origin and 44
(24,9 %) foreign. Tuunanen states that in Europe Finland has an average amount of
foreign franchises in the country compared with the local franchise system and that
most of our 44 foreign franchise systems come from Scandinavia and Western Europe
with only few from North America. These along with the Baltic countries and Russia
were also the countries where Finnish franchises have spread. 21 per cent, one fifth, of
Finnish franchise systems had expanded abroad by 2003. This is a large number even in
an international contrast (Tuunanen 2005, 74-75).
Female entrepreneurship in Finland

Since there is little to no statistics of female franchising in general, and even less of
female franchising in Finland. And since franchisees in Finland are part of the general
entrepreneurial statistics, here are some data of Female entrepreneurs in Finland. By
female entrepreneurship in Finland is simply meant a company that is established by
31

in half of the cases only about a year. With agriculture included Finland was in second place after Portugal (Entrepreneurship Survey 2004. often the ideas came from the customers. composed in different styles. There are only few statistics about female entrepreneurship and they are from different sources. Nearly a third was planning on expanding the operations in the current company. Out of all the chief executive officers about 16 per cent are female and nearly half of franchising entrepreneurs female (Uranus.fi. The former Finnish ministry of trade and industry undertook a research whereby the companies owned by women in Finland are typically small and financially sound as well as having the foundation and base of their company base on professionalism (MTI Publications 11/2005 Women Entrepreneurship – Present Situation and Proposals for Measures).cused on domestic markets.Business practices and profitability of women owner enterprises). In 2010 a released report of female entrepreneurship by ministry of employment and economy were researched different aspects of entrepreneurship which one of them being strategies and leadership. The competitive strategy was invariably the quality of the products and services. MTI Publications 18/2004). But to show some figures. The same research report discloses that over the past three years most of the female entrepreneurs had offered new or improved products and/or services. suspension of the business or selling of the business (MEE Publications. Employment and entrepreneurship 33/2010. The development was usually done by the company and the 32 . MTI Publications 11/2005 Women Entrepreneurship – Present Situation and Proposals for Measures). about every tenth company was looking at closure of the business. in Finland in 2003 out of all the entrepreneurs 33 per cent were women.Franchising Strategies woman/women. In comparison with other countries in Europe in the EuroStat statistics. nearly as important was the knowhow of the staff (including the entrepreneur). . According to the report a little over half of female entrepreneurs set tangible goals to the company and the time span of the goals was often short. Nine out of ten companies were fo. Finland was in first place in the amount of female entrepreneurs in 2003(non including agriculture). This makes it very challenging to compare different existing statistics (MTI Publications 11/2005 Women Entrepreneurship – Present Situation and Proposals for Measures). or where woman/women have over 50 per cent ownership and/or where woman is a head of the company (MTI Publications 11/2005 Women Entrepreneurship – Present Situation and Proposals for Measures).

33 .Business practices and profitability of women owner enterprises). . new ideas and marketing. the high price of development and lack of proficient staff (MEE Publications. There are new tools to conduct business which are favourable for franchising. The factors of success were seen as quality and versatility. The needs that were mentioned were especially in information technology. 2010. Everything seems to be on behalf of franchising and the regulators with franchise associations are to be boosting the prospects for franchising (Barringer. Also the development of business operations was under the female entrepreneurship research.Franchising Strategies investments had been put into machinery.Business practices and profitability of women owner enterprises). Franchising has also taught consumers to demand consistent service quality and value (International Franchising Association). this is the biggest trend in franchising in general at the moment. Employment and entrepreneurship 33/2010. Newly graduated business students are drawn to the industries that are governed by franchised businesses. . as well as into marketing and the training of staff were put effort into. marketing and planning of the business operations. The mentioned problems with development were the overall economical situation. The strategies mentioned were cooperation with subcontractor. 3. People want recognition by identifying themselves with world famous brands as symbols for quality and success. The development of business operations was often associated with productisation of services. Franchising has been growing constantly since the mid 20th century and there is no change to be seen at the moment. too small market segments. in addition franchising affects also other businesses in the economy. flexibility and trust.10 The current state of franchising Lastly here are some future prospects of franchising scene internationally and in Finland. accounting. 539). expertise and knowhow. the development of the organizations operations and expanding the operations (MEE Publications. Employment and entrepreneurship 33/2010. customer satisfaction and established customer relations as well as good service. Internationally franchising is growing all over the world. The reason for global franchising success is globalization and the effects of it. et al.

Franchising Strategies Tuunanen in his research has studied franchising and particularly franchising in Finland very closely from 1996 to 2004 and in his thesis 2005 sums up what the future of franchising could encase:  Franchising will become more common and important for the economy  There will be more variety in the new franchise systems such as technology and knowledge  Franchise systems will work together more and multiple unit franchise agreements will become more common  Awareness. research etc. training. franchise know-how and interest towards franchising will grow  Businesses will start franchise operations younger as part of their strategy to grow  Not only the quantity but also the quality of franchise systems will increase. (Tuunanen 2005. reputation. 103-104) 34 . there will be more consulting.

Often. The best approach is to have commercial strategies and legal frameworks developed at the same time. Doing this means you are able to deliver on your promise of support to franchisees. You need to have an intimate understanding of your entire business. However becoming a franchisor is not about simply generating a set of legal documentation. Ask yourself where are you major sources of revenue coming from? How profitable are those revenue streams? Do you understand your supply chain and your role in the entire chain? These are some of the questions you need to answer. In becoming a franchisor. This is a critical in formulating a franchise value proposition or your franchise opportunity. It would be tough enough to talk about a change in royalty 35 . Look at your sales figures and levels of profitability. franchise agreements are developed with “legal only” considerations. raising funds and finding people to run your business. Franchising as a business model provides a lot of advantages and helps solve two fundamental problems of growth. your value chain and all the interactions that come into play. When developing legal documents define the nature of your business model first.Franchising Strategies How to Franchise Your Business? Franchising is a complex business model. If you combine these two from the start you end up creating a streamlined business model and that is protected and secured by your legal documentation. For example imagine having to renegotiate 20 franchise legal agreements with franchisees that have invested heavily into your business and when you add all the relationship dynamics and it becomes a mess. as well as ensuring the same for the franchisor. you have to change the way you view your business. your franchise legal agreements need to be founded on the commercial realities and growth strategies of your business. A happy franchisee is also your best reference for growing your network and building your brand. This means you avoid difficult conversion type scenarios. Franchising is and will continue to be one of the most complex business models. it‘s not a case of simply putting together some legal documents. This mind-shift means you go from working in your business to on your business. How to Franchise? The Mind Shift The objective of franchising is to grow your business. How to Franchise? Your Business Model Growing your business with franchising also means that you are looking at ways in which you create a valuable business for yourself and your franchisee.  Legal Documentation  Branding & Marketing  Recruitment Strategies How to Franchise? Legal Documentation Basically. you should start to look at ―How can I construct a network where every participant is able to benefit from their initial investment?‖ Why? Because a well-structured franchise relies upon healthy profits for the franchisees. to be a successful franchisor. Creating a financial model and then developing the commercial strategies that underpin a sustainable and profitable business model for your franchisee and yourself – ensuring you are not dependant on the franchise fees but the ongoing royalty fees. plan for contingency and enable effective compliance measures. Quite simply.

a concept known as ‗kitchen table economics‘. However. Prospective franchisees want to know:  How much they will need to invest in a specific franchise opportunity? (establishment costs)  When will they receive the funds they invest back again? (payback period and return on investment)  Whether they will receive a fair return for their labour in the business? (salary)  What they might receive when they exit the business? (business asset value) Essentially. let alone adding supplier conditions and fit out changes. in considering value proposition. Levies and the support offer – Franchise Opportunities The biggest reason franchisees pay ongoing franchise fees and levies to the franchisor is because they are using their brand. you want franchisees who ask themselves: Will this decision ensure a comfortable standard of living for me and my family? These are the franchisees that will last. the number of potential franchisees declines. This can mean taking out a mortgage on the family home. This is because many franchisees fund their investment through leveraging some kind of personal equity. Once again. business practices and so forth. all franchisors will face the concept of value proposition. you will receive a return of ____ ―. Established Costs – Franchise Opportunities Franchisors need to ensure that establishment costs are within a reasonable boundaries for their particular franchise opportunity.Franchising Strategies fees. value proposition is simply the franchisor saying to the potential franchisee ―if you invest in my franchise network. franchisors must ask themselves: Why would potential franchisees buy my brand? How does my network compare to other franchise opportunities in the market? Kitchen table economics – Franchise Opportunities The most valuable franchisees will weigh up their potential investments on the simplest of terms. Fees. 36 . even though this may be critical to the survival of your franchise network people don‟t like change that will place more pressure on them. When establishment costs begin to rise. you are trying to find the most valuable franchisees for your network. However in any franchise network. In ensuring efficient and well-developed franchise recruitment. meaning it is essential to create value propositions most suitable to your pool of prospective franchisees. franchisors should ask themselves: What can I offer franchisees? As a franchisor. But what is value proposition? By definition. utilising a severance package or even simply drawing from savings or family inheritance. franchisees are trying to find the most valuable investment. Developing the Franchise Opportunity In franchising terms. At the same time. as investors. the process of finding potential franchisees is referred to as ‗franchise recruitment‘.

a well-crafted product and service experience. On top of this. However. For example: if providing strong levels of customer service are required of the franchisee. Brands need to build their promise on a clear and differentiated value proposition. The emotional connection they create with people gives them purpose. How We Work Our consultants will work with you to define your brand. know how to communicate that vision and deliver on that vision. the support offer should contain training on this issue. What Is Branding? The word brand is thrown around loosely and often only refers to its cosmetic attribute – the logo. you have to keep up the effort. its touch points and has a design look and feel to match. across the legal. welldocumented system of pooling and later utilising marketing funds is crucial. Great Brands Are Like Great Leaders Great branding emanates great leaders. design and or communicational style. and a visual and communicational strategy. Branding & Marketing – Franchise Opportunities The nature of the franchise system means that franchisees naturally have a huge incentive to market the franchise brand. In developing the support offer. marketing and finance disciplines to engineer a brand that represents value. the franchisor must provide support in terms of sales. Throughout the branding process. having a fair. We help create a meaningful value proposition. people will lose trust in you and that‘s hard to rebuild. and more importantly. They each have a vision. Branding and Building Brand Equity Branding is not only about a logo. franchisors must consider the roles and responsibilities of the franchisee and the skills and capabilities required of them. considers the customer journey. we integrate our team‘s diverse experience. employee management. These brands lead by example and are consistent.Franchising Strategies franchisors have a certain obligation (because of these fees and levies) to support their franchisees. For this reason. If you lose your way. franchisors need to articulate a ‗support offer‘ in great detail to franchisees in the early stages of the franchise agreement. unique product and service experience. With this in mind. A brand that has a compelling value proposition. its also about the offer and experience. However. franchisees also want to know where marketing funds are being spent and that they are being spent effectively. brands are much more than that. is to remember that like any relationship. 37 . financial management and so on. product management/innovation. Branding should create an emotional connection. Companies that only focus on one of these three areas are either beautiful but shallow or deliver incredible value but never really capitalise on the benefits they offer. The challenge however. and appealing visual style.

Branding is. your brand message. Providing value is not a case of slapping together a fancy website or logo. you are the next Louis Vuitton. a creative copy writer from another. In short we build great brands. if you are lucky! 38 . and/or generate leads. the process leads to a host of questions about your digital strategy and leaves many small business owners and growing franchisors confused.Franchising Strategies Our Process Above all. Reaching these goals is not easy. Why it fails? – The Biggest Issue When Developing a Digital Strategy There tends to be a mismatch between the needs of the business and the ability of the web developer / designer to actually meet those needs. Drive Franchise Growth with your Digital Strategy Your website needs to deliver tangible results. Each component needs to deliver a return… We package your objectives around a unique design and visual aesthetics – giving you purpose and style all in one.  Value Proposition   Product Experience Design  Trademarks We Start By Defining The Why? – Your Value Proposition A brand is not just about choosing a logo and name then presto. it’s about your Brand and how you sales. 1. Franchise Digital Strategy It’s not only about your Website. Apple or Virgin. a web developer. and most importantly begins with. And the lack of a thoroughly thought through online marketing plan. a technology consultant and an internal marketing assistant. branding needs to deliver value. You need to figure out your purpose first. It needs to impact the bottom line. inevitably leads to lack of results and disappointment about your website‘s and social media‘s apparent waste of precious time and money. a social media strategist. Often. If you add the management component that you may have to deal with – a brand strategist from one firm. and your customer/client base further complicates matters. Why should a customer consider you over someone else? What value are you bringing across the value chain? What is the market pain or opportunity are you looking to solve or address? What do your customers look like? Without purpose your brand is shallow. an understanding of your mission and vision. drive sales. all these add up and increase complexity. The budget balloons out of scope and your site goes live 3 months later. A lack of understanding around the technology needs within your company.

Start with the Why – Define the Purpose of Your Digital Strategy Before creating a website. Be Memorable and Have Presence – Communication and Branding Strategy This is where your brand and communication strategy makes all the difference. your clients/customers will start a relationship with you and ultimately this will lead to sales. If you are memorable. the way your business works. When someone with presence comes into a room. the design and consistency across all online mediums and how user friendly the website is. In this context. will really allow you to understand the dynamics you need generate. As with a charismatic individual. You can drive sales for your franchisees. It also helps you keep things simple and keep you focused. so that you can turn your online strategy into results. Have a look at your customer behaviours: What does their decision process look like? What devices do they use? Where do they live? It is just as important to look at how you drive your marketing efforts offline as well as online. people notice them. the next step is to set your business objectives and determine a way to measure them. while staying focused on your objectives. Everything you do is inter-connected and should compliment your overall marketing strategy. Using business tools and mapping your process. cut operational overheads and even identify prospective franchisees. some financial modelling can help the decision and planning process. Summary – A Final Note In franchising. think of the relationship you want and who you want to attract. increase productivity. It is fundamental to the franchise growth of your customer base and your franchise network. A carefully crafted website does the same thing. Additionally. you need to understand your market. sets priorities and follows through to execution and campaign management. 2. 3. There is a small silence and a change in energy. having an online presence is the way you set yourself apart from other franchise and non-franchised brands. or are you looking to generate leads and build awareness? Be realistic. one that initially focuses on your business‘ strategy. the details are key. Are you establishing an e-commerce site. The same principle should apply to your presence online.Franchising Strategies If you want to avoid these common headaches you need to consider a full-service firm that understands franchise growth. It‘s about having a holistic approach. Next Steps – Validate Your Digital Strategy Once you have defined the relationship you want and understood what makes your brand unique. it‘s about the communication style. Look at the whole picture. 39 . There are tools like Google Keyword Estimator and Google Trends that allow you to validate some of your ideas objectively. 4.

Recurring Revenue Upfront franchise fees occur only once. the benefit should be shared with them.Franchising Strategies Franchisor Exit Strategy Selling your Network? Franchisors. Franchising and Group Buying Rebates Rebates that are part of a group buying benefit can be a tricky subject between franchisors and franchisees. effort and intellectual property in first developing and then growing the brand. you maximise the number of would-be buyers. the deal for the franchisees needs to be fair. With a reasonable franchise fee and ongoing royalties that continue for many years. However. The franchisor is then able to generate additional revenue streams through product rebates. Franchising and Revenue Many franchisors particularly in the past. They want to be in ―good company‖. profitable and provide incentive as well. a franchise network as a whole gets a buying group benefit because of the franchisor‘s skill. So why shouldn‘t the franchisor capture as much value as they can from the extent of the network they have built? Of course. fully documented and 40 . looking to grant as many franchises as quickly as possible to maximise that revenue. the risk for the buyer goes down. To earn a continuing stream of money into your franchise network. saw the up-front franchise fee as one of the principal attractions of franchising. it is also an important factor potential buyers will assess. Just one bad egg can spoil it for everyone else and give the franchise brand a bad name! To safeguard against dispute and litigation and the destabilising effects this can have on your franchise network. Selling your Network? What is your business worth? Who will buy it? and How can you maximise the value of your Franchise network? Buyers look for franchise networks that can operate without their constant involvement. there‘s a monthly income stream for you and in the meantime. as well as the potential sale price. And as a result they didn‘t understand that the real business value is achieved in nurturing in their networks to develop significant ongoing revenue. add significantly to the value of the franchise and keep franchisees happy! Franchising and Buyer Risk The recruitment of good franchisees is not only essential to the success and profitability of your network operationally. Trying to mark them up as far as possible in the beginning jeopardises the ongoing revenue streams. Franchisees may feel that as the suppliers are specified by the franchisor. franchisors must ensure that all their legal agreements relating to the granting of franchises and the franchisee recruitment processes are well developed. the value of the business goes up. your have to look beyond the initial franchise fees for each store. By putting in the time and money to construct a well-functioning and relatively autonomous franchise network.

a franchise company is required to provide each of its franchisees with information regarding the franchise in the form of a “Franchise Disclosure Document. Moreover. Over the past two decades. Buyers consider how much of the business‘ success is directly linked to the current owner‘s involvement and how that business will continue to operate independent of the proprietor. Simply put.com Franchising as a Growth Strategy More and more businesses are discovering the franchise model as a method for increasing sales and brand visibility through independent business owners. medical spa treatment centers. it is important to have 41 .” Indeed. auto repair shops and veterinary clinics.Franchising Strategies consistent. franchise companies retain a significant level of control over the use of their brand and system. It should have a proven track record of economic success with a unique trademark with a distinct identity – the “brand. Maintaining this strategy as well as compliance with the Franchising Code of Conduct increases the business value and decreases risk for potential buyers. a franchise is a license granted to an individual or business entity (the franchisee) to market a company‟s (the franchisor) goods or services in a particular territory using the franchisor‟s business systems. you may want to consider franchising as a way to reach your goals. and that your business personnel. As a result. A business is a good candidate for franchising when the company has a method of doing business or system of operations that is easily reproduced and can easily be adopted by others through training. Importantly. there are many legal considerations that go along with a business‟s decision to franchise its concept. If you are thinking about growing your business. trademarks and methods of operation. Franchising offers the potential for rapid growth with a relatively low capital investment. systems and manuals are also well supported and up to date Dcstrategy. companies are franchising their businesses in industries as diverse as mortgage brokerage firms. Franchising is no longer just for roadside motels and quick service restaurants. today. not many understand how it works. Aside from having a well-written franchise contract. it‟s a good idea to contact an attorney who understands franchising before taking your business to that next level.com Entrepreneur. while at the same time having the comfort of knowing that each location is being operated by an independent business owner that is highly motivated to maximize the sales and profits of the business. Franchising is a powerful model that has a proven history of helping business owners and individuals to realize their dreams.” As a result. with a net annual economic impact close to one trillion dollars. many business owners begin to consider franchising when customers begin to ask about other locations and business opportunities with the brand. either within Las Vegas or on a broader (state or national) scope. There are many reasons that businesses decide to franchise. You increase the value of your business and alleviate potential buyers‘ risk by ensuring that franchisees are well supported. one of the franchisor‘s main roles is running the business. trained and managed with clear standards to uphold. Franchising and Reliance on the Proprietor In most franchise systems. franchising has been one of the largest growth industries in our nation‟s economy. While most people have general knowledge about franchising from their experience as consumers. Franchise relationships are regulated under a variety of state and federal laws and under the Federal Trade Commission‟s Franchise Rule. but it‟s not for everyone.

the latest surveys paint a staggering picture. for example. Easy to use. but reference checks and a basic interview are often the only ways employers determine who should be hired. think of how many of your employees left in the last year or two. The Person Behind the Position Retaining employees begins with hiring the right people. staff morale and brand reputation. owners should consider the role that individual employee personality can play. motivated and committed to working for the company can be a full-time job on its own and some proposed solutions can often cost as much as the challenge to be solved. engaged. when building a strategic plan to streamline training. one of the largest expenses can be incurred when customer service slips because of mistakes from a new employee. the bottom line implications of each employee departure make it even more of a priority concern. like quick-service restaurants whose average turnover for hourly workers hovers around 130 percent. With a rebounding economy. a behavioral assessment program can provide new insights and tangible data that will lend new perspectives on employees and ultimately create a workplace environment that far fewer are willing to leave. Armed with a more specific set of behavioral requirements for each position.000? Finding new ways to keep employees happy. During the interview process. Many franchisees only calculate turnover as a cost derived from time spent interviewing.000. the greater challenge is that what might work in one industry may not work in another. But for multi-unit owners hoping for future growth within the parent organization. Strategies to Combat Employee Turnover Despite the difficult economy. employee turnover is a major issue that affects quality of service. 42 . This only succeeds in fueling the frustration. but in practice the costs are far greater. finding a new employee and training them. But. not to mention creating a significant risk to the customer experience. an owner or manager might explain the role to be filled and its primary responsibilities. For franchise owners who own several franchise locations and operate in multiple industries. mistakes which wouldn‘t have been made by a veteran employee. no one can afford to ignore or put off the search for a solution. When all factors are added together. In fact. Job-hunting firm Manpower found that 84 percent of all employees plan to look for a new position in 2011 regardless of industry. adopt new motivational tactics and refresh the hiring process. Simple enough. did you know that each departing employee that walks out your door has likely cost you between $700$1. almost every employee is in front of the customer in some capacity. These findings combined with the naturally high rates of departure in most franchise organizations could mean the economic rebound is poised to pose a significant drain on potential profits. and cost-effective. For all franchise owners. The tasks and expectations when it comes to customer service are dramatically different from the sales associate to the stock room assistant. industryagnostic. franchise owners can develop a more defined sense of characteristics needed for success in each role and use that knowledge to seek similar traits in reviewing prospective employees. To be sure. For some industries. turnover is a complex problem with no single magic bullet solution.Franchising Strategies a good understanding of how franchising works and what it will mean to your business operations before you take that leap. so your investment is limited. Each departing employee that walks out your door has likely cost you between $700-$1. but how can they be sure the person will be a natural fit for the demands of the role? In a typical retail franchise.

incredible results for an organization where the industry average is at 130 percent.Franchising Strategies Assessments aren‘t an elimination tool. By creating ways for employees to share their own behavioral profile pattern. Insights into individual employee behavioral drivers are not limited to just new hires. an employee stationed in the first position. 43 . once the data is gathered. motivating first impression. Across a sevenunit SUBWAY franchise organization. Everything–from the proper way to greet customers to advanced guidance on job performance–is now the training standard within most franchise operations. Team Dynamics. How often have you hired the ideal candidate for a front-of-store position. Even if only used initially to realign current employees and help select better new hires. Companies and brands are more cognizant than ever of how each employee is a direct representation of their reputation and brand to customers. The advantage of adding a behavioral assessment tool to a strategic set of employee management tactics is easy to see. which makes the amount and complexity of training for each new employee even greater. Sure the employee was happier. Just like with customers. plenty of additional cost savings and opportunities for growth will emerge from the findings. correct or support their fellow teammates. Instead. only to have them leave a month later saying. customer experience and employee morale. fellow team members are instantly equipped with insights into the best way to approach. Behavioral insights into the traits most commonly associated with key jobs can identify areas where training programs may not be resonating as effectively. or identify other open positions that the prospective employee may not have considered. Not only did the change begin positively impacting the overall workflow. How a team interacts and works together has a profound effect on productivity. and the change was immediately embraced by the employee. four locations reached all-time turnover lows of 32 percent. from natural behavioral characteristics to the different factors that can help motivate them as an employee. In fact. a pre-recorded DVD training program would not be the most effective way for the more socially oriented employees who are naturally best suited for customerfacing positions to retain all the critical information they will need for the job. but the long-term value is in the versatility of the investment. ―I don‘t like being in front of people. And what are the bottom line results? The fewer employees walking out the door saved an estimated $15. For example. but did the investment in the assessment program really help overall? In this multi-unit SUBWAY franchise. speed of service. For instance. to an average of 42 percent across all locations. the more you create an appealing. Making the Most of Behavioral Insights In just five to 10 minutes. turnover was regularly averaging 70 percent. the team shifted the employee to a food preparation and kitchen management role. assessments can provide all kinds of valuable insights into a candidate. they provide valuable information that quite simply cannot be obtained through the interview process. one immediate observation was that many current employees were working in the wrong positions. Introducing employees to the idea that each of them might have a distinct approach to communication or task management will help create a more positive work environment and stronger team dynamic. Training. but might be better suited to fulfill. After conducting a round of employee behavioral assessments using an assessment tool developed by an IFA Supplier Forum member. had a profile that suggested he would be more successful in a behind-the-scenes role. It is also a missed opportunity when considering that this training is often an employee‘s first exposure to the organization.‖ Instead. interviews can address potential discrepancies up front. the individual became noticeably more productive. a key customer-facing role charged with greeting customers and taking detailed orders.000 or more a year in training costs alone. the application of a behavioral assessment program reduced turnover from 70 percent in any given location. the more positive customer service experience created by having the right people in the right place has been attributed to the stronger sales growth at each location and an uptick in customer return visits. the more likely they are to stay. Additionally. on nametags or lockers. Given the mismatch. armed with insight into their natural tendencies.

Many times slogans. Simply put. This management style excels in locations that have a more established. While some employees are motivated by praise. Motivation. increasingly positive customer experience. More Food for Thought Creating a culture of employee and job satisfaction combined with a scientific-based approach to hiring and job role definition can have dramatic. others need a challenge to meet. positive effects on employee turnover and customer service. Every contact a manager or franchise owner has with an employee is an opportunity to motivate or not to motivate. The Maintainer manager is also operationally strong. pep talks or fancy marketing materials take the place of genuinely caring for an employee‘s well-being and success. franchise owners need to truly be committed to employee satisfaction and happiness in their daily roles. and directly address. more open approach to a challenge–rather than to just take complete control–allows the manager to more easily integrate himself into the functioning team dynamic where he is better able to motivate and drive overall success. so long as it has meaningful value for the employee. As famous 44 . employees that care about their jobs and know their managers or owners care about them as individuals will come to work wanting to contribute to an organization‘s success day in and day out. however. and prospective managers. Knowing this. the job requirements of a franchise manager should be a direct function of the behavioral characteristics of the people who work there. as the traditional role of a manager cannot be taken as a one-size-fits-all title. The Problem Solver and The Maintainer. positive approach is needed and is achievable. closeknit team that is at its best when working closely together. the franchise owner gained a better understanding of which managers. would be more effective managers at struggling locations. Any franchise owner knows that their success and growth are heavily reliant on the people helping them run the day-to-day operations in each location. To sustain a culture of employee excellence and low turnover.Franchising Strategies This is an especially important factor at the management level. any issues that arise. Not only will a more data-supported understanding of individual behaviors provide current insights. This quality also includes a much stronger emphasis on the need to do things by the book. If reducing turnover is the ultimate goal. Imagine the motivational power managers would have if they knew which employees needed more public recognition for their work and which employees would rather quit than have their photo posted to the wall praising their efforts or success. like a low-cost gift card or early paid leave. After conducting the assessment initiative to help mitigate employee turnover in the multi-unit SUBWAY franchise. but also has a higher dominance drive where he will naturally assume ownership of. Not everyone responds in the same manner or is looking for the same reward. All it takes is the ability to show that each individual employee matters. two manager profiles emerged. but has a much more team-oriented approach in the work environment. owners need to give special attention to the store dynamic when they are hiring or promoting a given manager–not just the manager‘s personality or style. The Problem Solver manager is excellent operationally. Instead. Leadership Development. a more comprehensive. but the information can also be used to help uncover new leaders for existing or future locations. Often all it takes is something small. Because of this. The stronger drive of the maintainer to seek a collective. A more data-supported understanding of individual behaviors can also be used to help uncover new leaders for existing or future locations. Assessments are one important piece to consider adding to the arsenal of tools for combating the revolving door inherent in a growing job market and creating a consistent.

are marketable to prospective franchisees. ―People who enjoy what they are doing invariably do it well. The franchisee invests in the right to use the franchisor's expertise. Only after developing the franchise strategy should a franchisor begin the development of their Franchise Disclosure Document and Franchise Agreement. operating methods. MSA's methodology in developing emerging franchisors is what has made us the leading and most respected franchise consulting firm in the world. Only then do we begin the process of designing the franchise strategy.‖ THE ROLE OF THE FRANCHISOR It is important to understand that not every business should be franchised. Great franchisors provide training to new franchisees and their management and provide support in the training of the franchisee's staff. They provide their franchisees with the tools needed to operate their businesses to brand standards and. field consulting. Franchisor vs. It is their hands-on knowledge of the business they are franchising that is of the greatest value to franchisees as franchisees benefit from the franchisor's proven experience which hopefully allows franchisees to avoid some of the minefields that plague many start-up businesses. It is equally important that when you decide to become a franchisor that you do so in a way that maximizes the unique character of your business. It is our experience as franchise management and also our experience in consulting with some of the world's leading franchisors and non-franchisors that makes MSA the most respected franchise consulting firm in the world. Great franchisors have all made their share of mistakes and have survived them. consumer marketing and other support and provide each franchisee with the tools needed to operate their businesses to system standards. Successful franchisors share some common attributes. Successful franchisors are rarely the product of a packaged approach as each element of your franchise system should be developed in a way that supports your franchisees so that they can deliver consistently to your brand's customer your Brand Promise. developing the tactical elements required to manage and support the franchise system and provide our clients with the guidance in marketing to prospective franchisees and closing the franchise sale.Franchising Strategies football coach and successful businessman Joe Gibbs once said. The terms of the franchisee's license is contained in the franchise agreement they sign and it is important that the franchise agreement be based on a highly structured strategic plan designed for the uniqueness of the franchisor's offering. The franchisor grants the franchisee the right to operate business under the franchise system's trademarks and service marks and enforces the brand standards of the system. are focused on ensuring that each franchisee operates to system standards. Franchisee The franchisor owns the brand and the operating system that they license to their franchisees. They are motivated to share their experience and know-how with their franchisees. Working with qualified franchise lawyers is essential to ensure that your legal agreements provide you and your system with the protection and brand controls required and equally important. 45 . Franchise systems will provide their franchisees with a library of operations manuals. brand name. and initial and ongoing support. MSA works with our emerging franchisor clients to first assist them in evaluating whether or not franchising is an appropriate expansion strategy for their company.

you are responsible for the day-to-day management of your business to the brand standards of your franchisor. When you are making your decision to become a franchisee you should look closely and determine whether the franchisor can provide you with:         A tested and proven method of doing business A clearly defined Brand Promise and a recognized brand name that you can capitalize on in your local market An extensive library of operations manuals and training programs for you and your management team and support for the training of your other personnel A headquarters and field support team that is focused on improving your bottom line performance as well as enforcing its brand standards at each of its company owned and franchised locations An active research and development program geared to developing new products and services to keep you ahead of the competition A local and national advertising and marketing program that supports your business The opportunity to invest in additional locations A return on investment that meets your expectations Franchisee vs. As a franchisee. Before you make the decision to become a franchisee. brand name. THE POWER OF THE FRANCHISOR'S BRAND Franchisors invest a lot of time. Franchisor A franchisee doesn't actually buy a franchise although they own the underlying assets of the business which may include the land. a franchisor's brand equals the company's reputation. building and equipment. and financial resources in developing and supporting their brands. Great franchisors want to ensure that their customers are satisfied each and every time they shop at a franchised location. Above all. 46 . energy. trademark and servicemarks in offering the system‘s products and services. Consistent execution to brand standards is expected in each locationthey visit regardless of where the business is located. We have included on this web site a publication called Making the Franchise Decision which you should download and use as your guide in conducting your due diligence on the franchise opportunity. This is true regardless of whether the location is company owned or franchisee owned. You should also spend some time educating yourself on franchising. take your time in evaluating a franchise opportunity and do not rush into any investment without first getting professional guidance and making certain that the franchise system is right for you. Engage the services of a recognized franchisee lawyer as your advisor. In the consumer's mind. They do this so that consumers understand exactly what to expect before they even walk through the door of any of their locations. As the owner of their business the franchisee enters into a license agreement with the franchisor and obtains the right to do business using the franchisor's operating methods.that is essential to protecting the value of the company's marks.Franchising Strategies THE ROLE OF THE FRANCHISEE Joining an established and well-managed franchise system can be rewarding. profitable and provide a level of safety that may not be available to non-franchisees staring their own independent businesses. It is the experience they perceive they will have—and expect to have . Not all franchise opportunities are equally sound investments. do your homework. A good tool to use is Michael Seid‘s book Franchising for Dummies now in its second edition.

franchise growth supplied about the same number of jobs in 2007. and instruments The economic impact of this considerable franchise growth goes beyond activities inside franchised businesses when one considers franchises purchase products and services from nonfranchise suppliers and their owners and workers spend income earned from franchising on personal purchases.Franchising Strategies The brand is the franchisor's most valuable asset. cars. wood products. about the brand.. understanding the ebb and flow of one‘s business for at least one-year is also a benefit toward planning to franchise your business. economy thanks to its wider adoption as a successful business expansion model. Some businesses seek our advice regarding ‘when’ is the best time to franchise your business while others inquire ‘how’ to franchise your business successfully once the timing is good. In fact. Here‘s the franchising advice we offer: For start-ups and smaller businesses. they immediately associate it with the experience of ordering and eating a franchised Wendy's hamburger.1 million jobs. such as computers. they're shopping or eating at a branch of trusted chain. a prospective franchisor must show that the business is profitable and scalable. In order to franchise your business.. The same goes for other franchising companies. For mature businesses…we work with mature organizations to create a franchising system that not only helps business owners reach their goals. When you see an ad for brake services. HOW TO FRANCHISE YOUR BUSINESS MSA has been fortunate to work with both start-ups and mature businesses in a variety of market segments. WIDER ADOPTION SPURS FRANCHISE GROWTH The number of industries bringing goods and services to customers through franchising is growing. franchise growth is becoming a significant force in the U. but is sustainable and profitable for the franchisee. To illustrate further. as all manufacturers of durable goods. supported by the message in its advertising. provided franchise growth in the form of more than 9.S. run by both franchisees and franchisors. They need to establish an estimated investment that is competitive for expansion and will remain profitable once franchise fees and royalty payments are added. Customers decide which business to shop at and how often to frequent that business based on what they know. communicates and reinforces to the public just what Wendy's is.000 establishments in the United States in 2007.. The experience of visiting a franchised Wendy's.. one can almost feel their car stopping more safely at the light. $802 billion of product output. These businesses. and contributed more than $468 billion of gross domestic product for the benefit of franchise growth. according to the International Franchise Association's Economic Impact Study.we recommend that a company have an operating business before franchising their business. We counsel business owners on the value of a comprehensive strategy that properly 47 . communications equipment. primary metals. Lastly. such as Meineke. trucks. When one sees an advertisement for a Wendy's hamburger. Moreover. or think that they know. Great franchisors provide the tools needed by the system's local operators and enforce system standards simply because they understand that in the customer's mind. Consumers really do not care who owns the assets of the business. Franchised businesses operated more than 828. planes.

Getting guidance from a professional franchise consultant can be extremely beneficial. So steer clear of packagers and work with recognized franchise consultants. a business franchise strategy needs to beattainable in its financial assumptions and short. While an inexperienced prospective franchisor may think they have found a simple way to become a franchisor and fulfill their dreams. The challenge is to know what is working in franchising today and what is not then designing a franchise strategy that is both attainable and adaptable. but offers these services for a comparable cost of a packager. expertise and services. MSA ensures that one‘s franchise offering. and concepts that provide consumers with what they want—in the way they want it. Some franchisors try to save money by ordering franchise strategy self-help kits with fill-in-theblank forms for franchise agreements and FDDs from companies who are unqualified to serve as professional franchise consulting firms. The franchise disclosure documents do allow a new franchisor to legally sell franchises. which can be accomplished by doing a Gap Analysis.and long-term projections. Others take someone else's franchise strategy and simply copy or modify it for their use. A franchise strategy must also be adaptable in how it reaches a local market. they quickly learn otherwise. Working with a professional franchise consultant not only provides higher-quality guidance. motivates its franchisees and enforces its brand standards. Benefits of Qualified Franchise Consultant Engaging a qualified franchise consultant can make the difference between a franchise system succeeding and failing. its structure and its brand promise is all in alignment with a franchisor‘s business goals and objectives. EACH BUSINESS NEEDS ITS OWN FRANCHISE STRATEGY The development and implementation of any franchise strategy today can be complex. Each business is unique and therefore each franchising strategy should be also. packagers deliver franchise disclosure documents based on a boilerplate template. but the business decisions that support what's stated in these legal documents need to be well-thought through. For instance.Franchising Strategies documents the franchising relationship—and helps both parties avoid costly legal and professional issues later. like MSA. evolves its product and service offerings. Why a Solid Franchise Strategy is Important The good news for potential franchisors is that the market readily accepts great products. such as the relationships and growth strategy that will help them avoid litigation issues later. The legal documents—Franchise Disclosure Document (FDD) and the franchise agreement—are fairly straightforward. but the documents don‘t address other important areas. design. which carries a high risk for both the franchisor and the franchisees. and develop a franchise strategy. BEWARE OF PACKAGERS: WORK WITH A QUALIFIED FRANCHISE CONSULTANT Franchise packagers do not provide the same level of service as qualified franchise consultants. Instead of helping a prospective franchisor evaluate. 48 . services.

system modifications and edits to training materials that support culture and local tastes The availability and cost of qualified local labor Government stability or instability. demographics. you must first have a stable and profitable domestic operation in place and an organization that can support an international franchising presence. our strategic planning expertise. wellthought out franchise sales strategy in place. avoids the guesswork and better prepares the franchisor for what‘s ahead. local laws and legal systems Compliance with the Patriot Act for international franchising 49 . and our tactical implementation service and support that our clients have come to depend on. plus its proximity to your headquarters and regional support staff. we emphasize the importance of having a focused. Are you looking for more domestic franchise sales? If you‘re a franchisor who is considering ramping up your domestic franchise sales program. so that strategy and expectations can be adjusted early in the franchise consulting phase Identifies tactical planning goals and objectives to maximize opportunities Offers a reality test or confirms one‘s franchisability before further investments (financial. Working with a franchise consultant upfront. Becoming a franchisor requires a sizable financial investment for a sustainable and scalable infrastructure. EXPAND THROUGH INCREASED FRANCHISE SALES Once a franchise is operating well. direction. we recommend you carefully select the best target market for expansion based on: competition. The franchise consulting analysis helps business owners in multiple ways:     Identifies differences (or gaps) in potential opportunity with actual performance benchmarks based on real industry franchising metrics Reveals planning. Whether they are considering domestic or international franchisingexpansion. MSA conducts a GAP analysis as part of their engagement process. there are other scenarios and issues that will need to be addressed. Once you have this. many franchisors choose to increase their franchise sales efforts for increased growth and expansion. or other shortcomings. people and other resources) are made Be More Prepared Additionally. a franchise consulting GAP analysis spotlights what areas—from operations and marketing support to technology and real-estate investments—that need to be addressed in the development of a franchisor‘s business infrastructure while the legal documents are being developed. such as:     Potential product changes. Are you considering international franchising expansion? If your company is considering international franchising.Franchising Strategies VERIFY EXPECTATIONS WITH FRANCHISE CONSULTING A significant benefit of working with MSA‘s franchise consulting firm is our breadth of franchise experience.

Franchising potential in India: Though the Franchising in India is at a very nascent stage. almost a third of the retail sales come from franchised outlets. There are an estimated 70. Franchising contributed less than 4 per cent to India‟s Gross Domestic Product (GDP) in 2007. India is a multi ethnic country with the second largest population in the world. over 90 per cent succeed. which can dramatically reduce the chances of failure. which has further fuelled their expectations. In a franchised business. Organized retailing though only at 6 per cent of the retailing. In the USA. Annual turnover is approximately us$ 4 billion. This success rate usually lures entrepreneurs with no experience but with a surplus capital and a will to succeed towards franchising. Apart from Indians being very entrepreneurial. the industry is few million. currency-exchange and transfer restrictions Franchising In India Franchising . The growth rate in franchised units from 2005-06 to 2006-07 was 30 to 35 per cent for the last 4-5 years.The fastest Growing and ever changing Industry in India Though at a nascent stage the industry has witnessed 30 to 35 per cent growth in the last 4-5 years Home to over a billion people. innovative strategies like “Indianisation” of its products and marketing techniques must be employed by a foreign franchisor to further access the sizable market of India. with sales of trillion of dollars while in India. India offers lot of potential for the franchising community. but this industry has clocked the growth rate of 25-30 per cent. including a flourishing class of urban consumers possessing considerable amounts of disposable income together with the continued growth of the economy have strengthened India‟s claim to be a viable and beneficial destination for a foreign franchisor. The franchisee benefits from a tried tested and proven business concept. Around 8 to 10 per cent Indian franchise systems have entered international markets. An important aspect which determines the feasibility of any franchising business in a country relates to the class of consumers it caters to. franchising as a way of doing business has been well accepted.        There are approximately 1150 national and international business format franchise systems in India in 2007.Franchising Strategies  Tariffs. Indian consumers have experienced the standard of services offered overseas and have sufficient exposure through media. the second fastest growing industry. Some 500000 persons are employed in business format franchise organizations. will take off in a very big way. 000 units operating in business format franchises. The Indian middle class is slowly expanding and now buys consumer appliances with more disposable income. Almost every product or service has a market in India but sometimes. 50 .

estimate of total franchise revenues and franchisor profitability. In 1932. in the 1850s.S. It will include data on the names. food. The growth in franchises picked up steam in the 1930s when such chains as Howard Johnson's started franchising motels.S. The States may require the FDD to contain specific requirements but the requirements in the State disclosure documents must be in compliance with the Federal Rule that governs federal regulatory policy.Franchising Strategies U. such as where a franchisor is new. the agreement may take the shape of a business format franchise . The U.S. The UK In the United Kingdom.S. There are several people and organizations in the industry calling for the creation of a framework to help reduce the number of "cowboy" franchises and help the industry clean up its image. There is no federal registry of franchises or any federal filing requirements for information. logo and even building design in exchange for a fee. Modern franchising came to prominence with the rise of franchise-based food service establishments. Supreme Court has dealt with. franchises are subject to the same laws that govern other businesses. supplies. followed later by Coca-Cola.S. Massachusetts Howard Johnson's restaurant founded in the late 1920s. and many businesses that refer to themselves as franchisors do not conform to these rules. Western Union. and generally provides audited financial statements of the franchisor in a particular format. and enforce laws and regulations regarding their presence and their spread in their jurisdictions. who made improvements to an existing model of a sewing machine. Franchise Disclosure Document (FDD) is very lengthy (300-700 pp +) and detailed (see Uniform Franchise Offering Circular (UFOC) for elements of disclosure). in some of which the U. etc. There is no private right of action of action under the FTC Rule for franchisor violation of the rule but fifteen or more of the States have passed statutes that provide this right of action to franchisees when fraud can be proven under these special statutes. addresses and telephone numbers of the franchisees in the licensed territory (who may be contacted and consulted before negotiations). franchise agreements are produced under regular contract law and do not have to conform to any further legislation or guidelines. There is some self-regulation through the British Franchise Association (BFA). States are the primary collectors of data on franchising companies. However there are many franchise businesses which do not become members. Whereas elements of the disclosure may be available from third parties only that provided by the franchisor can be depended upon. 51 . was among the first franchising efforts in the United States. In the U. The 1950s saw a boom of franchise chains in conjunction with the development of the U.an agreement that is identical for all franchisees. there are no franchise-specific laws. Where the franchisor has many partners. The idea was to let independent operators use the same name. The majority of franchisors have inserted mandatory arbitration clauses into their agreements with their franchisees. Howard Deering Johnson established the first modern restaurant franchise based on his successful Quincy. the (FTC) Federal Trade Commission requires that the franchisee be furnished with a Franchise Disclosure Agreement by the Franchisor at least ten days before money changes hands. The final agreement is always a negotiated document setting forth fees and other terms. although audited financial statements may not be required under some circumstances. and agreements between automobile manufacturers and dealers. For example. Interstate Highway System. Isaac Singer.

91-337. This is where the franchise broker. The specific and important disclosures to be made are: • the date of the founding of the franchisor's enterprise and a summary of its business history and all information necessary to assess the business experience of the franchisor including bankers. the current laws governing business contracts in the UK offered sufficient protection for the public and the banks. France France is one of Europe‟s largest market. The market is considered tough for outside franchisors because of its cultural angularities. and UNIDROIT. Similar to the United States.Franchising Strategies On 22 May 2007. • a description of the local market for the goods or services. although the decree also applies to any person who provides to another person a corporate name. highlighting: • the object of the contract • the rights and obligations of the parties • the financial conditions • the term of the contract Legal consultation is a must to enter and finalize the agreement(s) as it in all regions. Unlike the United States. trademark or trade name other business arrangements. Romania (1997). Growth came in the 70s. yet. or the master franchisor. 52 . Italy (2004) and Belgium (2005). They are France (1989). the European Union has not adopted a uniform franchise disclosure policy. but the industry is largely unregulated. not so significant a factor in the US. There are no government agencies regulating franchises. hearings were held in the UK Parliament concerning citizen initiated petitions for special regulation of franchising by the government of the UK due to losses of citizens who had invested in franchises. The Minister of Industry. There are some 30 US Firms involved in franchising. Europe Franchising has grown rapidly in Europe in recent years. the disclosure document must be delivered at least 20 days before the execution of the agreement or any payments are made. it has a long history of franchising. McDonald‟s and Century 21 are found everywhere. Most often one of the principal tasks in Europe is to find retail space. Cultural factors are also significant as the populations tend to be homogeneous. Only five countries in Europe have adopted pre-sale disclosure obligations. Combined with Decree No. The Loi Doubin of 1989 was the first European Franchise Disclosure law. they regulate disclosure. The Code of Ethics of the European Franchising Federation is self-enforced in seventeen European states where their national franchise associations are members of EFF members. Spain (1996). dating back to 1930s. The law applies to „‟exclusive or quasiexclusive territory‟‟. The Minister of Industry indicated that if due diligence were performed by the investors and the banks. All formal disclosure countries are required to give „‟Contract Summaries‟‟ to be furnished. In brief. plays a significant role. Margaret Hodge. conducted hearings but resisted any government regulation of franchising with the advice that government regulation of franchising might lull the public into a false sense of security.

The burden of proof is on the franchisee. McDonalds is a joint venture. "Measures for the Administration of Commercial Franchise". • a summary of any court or arbitral proceedings in Italy related to the franchise system. or. However. Pizza Hut. compared to more than 540 in the United States. since start-up if period is shorter. • a list of all other franchisees currently in the network. The laws are applicable if there are transactions involving a trademark combined with payments with many obligations on the franchiser. and • if requested by the franchisee. in exchange for consideration. For example. By not being rigorous. Each system in China has an average of 43 outlets. In addition. whether by termination or non-renewal. China China has the most franchises in the world but the scale of their operations is relatively small. 53 . • cross-border franchising. Dispute Settlement features are only incorporated in some European countries. articles which dictate the form and content of the franchise agreement and define the documents that must be made available 30 days prior to execution. • a list of franchisees currently operating in the franchise system in Italy. franchising is encouraged. Today the Franchise Law is much clearer by virtue of the 2007 law. • year-by-year details of the changes in the number of franchisees for the previous three years in Italy.Franchising Strategies • franchisor's financial statements for the previous two years. the right to market goods and services under trademarks. The year 2005 saw the birth of an updated franchise law. working Manual and working capital requirements. • all franchisees who have left the network during the preceding year. assignment. Together. the Supreme Court (Cour de cassation) eventually ruled that agreements should only be annulled where missing or incorrect information affected the decision of the franchisee to enter into the Agreement. Italy Under the Italian law franchise is defined as an arrangement between two financially independent parties where a franchisee is granted. termination and the scope of exclusivity. KFC was the most significant foreign entry in 1987 and is widespread. with some caveats. The Law comprises 42 Articles and 8 chapters. a revision of the 2005 Law. TGIF. copies of franchisor's balance sheets for the previous three years. But total franchising is only 3% of retail trade which is hungry for foreign franchise growth. Starbucks followed a little later. Initially. The franchisor must disclose: • a summary of the franchise activities and operations. there are 2600 brands in some 200. one-year” rule) • the franchisor must disclosure any information requested by the franchisee. there was some uncertainty whether any breach of the provisions of the Doubin law would enable the Franchisee to walk away from the contract. Among the franchisor obligations are: • the FIE (foreign-invested enterprise) franchisor must obtain registration by the regulator • The franchisor (or its subsidiary) must have operated at least operated two company-owned franchises in China (revised to anywhere)for more than 12 months ("the two-store. Previous legislation (1997) made no specific inclusion of foreign investors. Many franchises are in fact joint-ventures. as at their forming the franchise law was not explicit. Wal-mart. and • the conditions for renewal.sments for rich ar • the standard franchise agreement.000 retail markets. is possible (2007 law).

and • the ability to train the Chinese personnel and provide them • long-term operational guidance. usage. including registration. including number. locations. and • an audited financial report and tax information (for an unspecified period of time) Other elements of this legislation are: • the franchisee‟s confidentiality obligations continue indefinitely after termination or expiration of the franchise agreement. and the percentage of franchises that have been terminated. Some experts have warned that any push to increase regulation of the franchising sector. and ample ability to supply materials. There is no separate law covering franchises. The federal government is currently considering recommended changes to the Code of Conduct contained in the report. The Disclosure has to take place 20 days in advance. "Opportunity not Opportunism: Improving conduct in Australian Franchising" tabled by a Parliamentary inquiry into franchising on 4 December 2008. New Zealand New Zealand is served by over 350 franchise systems giving it the highest proportion of franchises per capita in the world. and litigation • demonstration of the franchisor‟s capabilities to provide training and guidance • statistics about existing units. • he franchise agreement must have a minimum three-year term Among other provisions is: • the franchisor will be liable for certain actions of its suppliers • monetary and other penalties apply for infractions of the regulations. the self-regulatory Code of Practice introduced in 1996 by the Franchise Association of New Zealand contains many provisions similar to those of the Australian Franchising Code of Practice legislation. could make it a less attractive means of doing business. termination and the resolution of disputes by mediation. The Code also regulates the content of franchise agreements. However. and the terms of supply • the training franchisees will receive • information about the trademarks. It has to contain:• Details of the franchisor‟s experience in the franchised business with scope of business • identification of the franchisor‟s principal officers • litigation of the franchisor during the past five years • full details about all franchise fees • the amount of a franchisee‟s initial investment • a list of the goods or services the franchisor can supply. franchising is regulated by the "Franchising Code of Conduct". 54 . a cooling-off period. for example in relation to marketing funds. The Code requires franchisors to produce a disclosure document which must be given to a prospective franchisee at least 14 days before the franchise agreement is entered into. and operational results. a mandatory code of conduct made under the Trade Practices Act 1974.Franchising Strategies • track-record of operations. so franchises are covered by normal commercial law. Australia In Australia.

opened to sublicense Turkish licensor of the 55 . The Brazilian Franchise Law (Law No. All sums amounts may not be convertible into foreign currency. 1994) defines the franchise as a system in which the franchisor licenses the franchisee. Kazakhstan franchise began with the emergence of a factory "Coca-Cola". is in its infancy. (McDonalds is a success story despite its fare differing from the rest of the world. The first International Exhibition was only held in 2009. one of the biggest franchising markets because of its large middle-class of 300 million who are not reticent on spending and because the population is entrepreneurial in character. There is a special law on the franchising of 2002. as long as the Brazilian party knows English fluently and expressly acknowledges that fact. Kazakhstan is the leader in Central Asia in the franchising market. and franchisors cannot set standards or limits on the prices of the franchisee‟s goods.500 outlets. Kazakhstan In Kazakhstan franchise turnover for 2010 is 1 billion US$ dollars per year. under chapter 54 of the Civil Code (passed 1996). rather than pursue legal remedies. franchise agreements are covered under two standard commercial laws: the Contract Act 1872 and the Specific Relief Act 1963.Franchising Strategies Russia In Russia. So far. Indispensable documents are the Statement of Delivery (of disclosure documentation) and Certification of Recording (INPI). Around 11 percent of this total is foreign-based franchisors. Brazil In 2008. The latter is necessary for payments. Certification may also mean compliance with Brazil's antitrust legislation. which provide for both specific enforcement of covenants in a contract and remedies in the form of damages for breach of contract. The Registration accomplishes three things: • It make the agreement effective against third parties • Permits the remittance of payments • Qualifies the franchisee for tax deductions India Franchising of goods and services. In a highly diversified society. to avoid translation (but it follows). there are about 300 franchise systems and franchises near the 2000 outlets. however. India is. there were about 1. Failure to disclose voids the agreement with refunds and serious damages. the right to use a trademark/ patent along with the right to distribute products or services on an exclusive or semiexclusive basis. Parties to international franchising may decide to adopt the English language for the document. Enforcement of laws and resolution of contractual disputes is a problem: Dunkin' Donuts chose to terminate its contract with Russian franchisees that were selling vodka and meat patties contrary to their contracts. franchise agreements are invalid unless written and registered. making it one of the largest countries in the world in terms of number of units. for a payment. foreign to India. The "Franchise Offer Circular" or disclosure document is mandatory before execution of agreement and is valid for all of Brazilian territory.013 franchises with more than 62. 8955 of December 15.The Franchise Law does not distinguish between Brazilian and foreign franchisors. The National Institute of Industrial Property (INPI) is the registering authority.

whole food retailing. Transfer of Knowledge The franchisers. Good example of event franchising is the World Economic Forum. Event franchising Event franchising is the duplication of public events in other geographical areas. a steadily growing chain of some 50 neighborhood supermarkets in Germany. or just Davos forum which has regional event franchisees in China. The most successful example is probably the CAP Markets. while retaining the original brand (logo). When The Music Stops is an example of an events franchise in the UK. Likewise. running speed dating and singles events Key Success Factors in Franchising Key Success Factors in Franchising Pre-Tested Model Franchising earns good results if done by organizations after creating a brand and testing. Latin America etc. Retail organizations ought to look at establishing a Company-Owned and Company-Operated (COCO) model successfully before seeking expansion by taking the franchise route. in this case.Franchising Strategies same brand. which hopes to simplify and expedite the process of setting up new businesses. As in classic franchising. Sharing investments and returns through mutually agreed means will enable the growth of both the 56 . store presentation. have been identified as suitable for adoption by social firms employing disabled and disadvantaged people. concept and format of the event. Single Face to Customers The franchisee has to carry on his operations by playing the role of the principal brand. such as soap making. the alter-globalist World Social Forum has launched many national events. operating processes and store personnel skills which will enable the transfer of the total brand experience to the customer. the idea of franchising has been picked up by the social enterprise sector. Intercontinental. aquarium maintenance. who provide their valuable inputs gained by their rich experience in retailing which includes training. mission. Hilton. will produce good results. Pizza Hut etc. store design and advertising and promotion. This seamless integration of the franchiser and the franchisee to present one single 'face' to the customer will ensure successful store operations. and hotel operation. Other brands that are also present in Kazakhstan through the franchise system include Pepsi. Win-Win Situation The franchiser gets a partner in the franchise to establish his business and shares with the franchisee such tested technologies. event franchising is built on precisely copying successful events. This also includes the upkeep of various standards in the areas of customer service. Marriott. The store's image elements and product portfolio have to be carefully maintained. Mary's Place Hotel in Edinburgh and the Hotel Tritone in Trieste. Social franchising also refers to a technique used by governments and aid donors to provide essential clinical health services in the developing world. Social franchises In recent years. The plant was built in 1994. product offerings and processes. Other examples are the St. A number of business ideas.

The relationship between a Franchisor and Franchisee .Franchising Strategies franchiser and the franchisee. So there must be clearly defined responsibilities for both franchiser and franchisee. The basis for creating this relationship is the business of the franchisor that the franchisor wants to grow and the franchisee wants to participate in. has no choice but to make this relationship. in order to achieve its objective of increased market share through franchisees. is a legal relationship based on a franchise agreement.‟ At Franchise Mind™ we define Effective Franchise Relationships in the following manner: “When the Franchisor and Franchisee work harmoniously together. covering the risks at the same time Ownership and Responsibility Franchisees fail when the franchise retail business is not owned by the franchisee. Franchise Mind™ 57 . respecting each other. the Franchisor must approach the relationship from “What must I (the Franchisor) do to make this relationship both harmonious as well as effective in achieving the intended results. regardless of the complexity. A Franchisor. be effective by ensuring that results are obtained harmoniously. A Franchisor cannot approach this important topic of EFFECTIVE FRANCHISE RELATIONSHIP from the vantage point of „what will I (the Franchisor) only gain from the relationship‟.”—Harish Babla.” —Luigi Pirandello Franchisors have selected franchising as a distribution method to gain market share for their brands. They often feel that the franchiser has the responsibility of ensuring success. the moment you interject people. business and people. on the surface. Review Regular reviews of performance and planning actions for implementation by both parties will ensure successful franchise operations. recognizing their dependency on each other. appreciating and accepting the efforts and roles each has to play in their respective success. However. Understanding the nature of franchisor-franchisee relationship “I present myself to you in a form suitable to the relationship I wish to achieve with you. you are confounded with the complexity of the relationship. a combination of legal. operating their businesses with integrity and the highest standards and putting forth their best effort to preserve and nurture their special relationship in order for both of them to achieve more than their intended objectives. such periodical reviews will bring to light gaps in any area of deliverables on the part of either the franchisee or the franchiser that have to be dealt with urgently. Besides. Instead.

responsibilities and obligations for both parties ? ? ? ? In essence this business relationship should be kept business. gracious. It is an issue of company culture and keeping sight of the 58 .‟ A Franchisee in this culture has very little „freedom‟ in this franchise system. 6. 2. 5. follow it to the best of your ability. warm and even to get to know franchisees and their families at a personal level. Dependent (tight) control The Independent culture says to the franchisee „we will teach you our system.Franchising Strategies A good number of problems in the Franchisor-Franchisee relationship emanate from incorrectly labeling the relationship: Franchisor says „My Partner‟ „My customer‟ „My friend‟ „My franchisee‟ Franchisee thinks ?? „You are responsible for my success‟ “I cannot be refused because the customer is always right‟ “Friends get special treatment‟ The importance of the inter-dependent relationship with roles. 4. The two extremes would be: 1. we are available.‟ A Franchisee has a lot of „freedom‟ in this franchise system. There is nothing wrong in being friendly. Importance of Effective Relationships When the Franchisor-Franchisee relationship is effective and harmonious there are many benefits that emerge for the Franchisor as Franchisees will likely: 1. In fact there is nothing wrong in having a spirit of partnership. customer or family however labeling the relationship as such makes it difficult for a Franchisor to deal with the business aspects of this complex relationship. A Dependency culture on the other hand. says to a franchisee „You will do exactly everything we teach you and in the manner we show you. call us. If you need help. 3. Neither positions is „right‟ or „wrong‟. Expand market share into other territories Open additional units Validate the company to prospective franchisees Participate enthusiastically in company programs Contribute ideas for overall system growth Take a leadership role in helping other franchisees Culture of control The company culture helps define the level of control a Franchisor wants to exercise. Independent (loose) control 2.

the Franchisor-Franchisee relationship goes through changes in thinking. 2. in attitude and feelings towards each other. This means that the relationship achieves the intended results and is harmonious. 6. Confident phase: „I can do this‟ 2. 3. 5. Where in the control spectrum is the Franchisor comfortable in ensuring the success of the franchise system. this relationship too will go through different stages and phases. A Franchisor oriented towards loose control has to be comfortable that from time to time. Operating stage Since the Operating stage is the longest. the consistency of the customer experience from one outlet to the next and the achievement of somewhat similar operating results from one Franchisee to another. a Franchisee may take actions that cause the franchisor angst.Franchising Strategies objectives of the business. Resentment phase: „Its me and not the franchise‟ 4. Recognizing those „highs‟ and „ebbs‟ will allow a Franchisor to deal effectively with the changing attitudes and feeling emerging from Franchisees. Overall satisfaction with the business Sense of loyalty towards the franchise system Confidence in the ability to meet their various goals and objectives Confidence in themselves Confidence in the business Confidence in the Franchisor Final thoughts The Franchisor is the „senior‟ in the Franchisor-Franchisee relationship and must take responsibility to make this relationship effective. As in any relationship. Franchise Mind™ breaks this stage into 4 phases: 1. Pre-franchisee stage 2. Ego-driven phase: „I am great and the system is okay‟ 3. When the relationship is effective the franchise system will derive many benefits and grow. Inter-dependent phase: „Together we can accomplish more‟ Each of the stages and phases can be recognized by several criteria as perceived by the Franchisee: 1. Changing nature of the relationship As in any relationship. Launch stage 4. 4. A Franchisor oriented towards tight control has the responsibility to ensure that every aspect of the business is addressed without gaps. Pre-opening stage 3. 59 . Franchise Mind™ identifies four major stages in the relationship: 1.

Requirements are best disclosed by using non-numerical data.Franchising Strategies RESEARCH PROCESS Research is a process that people start when they need to find out about a certain issue in a systematic way and in this way increase their knowledge of the issue. In a research one must take into consideration that reality cannot be dismembered arbitrarily into pieces. Also an assembly of data from different sources in one document with bibliography is not enough to make it a research. et al. The collection of data alone does not compose a research. A starting point in qualitative research is a description of realistic life. With quantitative research methods the research generates and/or uses numerical data in the process and with qualitative research methods the research generates and/or uses non-numerical data in the process (Saunders. 161). An interview is a unique way to collect information due to the direct linguistic interaction with the source of information. Research methods The main separation of different kinds of research is the division between quantitative and qualitative methods. 2009.2009. This includes a thought that life is diversified. The reliability of interview undermines the fact that interviewees tend to give socially acceptable answers (Hirsjärvi et al. 320). In a qualitative research the goal is to find out or reveal facts rather than verify already existing facts or claims (Hirsjärvi et al. For this research process the natural choice was qualitative methods since the research question concerned the requirements for franchise operations. 60 . 204-206). 151). In qualitative researches an interview is usually a main method of data collection. The biggest advantage is the flexibility that it brings to the data collection. Occurrences shape each other simultaneously and it is possible to find numerous connections. this is a part of the research that is concluded with interpretation of what the data tells (Saunders. et al. 2009. 2009. A qualitative research aims to study the subject as comprehensive as possible. it has to be collected systematically and with a clear purpose.

Also the themes and questions can vary from interview to interview and do not have to be repeated (Hirsjärvi et al. some of the questions were skipped along the way. Interview can also be an easier way to receive data from managers. The themes were different in each interview due to the differ. 324). et al. The individual interview because there was only one executive director/representative to interview from Finnish Franchise Association. 207-208). When the parties are not physically in the same space it may 61 . An interview can be implemented as individual interview. there present are the interviewer and the interviewee. 2009. In this research the most suitable and therefore the used interview style is a semi-structured interview. In this research the interviewees got to see the questions (see appendices 1-2) beforehand. It has been argued that managers are more willing to take part of a research when they are interviewed than to complete questionnaires. Grönfors (1982. In order to disregard issues with time. and semi-structured from between the two previous ones. 2009. In a normal conversation the parties are (or think that they are) in equal position in asking questions and giving answers. Individual interview is used most often. couple interview or group interview. et al. 109) has stated that interviewees are a lot more emancipated and liberated when there are more people present (Hirsjärvi et al. 2009.views for research purposes are to be understood as systematical form of data collection. It is typical for a semi-structured interview that the themes of the interview are set beforehand but the exact questions and order of questions is not known.views by telephone. In this research one of the interviews implemented was a couple interview and one was an individual interview.ent aspect that was being looked for from the different interviewees. The couple interview because there were two owners of the company and it was natural to interview both of them at the same time. 208-209. 320). distance and costs it may be more efficient to conduct inter. using standardizes questions in highly formalised way. (Hirsjärvi et al. 2009. Main separation is structured. 208. 2009. but the main idea with the themes were dealt with in both cases. This type of interview has goals and it aims to gain as reliable and valid information as possible (Hirsjärvi et al. 2009. There are different ways to implement interviews. An interview offers them an opportunity to go through the topics without having to write anything down (Saunders. Saunders. unstructured. 2009. A couple interview is a sub-form of a group interview. Inter.Franchising Strategies Interview is one type of conversation. Sometimes it may not be possible to have a face-to-face interview. et al. informal more like conversations. 320-321). The reasons for this come clear next. 210). Saunders.

scheduling was a problem. With the second interview. Data collection and analysis In this research there were three interviews planned. in the store on October 25th 2010. et al. 2009. In the end only two actualised. All the interviewees talked a lot and did not need to be pushed to answer. In addition when talking on the phone the interviewer cannot witness the non-verbal behavior of the interviewee. 62 . the interviewee was Juha Vastamäki. The interview of Ulla and Riikka Pitkänen. Furthermore the time used in the interview may be shorter than in face-to-face interview and the questions might become less complex (Saunders. Both interviews would probably have been face-to-face interviews if timing would have worked out more smoothly. As the main research problem is to find out if franchising is possible for the company‟s future it is only expected to have the owner‟s interview as the base. Both of the interviews were implemented in Finnish since all the participants speak Finnish as their first language. everyone gave full answers and provided me with a lot of data to work with. The second interview was implemented as a phone interview on October 27th 2010.Franchising Strategies be more difficult to establish trust and therefore the reliability may become an issue if the participants are not as engaged to the interview as in face-to-face situation or might not want to participate at all. the executive manager of Finnish Franchising Association‟s. In this research one interview was implemented as a phone interview due to issues with time and distance. The two interviews that did take place went smoothly. Unfortunately the third point of view of a company that has succeeded in implementation of franchising their business operations was left out due to the reluctance of the interviewee. Finnish Franchising Association being the official operator for franchising in Finland is a natural continuance to find out more about franchising and the operations in Finland. thus a phone interview was carried out in order to overcome the timing issue. 349). The fact that all three interviewees have their hands full of work all the time did not show in their attitudes at all. the owners of Aku & Ada took place in Leppävirta. They even gave some of their own comments outside of the actual questions.

Both interviews are based on the theory and conse. The interviews are not com.quently all the three (theory and two interviews) are linked to each other. The material is divided according to the themes in the interview questions (see appendices 1-2). 63 . first one being more to find out of the company‟s situation and the second focusing more to the format of the business strategy.Franchising Strategies As a result of these two interviews there are about eight pages of material which will be analyzed comparing the data to the theory.parable with each other due to the difference in the nature of the interview.

The first clothing store she worked in Leppävirta was called Katri asuste. the chief executive officer of Aku & Ada and UllaPitkänen. purchasing. colour training. she worked as a stylist and went shopping with her customers and helped them to find their style and clothes. During this project she got to know the Vero Moda shop closely in Varkaus since she went there often with her customers. The chief executive officer (CEO) is a newly graduated bachelor of business administration specialised in entrepreneurship. The COB has a long experience in the field. She received a phone call from The Varkaus Vero Moda store and they asked her to host some customer nights which led to her becoming the store manager for the shop 64 .Franchising Strategies FINDINGS OF THE INTERVIEWS Here is the data from the two interviews.1 Results concerning Aku & Ada The responses of the first interview with RiikkaPitkänen. 5. Between 2004 and 2005 the COB had a small internet enterprise called Up style. After the basic education she has been taking courses on her own time to deepen her knowledge on the field of textile business. From 1989 to 2001 she started and ran her first own clothing store in Leppävirta. Here the questions are opened under each theme on the same order as in the interview (see the questions from appendices 1-2). She considers that the extra training has given her energy and enthusiasm to continue and move forward into new challenges. All the questions were divided under different themes. first edition of Aku & Ada. In 2001 she was involved with opening and setting up a larger clothing store in Kuopio called Nina and worked there until 2004 as the store manager. first the interview of the owners of Aku & Ada and second the executive manager of Finnish Franchising Association‟s. going through the present operation of the company. marketing. The themes start with background of the entrepreneurs and the company. stylist etc. the COB was involved with Katri asuste from1982 to 1989. the chairman of the board of Aku & Ada are as follows. the possibly future growth of the company and finally their relation to franchising. Background of the entrepreneurs The chairman of the board (COB) has a vocational qualification in business and administration from a commercial institute. styles.

She has worked as a sales person. Already in October 2009 they had premises for the company in another location in Leppävirta but due to situations beyond their control they lost the premises and had a little set back in their 65 . The CEO is a daughter of the COB so she has less experience in years. Only. Everything took concrete shape during summer/fall 2009 when the CEO was working on her thesis with a subject that did not interest her. During that period of time she arranged the whole store and started everything from the scratch there. her character is strongly entrepreneurial and she does not stay working for someone else for a long period of time. The COB wanted to become an entrepreneur because she wanted to do things in her own way in order to make things work instead of just watching from the side. She wanted to do something that was her own. In addition both are also entrepreneurial as nature and have the attitude to run a company. both the COB and the CEO have extensive experience of the field considering their ages.Franchising Strategies between years 2006 and 2009. Background of the company The idea of opening Aku & Ada by the CEO and COB has been alive for couple of years. Dress Man. H & M. She started as a teenager helping out her mother in the first edition of Aku & Ada and was also working in Nina in Kuopio where her mother was involved. She is also excited to see what she is able to do on her own and finds it interesting to be able to make decisions herself and being in charge of things. To sum this part. Vero Moda. Sportland. After this she has been working in inter alia: Dinsko. visualiser. responsible sales person and in Vero Moda she was responsible for the same tasks as a store manager. The CEO has grown in very entrepreneurial atmosphere. having both of her parents being entrepreneurs. Both have business education and both have been working in some sort of managerial tasks. After a conversation with her supervising teacher she decided to write a business plan as her thesis and from there onwards everything started to quickly unfold. nevertheless impressive amount of experience of the industry behind her. In addition to that she was thinking about opening Aku & Ada with her mother again.

the idea of the company had been alive for a while already. The previous Aku & Ada was still in the memories of the locals and they waited for months for the opening of the new store. She needs to give space to the CEO and both need to focus on what it is that they do best. Both the CEO and the COB are seeking for their own place in the company. Most of the finance was provided by Finnvera. The owners agree that this would not be possible without strong experience from the field. in their selection. house decoration etc. The COB cannot do everything even if she would like to make sure and check that everything is correct. To make a long story short. the buy-ins were successful even though they were made late in the circulation of the industry. In addition Leppävirta had no other clothing store which means a huge demand for the company right from the beginning. This is the first Ltd for both parties of the company and they received assistance with the establishing of the company from entrepreneur center Wäläkky. some even from the big Kuopio city 50km away.Franchising Strategies enthusiasm as well. this time together as an Ltd. These premises were also smaller than the original place and therefore they decreased the merchandise categories from the original plans of also having children‟s clothing. The COB kept on searching for a suitable place for store and found the present location which was not in a condition fit for opening a business and needed major renovations. At the time of the CEOs graduation from university of applied sciences everything else just fell into the right places and as a result the mother and the daughter opened Aku & Ada again. she has learned a lot during this year and is still learning new things all the time. In addition they also took a small bank loan. a specialized financing company owned by the State of Finland. At the moment Aku & Ada employs the CEO and the COB. Also the young CEO is a point of interest for the locals and she brings a fresh breeze to the town. the profit margins have been set to correct level to bring incomes. The renovations began on January 2010 and the final step was to furnish and stock the shelves for the grand opening on March 25th 2010. 66 . Customers come from further away as well. as entrepreneur loans and female entrepreneur loans. The COB has brought a lot of knowledge that has been vital to the success. The first month when company was making profit was July. In September there was a little downturn in the profits due to the buy-ins. Operation of the company After about half a year from opening the store it can be said that the company‟s operations has started off successfully.

the irritating issues include dealing with difficult customers. to draft the advertisements. however. it is not possible to transfer the store in Kuo. The biggest issues are the restrictions set by the brands. A regular working day is from 9am to 6pm. The pleasant aspects of entrepreneurship have been the freedom of making own decisions and the flexibility to adapt for example if there is a quiet day the other one can have a day off etc. The CEO is learning new things all the time and is making her part of the business with the skills she possesses. for the CEO the painless things have been visual things. serving them till the end and the strong and long experience of the COB. At the moment the COB wants to have a look at everything and keep everything under her control in some ways. so far everything has started off well and the roles and tasks of COB and CEO are still in progress.Franchising Strategies The biggest challenges have been the buy-ins. The COB confessed that she is still in the excitement of the beginning and wants to be involved with everything. The original Aku & Ada had a branch store in Kuopio in the 1990‟s but it was not successful and did not last for long. As Aku & Ada is at the moment. The easiest things for the COB has been selling and serving the customer as well as buy-ins. From the other point of view. using the computer and take care of the office work. The unique thing for Aku & Ada is the easygoing atmosphere. which is the largest city close by. in the morning they clean up the store and during the day they serve the customers and unload the deliveries. A couple times they have had customer nights outside of the regular opening hours of the store and on Sundays the COB keeps the accounting up to date.pio. taking customers as they are. 67 . after being able to find clothes and make them happy also these customers bring feelings of success. The other issue mentioned was the unevenly distributed labor when the COB is handing all of the accounting and much of business at the store as well. This means that if all the brands Aku & Ada is selling in their present store would be in the supply of the possible new stores. in one city/town there can only be limited number of stores that can sell certain brand‟s products. also the marketing needs to be focused in a correct way and the CEO is learning what kind of clothing is saleable and match each customer with the correct products. As a summary of the operation of the company. the location of these stores should be in smaller towns that do not have stores already selling the same brands.

cautiously take a step at a time. The brands should be defined and decreased and the segmentation should be more focused. First they want to pay out their debts and then when the time is right and the company‟s stage is more stable. if other stores are opened narrowing down the brands should probably be the first thing to do. there will be no change for that. at the time of the interview the CEO or the COB knew only a little of the basics of franchising. an already existing franchise chain that specializes in youth clothing had approached her and offered their chain and business opportunity which was turned down. Results concerning Finnish Franchising Association 68 . Therefore. For now there is no need to start expanding. Provided that Aku & Ada will open stores in new geographical locations it would be somewhere in eastern Finland. The idea of franchising came about already in the process of the CEO‟s thesis which was the business plan for Aku & Ada. The biggest obstacle in growing the business is the restrictions by the brands in each geographical area. Another growing strategy that has been thought over is a possible ecommerce store of Aku & Ada. When it comes to actually giving a part of the responsibility of the business operations to someone else. this would then possibly require a third person to work for the company. Money and practicality are reasons mentioned for the desire to grow business operations. with the ecommerce store the possibilities for expansion are theoretically unlimited. Also importing some new brands to the Finnish markets would be inspiring option for the CEO and the COB to expand their business operations. At first the business needs to grow strong as it is and become financially stable. The CEO and COB agree that their business concept should be modified in case franchising would become their strategy to grow. they should carefully select a skilled textile field‟s expert whom they can trust. and always know what lies ahead. Also more knowledge about franchise operations should be acquired.Franchising Strategies The reasons behind the willingness to grow are firstly about the profit that it would bring. The second rationale is that when there is more than one store it would make it possible to divide the big buy-in deliveries between the stores and have more variations in products. No major expansions are of current interest. The COB trusts to new people easily but once the trust has been broken.

Everything depends on the business plan and varies from case to case. Sometimes company owned units can be a better option. A professional in franchising should analyze whether franchising suits for the company or not. To begin franchising operations There are no official statistics on how long companies have been operating before starting with franchise operations. Finnish franchising association and lastly the future of franchising. A rear situation would be if the franchisor and the franchisee knew each other from before. The themes start from beginning of franchise operations. Franchising is also a strategic question for the company including the finance and management of the chain etc. Everything starts from defining the profile of the company as well as defining what kind of entrepreneur the company is looking for. As an example the executive manager (EM) of the Finnish Franchising Association gave an approximate figure of five years after operating on its own and then choosing franchising as a growth strategy. There are no set financial figures that the company should fulfill in order to start with franchising operations. Juha Vastamäki. they can be found via newspapers. Franchising is not the only growth strategy. though that would only be an advantage but not many entrepreneurs have such a large network to choose from. women and franchising. The company does not have to be free from debt as long as the situation is under control and there is a plan. followed by franchising in Finland. Only after all the basic things are dealt with can the focus turn to search process of the possible franchisees. Franchising is also ruled out if the operations do not fulfill the model of business format franchising but is based on one specific product or is some sort of joint marketing cooperation. franchising might not be the best solution for the growth. 69 .Franchising Strategies Here are the responses from the interview with the Finnish Franchising Association‟s executive manager. The main concern is that the company should be able to prove that the business works and should able to sell the idea to the franchisees. Another important aspect is that in franchising the franchisor provides the support for the franchisees. thus if the entrepreneur does not want to be supporting others but work in the front line. recruitment services etc. internet. advantages and disadvantages of franchising.

There are no general figures on how much the starting up costs for franchise operations are in Finland or abroad for that matter. US in 1992. Compared to the US Europe has focused more on business activities. Franchising in Finland Product and trade name franchising is not a franchising type in Europe or Finland. It is typical for a franchising chain to have at least one own unit that they can try out and invent new business ideas for the chain. Finally the owner should be ready to step into a role of franchisor and be able to support and manage the franchisees. there are no specific laws controlling franchising operations. the whole chain and the operations. From the Finnish perspective it also makes things simpler since franchising as a word can be confusing. In all kinds of business the core foundation is always the 70 . If the concept is not successful and entrepreneurs are not ready to pay for the concept and start up running business under the same name it is not fit for franchising. Sweden already does have some legislation concerning franchise agreements in particular.Franchising Strategies To summarise the requirement for getting into franchising the company should have a working and successful business model that is able to be copied. Texas. The costs naturally vary from industry to industry and can be whatsoever. female fitness center. There should be a clear profile of the company and a business plan. Curves. in Finland an example is kiinteistömaailma. At the moment there are over 10 000 Curves fitness centers around the world in over 80 countries. The finance of the company should be controlled and planned ahead. Only a small portion of chains does not have own units. started with one fitness gym in Harlingen. When it comes to legislation issues. Vastamäki does point out that this is a topic of current interest and conversation. real-estate business. Behind all of this is a marriage couple who started with franchising three years after the beginning of business with an initial capital of USD 10 000 (Curves -health club and fitness centers). The issues that are under legislation in Sweden are covered by the ethical rules of franchising in Finland. As an example the fastest grown franchising chain in the world. Only the sky is the limit and there is no minimum capital required either. The most important thing in starting up franchise operations from new franchisors point of view is the business idea/concept. Franchising is covered by general business laws. This is a general interpretation of franchising in Europe and therefore Finland follows the European style.

After the basics are taken care of there are multiple steps to take in starting with franchise operations such as. When it comes to financial supporting female entrepreneurs starting franchise operations the rules are same as starting any business operations. Finland follows the style Europe has set for franchising to consider only business format franchising as an official type of franchising. there are no statistics on how many female franchisors there are in Finland or anywhere in the world. finding entrepreneurs to become franchisees etc. To conclude.Franchising Strategies business plan. Women and franchising Once again. If a woman wants to earn more money than as being an employee for someone else but not start a business on her own franchising is a convenient option for that. as women do not generate many business ideas. The franchising concept attracts women for it is seen as a safer option and women appreciate the network and support they get from franchising. Out of the franchisees internationally female represents about one third and in Finland more than one third. service industries. restaurant and café etc. There are also a lot of industries that are dominated by women within franchising chains such as the cleaning industry. it is easier for the franchisees to get finance when opening up a franchise unit compared with a private 71 . When the franchise chain is already well known for example R-kioski in Finland. The costs to start franchising operations are not set. Or if a cleaning lady wants to advance on her career becoming a franchisee can offer that advancement for her. whereas men want to do everything on their own and make decision themselves. franchising provides an option to avoid taking risks. or they do not have the courage to implement their own ideas in the same way as men do. after the basics are clear and the concept able to be copied the process of starting up a franchise can begin. Furthermore. writing manuals. Compared to entrepreneurship there are more than double the amount of women involved with franchising. At the moment there are no specific laws considering franchising in Finland but all the franchise chains that belong to Finnish franchise association must follow ethical guidelines in their operations. In most franchising chains the franchisor runs at least one unit him/herself to try out new ideas etc. looking for business locations. The most important issue is to start with is a business plan. but vary from industry to industry and business to business. same goes for franchising.

well known chain than when beginning business operations as an individual. Every franchising chain in Finland is not automatically a member of the association. motivation. finance. A lot of the industries that franchising has been successful in are dominated by women and therefore a lot of women have seen it as a good option and possibly a career advancement to buy a franchise. supports the franchisees and the operations. In Finland women get the same financial aid as when starting up any business operations. There are about 100 members in the association at the moment. entrepreneurial attitude. The franchisor develops. in that light franchising is seen as a business operation like any other business. to find the perfect franchisees might take time and franchising only really works when the goals to grow are voluminous. Finnish Franchising Association The base members of Finnish Franchise Association are the franchising chains. Only after the application 72 . quality standards. they bare their share of the risks and perform better than hired labor. guides. To sum the topic up there are not much statistics on women in positions of franchisors but from the point of view of franchisees there are one third of female franchisees globally and a bit more in Finland‟s scale. the input franchisees bring with them. in addition there are associate members that offer services for the franchising chains. Therefore it is important for the franchisor to build contacts and make oneself well known.back. It might be easier to get finance as a franchisee when joining to a large.Franchising Strategies convenience store. also things like customer feed. are responsibilities of the franchisor. Furthermore the Finland‟s franchise association is also a member of Federation of Finnish Enterprises. On the contrary the franchisor will share the profits with the franchisees. sales figures etc. Advantages and disadvantages of franchising The advantages of franchising compared to accustomed entrepreneurship are the fast pace of growth. in this way they want to be part of the entire sector. this will make it easier for the new franchisees to get finance and join the chain. This is because the finance companies know the risks of the franchised chain better than of an entirely new business. For a franchisor the tasks are different from only running a company when there is a whole chain of companies to run.

Also new concepts will appear especially from the care sector when the population will age and need more services. this will not change. The changes in the economy makes people think about the career choices they have made. There are very minor downsides of belonging to the Finnish franchising association except for the membership fees. 73 . As a member of Finnish franchising association a chain will receive membership services such as seminars. There are no visible signs for a downturn in the trend of franchising. The future development in the field of franchising will come from the growth of service and care sectors. networking. revision of franchising contracts and a wide international network if/when expanding franchise operations abroad. assistant with recruitment.Franchising Strategies period the chains that operate according to the ethical guidelines are accepted as new members. Finland being a big in size and sparsely populated limits the possibilities for the operations to grow or in some cases even to begin the operations. This is a policy that all the franchising associations around the world work according to. coverage in a yearbook and online. If a person is inexperienced in entrepreneurship but is interested in owning a business they often seek for a franchise to start with. Also. Franchising does not fit for every business. About one third of Finnish franchising chains operate also abroad and another third of the franchising chains are on their way abroad. The future of franchising For the past 20 years the franchising business has been building success stories in Finland and the positive growth is only continuing.

Summary and conclusions In this part the main findings are discussed based on the two interviews and the theory. The research question was what requirements are needed for Aku & Ada to become a franchise business. According to Juha Vastamäki. guide and support the franchisees. subjects for possible further studies and also an outlook of the reliability of this research. The entrepreneurs enjoy the freedom and flexibility of being able to make their own decisions and run the operations their way. as well as mange the entire chain as a whole. The business idea should be clear. entrepreneurial attitude. they have strong motivation to make their investment grow and thereby share the risks of the operations. It employs the two owners of the company and financially is still getting started and is establishing the foundations. They find it challenging to face customers with a poor attitude towards themselves but get feelings of success when every customer is being helped and satisfied. The tasks of franchisor are to develop. this has been discussed and there should be a change coming. This is the starting point where to look at the results. what is required of a company from Finnish Franchising Associations Executive Managers point of view and what does the literature states. Aku & Ada was opened on 25th of March 2010. The advantages of franchising operations are the rapid growth. written down and duplicable. Table 2 sums up the main findings concerning the requirements. what the situation is now. they bring capital. In contrast a franchisor does share the profits with the franchisees and it 74 . The two owners have both worked in the industry major part of their lives and both have business related education and experience from managerial tasks from before. Also the tasks are not divided equally between the two owners. the EM of Finnish Franchising Association a company that is looking into franchising as means to grow the operations should be able to prove that the business works and is able to sell their business idea to the franchisees. the contribution of franchisees.Franchising Strategies DISCUSSION AND RECOMMENDATIONS The following chapters present the findings and conclusions of the research as well as recommendations of what kind of actions the company could take next. The business idea of the store is to sell a mixture of quality clothes from different brands and help the customer to find what is right for her/him.

Franchisees are looking for a “proven” product. et al. 523). 518. 59). psychologists.Franchising Strategies might take a lot of effort and time to find the right franchisees to trust part of the business to. As the benefits of franchising Barringer (2010. Murphy (2006. 522) has mentioned rapid. 186) brings up the lower risk for franchisor and business talent in form of franchisees and Francoise (1997. perpetual hand-holder and a manger. From theoretical perspective franchising suits best for young companies that might lack the financial capital where the franchising fees and royalties will bring in some of the needed funds. An entrepreneur who is considering becoming a franchisor should posses qualities that fit for a descriptions of an educator. 1415) mentions the knowledge of local markets by the local franchisees. trainer. 2010. As the hindrance of franchising brought up are things like profit sharing and lost of control (Barringer 2010. 17) also points out the possible loss of control over the network. low-cost market expansion and income from franchise fees and royalties. 75 . so when beginning franchising the business should have been well tested and the company should have experience of outlets that are company owned and successful (Barringer. the relationship with the franchisee requires trust and it might become fraught (Murray 2004. Francoise (1997. 522). for franchisors need to be able to provide assistance to franchisees in every aspect concerning the business (Keup 2007. 20-21).

but entrepreneurs working under the same name. finance. loss of control over the network. concept able to be standardized. also things like customer feedback. Successful and proven to work. business knowledge and fresh ideas from franchisees Shared profits. they bare their share of the risks and perform better than hired labor Shared profits. Franchisees are not employees. operating in a small town Requirements Juha Vastamäki Able to prove that the business works and to be able to sell the idea to the franchisees Theory Entrepreneur Entrepreneurial. difference in the business skills. this is the core idea in franchising Themes Operations of the company Advantages Disadvantages Inequality between division of tasks Fast pace of growth. sales figures etc. small company. Business idea Selling brand clothes to young and youthful women and men. quality standards. perpetual hand-holder and looking after what/how things are done.Franchising Strategies Table 2. shared costs. the input franchisees bring with them. strong experience of the field of the industry The franchisor develops. written down business idea. psychologist. guides. method to raise capital. Abstract of the key findings Present situation Aku & Ada A young (8months). Providing personal customer service. troublesome relationship with franchisees. entrepreneurial attitude. business education. able to be cloned Franchisor is a business person as well as an educator. local knowledge from franchisees. supports the franchisees and the operations. Freedom and flexibility of entrepreneurship Clear. underperformance . finding of the perfect franchisee 76 Tested and experience of outlets that are company owned and successful Fast expansion. trainer. efficient marketing. motivation. are responsibilities of the franchisor.

identify what should be changed or modified. This is a strategy which needs to be carefully planned. Perhaps as the owners stated in the interview they should narrow the brands down and the segmentation should be more focused. 518. in addition they have only one store which is still in a phase of settling down. Firstly.2 Recommendations and propositions Theoretically once the business is strong financially and surmounted the first year or two there is no reason why franchising could not be an option. The owners are well aware of their present situation and for now the main focus is establishing good foundation 77 . 13). The owners are entrepreneurial and hard working. Aku & Ada has already proven that at least in Leppävirta they have a service that is successful and their operations are already well known even outside of Leppävirta. 2010. 6. Aku & Ada is not in a state where a business should be in order to begin franchising operations according to the theory and the EM of Finnish Franchise Association. Their business concept is not yet proven to be successful in a wider scale. This will probably lie ahead of them whether they choose franchising as a growing strategy or choose to expand in some other way. As a revision most central requirement to start with for a company getting into franchising operations is a clear and successful business concept that is able to be copied and that franchisees are willing to buy. when the company has been making profit and has the financial capability to expand. Murray 2004. it is recommended to evaluate the business idea and recognize if it is duplicable.Franchising Strategies In conclusion. Also. If they are expanding to larger cities the key problem will be with the limitations of the brands in each city and town. if not. their concept at least in a small town of Leppävirta is working and therefore this criteria is also fulfilled to some extent. When it comes to franchising and having something that others do not have and a strong business model. their product or service is successful and becomes well known. manage the operations and the franchisees. Companies grow followed by two things. but they need to think carefully if they have what it takes to be on top of a franchise chain. Secondly. well designed business model (Barringer. The companies should consider franchising as an option to grow when they have something that others do not in terms of trademark and a strong. For the qualifications to grow they still need the financial stability. et al.

Other option that were thrown in the air during the interview were importing new brands to Finland that are not available for the consumers yet. The last one mentioned could also be a step towards franchising operations depending how the other store thrives in another location. The used research methods are discussed. If the company had been running for longer and was financially more stable and possibly would have expanded already to another location the results could easily be different. It can be assessed by reviewing the following questions (Easterby-Smith et al. et al. the first one is naturally no. 2009. 109): 1. 231. how and who have been interviewed. Is there transparency in how sense was made from the raw data? To answer to these question concerning this research. Another measurement of research is the validity. By the reliability of a research is meant the consistency of the findings (Hirsjärvi et al. ecommerce of Aku & Ada and even a company owned unit in some other city/town. In this case I think that the interviewees made their point clear enough for another observer to come to similar conclusions and therefore the answer to the question number two would be yes. The question number two can be a little controversial since everyone observes situations by using their own background and knowledge mixed with the occurrences. Will the measures yield the same results on other occasions? 2. Will similar observations be reached by other observers? 3. Also the interview questions can be found from the appendices.Franchising Strategies for their business. Reliability of the research Any research aims at avoiding mistakes and yet the reliability and the validity of researches can fluctuate. it has been made clear when. For the third question concerning the transparency I would also answer yes. Saunders. This concern whether the research methods 78 . Franchising is one option if they figure out how to make their concept duplicable. 2009. 2008. for the interviewee they were naturally presented in Finnish. 156). After the financials are stable the time to consider different options for growth is more current. the findings are disclosed in detail and the summary is based on straight to the interviews and the theory.

especially from of female franchisors. Saunders. Subjects for further studies In general this research has proven that there is a big lack of research of franchising from franchisors point of view. When there are only a few studies from a subject they tend not to be focusing on specific theme but cover the subject more comprehensively.Franchising Strategies are measuring what was supposed to be measured (Hirsjärvi et al. By this is meant how applicable the research results are to other organizations. In the conclusions of this study there is no mentioning of the results being applicable to other situations. 79 . or external validity. When conducting a research for a specific company one should never claim the results could be generalised (Saunders. 2009. In Finland Tuunanen has basically been the only one publishing research of this form of business operations. 231. 158). and it refers to how well the results of a research are generalisable. such as importing of new brands. From Aku & Ada‟s standpoint further studies could be exploring of other growth strategies. 157). 2009. taking this into consideration franchising ought to be receiving more attention from the researchers as well as businesses and other officials. 232). et al. Tuunanen (2005. If franchising is chosen to be a potential growth strategy then a closer study on the next steps should be made that includes for example what should be altered in the business concept and which location the business could be taken etc..2009.103-104) and Vastamäki agree that franchising will grow and conquer new industries etc. The validity of a qualitative research can be achieved through an accurate description of the implementation of the research (Hirsjärvi et al. This has been carried out in this research and therefore an endeavor for the validity of the research has been undertaken. 2009. product/service development or geographic expansion by company owned outlets. A further point of view is a generalisability. et al.

and therefore it was a bit stressful. The process was carried out in a quite short period of a time. Based on the information they receive they can form better judgments and opinions towards franchising. 80 . not as a whole. It is still a young company in a textile industry but growth will possibly be ahead of them sooner or later. what really matters is the opinion of the entrepreneurs towards franchising with the information they can gain from the theory and the interview of the EM of the Finnish Franchising Association. All in all in my opinion I have succeeded in the process and hope that this will be useful for the owners of Aku & Ada in some way now or in the future. If something could be done differently I would have decided of the third interview from the very beginning of the process and then have had more time to look for an alternative when the original interviewee did not cooperate. This is an academic research and therefore it must be as it is and the readers can make their own decisions what parts are of their interest and find useful to read. since I did not know very much of the subject beforehand and it is a current topic in business life and touches the lives of every consumer in some way. but partially.Franchising Strategies CONCLUDING REMARKS This thesis was assignment from a clothing store called Aku & Ada. From my own point of view this research gave thorough basic knowledge of franchising for the owners of Aku & Ada. No matter what the final results of the research are. same it was to write. It is good to explore the possibilities before making decisions and this thesis presents the owners one possibility for the future which includes growing through franchising operations. but this was a decision I made and do not regret the time frame set for the process. This was an interesting process for myself as well. Now the results are only from two perspectives and the third point of view would have been very complementary for the big picture. Personally I also find the theoretical part a bit ponderous to read.

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