FRANCHISING

Polytechnic University of the Philippines
COLLEGE OF BUSINESS ADMINISTRATION

DEPARTMENT OF ENTRPRENEURSHIP
ENTRPRENEURSHIP
INSTRUCT
INSTRUCTIONAL
IONAL MATERIALS
MATERIAL S FOR DSSSSAAA
ENTR 40023
FRANCHISING
Compiled
Compiled b y:
Ass
As s t. Pr o fes s o r Cr
Cres
esilil d a M. B
Brr ag
agas.
as. MB A
POLYTECHNIC UNIVERSITY OF THE PHILIPPINESPolytechnic University of the Philippines
COLLEGE OF BUSINESS
B USINESS ADMINISTRATION
ADMINISTRATIONCOLLEGE OF
BUSINESS ADMINISTRATION DEPARTMENT OF
ENTRDepartment of EntrepreneurshipEPRENEURSHIP
TABLE OF CONTENTS
Course Overview ............

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Course Outcomes ......................
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ON 1: Entrepreneuri al Perspectiv e ............

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Topic 1: Entrepreneurial Process ....................
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Topic 2: How Entrepreneurs think ......................

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Topic 3:
3 : Franchising versus Entrepreneurship .......................
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ON 2: Overview of Franchis ing ..........

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Topic 1: The Origins of Franchising .............................
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Topic 2: The Modern Franchising .........................
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Topic 3:
3 : Different Types of Franchise .....................
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LESSON
LESS Models ..........
ON 3: Bus iness Models .......................
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Topic 1: The Concept of Business Models .......................
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Topic 2: Different Types of
o f Business
Bu siness Models .......................
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Topic 3: Understanding Business Models ......................
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LESSON
LESS ON 4: The Franchis or-Franch isee Relationsh ip ........................................................................ 30
Topic 1: Franchise Agreement .......................
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Topic 2: Four Phases
P hases of Franchisor-Franchisee Relationship ......................
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Topic 3: Types of Franchise Relationship Structures .................
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Topic 4: Economic and Financial Relationship of the Franchisor an
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LESSO
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N 5: Relationship ........
5: Significant Aspects of the Franchise Relationship ......................
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Topic 1: The Decision to Expand Through Franchising ...................................

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Topic 2: When is Company Ready to Franchise?
Franc hise? ......................
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Topic 3: Growing the Franchise Network ...............................
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LESSON
LESS Metho d ............................................................... 48
ON 6: Franchis ing as a Superior Expansi on Metho
Topic 1: Benefits Related to Capital Furnished by Franchisees ......................
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Topic 2: Benefits
Ben efits Related to Motivated-Management of Franchise Outlets .....................
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Topic 3: Franchising
Franch ising from the Perspective of the Franchisee ...........................
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Topic 4: Significant
S ignificant Elements of a Business Format Franchise ...................................
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ON 7: Innovatio n and the Franchise Experience ........

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Topic 1:
1 : The Concept of Innovation .................................
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Topic 2: The Seven Sources of Innovation Opportunity
Op portunity ..........................
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Topic 3: The Negotiation Experience ......................

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LESS ON 8: The Role of Communi catio n in a Franchis ing System ................................................... 70
Topic 1: Effective Communication .......................
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Topic 2:
2 : Process of Effective Communication
Communication .......................
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Topic 3: The Intranets ....................
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Topic 4: Barriers to Effective Communication .....................
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ON 9: Franchis ing in the Philip pines ......

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Topic 1:
1 : How to Start Franchising .......................
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Topic 2: Franchise Associations in the Philippines ......................
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Topic 3: Major Considerations Before Buying a Franchise
Fran chise ............................
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GRADING SYSTEM
REFERENCES
INTRODUCTION:
This course provides an in-depth overview about the concept of franchising which considered as one of
the famous business models adapted by many business minded people across countries. This course also
serves as a starting point for students to develop an understanding about franchising as an ideal option in
starting a business and evaluating franchise opportunities. Students will have a better view on how
franchise business can be an effective
e ffective tool to distribute goods and services to the market and a chance
c hance to
expand business endeavour and at the same time help uplifting the nation’s economy and augment
entrepreneurial intentions. Franchising can be different
different from entrepreneurship because of its nature and
processes, but the course further discusses how individual can be an entrepreneur through franchising –
as a business technique.
Franchising today grows rapidly in many countries and continues to mature over the period of time. This
can also be considered as one of the biggest existing business endeavors that gives higher im pact on the
economy. Franchise businesses nowadays considered famous and highly preferred are service-based
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COLLEGE OF BUSINESS ADMINISTRATIONCOLLEGE OF
industries such as professional services which include hotel management and real estate services,
automobile repair shops, rent and the most common of which are fast food restaurants. It accounts for a
large proportion of business activity in most of the developed nations and contributes significantly to local
economies. Franchising at most, has been considered by national governments all over the world as one
of the strategies to hasten economic development and considered as a major tool
too l for job creation and new
incomes in the Small Medium Enterprises (SMEs) sectors where micro enterprises are the prevailing
entities. This has been observed in many developed and developing countries today that franchising is
considered as one of the best options in engaging business aside from buying an existing business to put
up an enterprise
COURSE OUTCOMES:
After successfully completed this module, students wi
willll be able to:
Understand the nature of entrepreneurship, how an entrepreneurs think and behave towards
franchising business;
Discuss the concept of franchising and how franchisees benefits from adapting this kind of business
model;
Determine the different types of franchise relationships exist within the business;
b usiness;
Recognize the significant role of communication in franchise relationship;
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COLLEGE OF BUSINESS
Examine the need for a successful franchisee –franchisor relationships on the economic and financial
perspectives;
Be familiar with the various elements

e lements of a business format franchise;
Explain the importance of innovation in the franchisee experience in pursuing success;
Develop an understanding on the significant aspects of the franchise relationship;
Learn how to select the best franchise through research and know the different documents in
establishing a franchise business.
Appreciate franchise business opportunity in the country and knowing how to select the best
franchise business model that fits with the entrepreneurial interest and
an d resources.
Lesson 1
THE ENTREPRENEURIAL PERSPECTIVE
OVERVIEW
Entrepreneurship is a way of life and being an entrepreneur means different things to other people, there
is an agreement that we are talking a kind of behavior and mind-set that includes initiative taking, the
organizing and reorganizing of social and economic mechanisms to bundle resources in innovative ways
and the acceptance of risks, uncertainty and/or the potential failure (Shapero, 1975). It is important to note
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that successful entrepreneurs are often touted as exceptional individuals; a rare breed who seem to have
been born with unique hereditary traits. But, the entrepreneurial mindset is most often acquired implicitly
without conscious effort or awareness, which may explain why it often appears to be a dispositional trait,
even though it is not. An entrepreneurial mindset can be developed and enhanced
enh anced through entrepreneurial
experiences. And to cultivate the entrepreneurial mindset, we must create entrepreneurial learning
experiences within our classrooms, organizations, and communities.
Entrepreneurs help bolster economic development and their enterprise becomes the backbone of the
economy because they create jobs, and invent products or services that can make the world a better place.
Being a successful entrepreneur requires outside-the-box thinking and larger-than-life ideas. Anyone can
come up with a new idea, but building a successful business around it is the entrepreneurial challenge.
The entrepreneurial mindset is unique in that one must be creative, communicative, and highly motivated
to succeed, yet open to risk and failure. It is not a big idea alone that paves the path to ultimate
entrepreneurial journey to success; oftentimes, the success or failure of a business comes down to the
characteristics of the entrepreneur themselves. It takes a unique aggregate of characteristics to meld one
big idea into a fully-functional
fu lly-functional thriving business.
Learning Outcomes:
1. Understand tthe
he concept of Entrepreneurship
Entrepreneurship and explain
explain the entrepreneurial process;
2. Describe how entrepreneurs think and develop the notion

notion that entrepreneurs learn to be cognitively
adaptable; and
3. Recognize the distinction

distinction between entrepreneurship and franchising
franchising
4. Compare and contrast the different

different types of innovation.
innovation.
COURSE MATERIALS
Top ic 1: The ENTREPRENEUR

ENTREPRENEURIA
IA PROCESS
▪ Entrepreneurship – the capacity and willingness to develop organize and manage a business
venture along with any of its risks in order to make a profit. The most obvious example of
entrepreneurship is the starting of new businesses.
b usinesses.
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▪ Entrepreneur – an individual who takes initiative to bundle resources in innovative ways and is
willing to bear the risk and/or
an d/or uncertainty to act.
Being an entrepreneur today:

▪ Involves creation process.
▪ Requires devotion of time and effort.
▪ Involves rewards of being an entrepreneur.
▪ Requires assumption of necessary risks.
▪ Entrepreneurial action - behavior in response to a judgmental decision under uncertainty about a

possible opportunity for profit.
▪ Entrepreneurial mind-set – it involves the ability to rapidly sense, act, and mobilize even under
uncertain conditions.
▪ Entrepreneurial process – course of action of creating something new with value by devoting the
necessary time and effort, assuming the accompanying financial, psychic, and social risks and
uncertainties, and receiving the resulting rewards of monetary and personal satisfaction.
The Four Distinct Pha

Phases
ses of Entrepreneurial
Entrepreneurial Process
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The Four Distinc t Phases

Phases of Entrepreneurial
Entrepreneurial Proc ess
1. Opportunity identifi
identification
cation - The process by which an entrepreneur comes up with the opportunity
for a new venture.
2. Develop a business plan - The description

description of the future
future direction
direction of the
the business.
3. Determine the required resource – appraising the entrepreneur’s present resources needed for
addressing the opportunity.
4. Manage the enterprise – a control system that must be established to quickly identify and resolve
organizational problems.
Top ic 2: HOW ENTREPRENE

ENTREPRENEURS
URS THINK
▪ Entrepreneurs in
in particular
particular situations
situations may think differently
differently when
when faced with a different
different task or
decision environment.
▪ Given the nature of their decision-making environment, entrepreneurs need to sometimes:
➢ Effectuate
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➢ Be cognitively adaptable. ➢ Learn from failure.
Effectuation
▪ The causal process – a process that starts with a desired outcome and focuses on the means to
generate that outcome.
▪ The effectuation process – a process that starts with one has (who they are, what they know, and
whom they know) and selects among possible outcomes.
ou tcomes.
Achieving cognitive adaptability

adaptability
▪ Comprehension questions – Aids understanding of the nature of the environment before addressing
an entrepreneurial challenge.
▪ Connection tasks – Stimulates thinking about the current situation in terms of similarities and
differences with situations previously faced and solved.
▪ Strategic tasks – Stimulates thoughts about which strategies are appropriate for solving
so lving the problem
(and why) or pursuing the opportunity (and how).
▪ Reflection tasks – Stimulates thinking about their understanding and feelings as they progress
through the entrepreneurial process.
Learning from Bus iness Failure

Failure
▪ Uncertainty, changing conditions, and insufficient

insufficient experience can contribute
contribute to failure among
entrepreneurial firms.
▪ An entrepreneur’s
entrepreneur’s motivation is
is not simply
simply from personal
personal profit but from:
➢ Loyalty to a product.
➢ Loyalty to a market and customers.
➢ Personal growth.
➢ The need to prove oneself.
▪ Loss of a business
business can result in negative emotional response from the entrepreneur. It can
in a negative
interfere with entrepreneur’s ability to learn from the failure and motivation to try again.
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Recovery
Recovery and Learning
Learning Process
▪ Emotional recovery from failure

failure happens when
when thoughts about the
the events
events surrounding,
surrounding, and leading
up to the loss of the business, no longer generate a negative emotional response.
▪ Primary descriptions of the process of recovering are:
➢ Loss-orientation – an approach to negative emotions that involves working through, and

processing, some aspect of the loss experience and as a result of this process breaking
emotional bonds to the object lost.
➢ Restoration-orientation – an approach to negative emotions based on both avoidance and

a proactiveness toward a secondary sources of stress arising
a rising from a major lost.
A Dual
Du al Proc
Pr oc ess fo
forr Learn
L earnin
in g ffro
ro m Failu
Fai lure
re
▪ The dual process of oscillating between the loss-orientation and restoration-orientation enables a
person to obtain the benefits
b enefits of each and minimize the costs of maintaining one for too long.
▪ This dual process speeds the recovery process.
Top ic 3: FRANCHISING VS. ENTREPRENEUR

ENTREPRENEURSHIP
SHIP
▪ Franchising and Entrepreneurship are two different business

business concepts that share many facets and
aspects, even though
though they also have significant differences. Entrepreneurs generally consider
"being their own bosses" a major advantage of this model (more about the reality of this later).
Entrepreneurs sometimes follow principles, advice and business practices taught to them by others,
but they are the ones who make these decisions and create these frameworks. Many entrepreneurs
are trained in business, either formally through college courses or more informally, by a family
member or by growing up in the family business.
▪ Franchising shares many aspects of the entrepreneurial model. Both involve businesses
businesses that offer
goods and/or services for sale, but franchises are structured with multiple locations (units) that are
leased or contracted to different proprietors, who run and administer each unit or set of units, which
are all still owned by the franchisor. All of the franchise units must adhere to rules and principles
that enable them to function in a uniform way. For instance, you can walk into any McDonalds
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restaurant and be reasonably sure what kind of food you will get and what the menu will be (with
some minor variations).
▪ Another si
similarity
milarity between
between franchises and entrepreneurial businesses iis
s tthat
hat the entrepreneur or
franchisee is in charge of the day-to-day running of the business: hiring and supervising staff,
ordering inventory, marketing the business, and keeping track of the business's financials.
▪ One major difference with

with the franchise model is that franchisors offer extensive
extensive training for all of
the above aspects of the business. Instead of
o f having to figure things out on your own, you get lots
of help and guidance about how to run the business day-to-day. Depending on your franchise
agreement, instead of having to do everything on your own, you may also get helphe lp with the financial
aspects of marketing.
▪ The level of support franchisees can

can get from the parent company far surpasses the typical lev
level
el of
support an entrepreneur can depend on, extending to supply agreements, national marketing
campaigns, and administrative support. It is largely because of this support
supp ort from the franchisor that
the franchise model is much less risky than other types of businesses, although with any type of
business, there is always some level of risk.
Franchisi
Franchisi ng Gives More Benefits
Benefits with Less Risk
▪ There are ways to get more autonomy from a franchise. Newer franchises are less established
established and
often have fewer rules in place. Some newer franchises are open to input from their franchisees, so
you can have a bigger part in shaping the rules that franchisees must run their units under.
▪ Another way to handle the autonomy issue is to look for

for a franchise that is run in much
much the same
way you would run a business. You are less likely to have an issue with the rules if they are similar
to the rules you yourself would set up for your

yo ur own business. In fact, joining a franchise with a similar
business philosophy to your own can make it easier for you to stay accountable to following sound
practices.
Financing Advantages
Advantages to Franchisin g
▪ Although franchisees are still expected to have good personal credit ratings, it is far easier for
franchisees to get financing for their businesses
busine sses than for entrepreneu
entrepreneurs.
rs. Because franchisees have
the backing of a large parent
p arent company with a successful
su ccessful track record, banks are more comfortable
lending to them. And some franchise companies even have their own financing to help new
franchisees get started.
▪ Franchising can mean the difference
difference between getting the financing
financing you need, and not being
being able to
start your business because you lack the funds. With financing taken care of, you will be able to
focus on getting the business started and take months off the startup ttime
ime that you might have spent
trying to convince a bank or investors to finance your venture.
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COLLEGE OF BUSINESS
Benefits
Benefits fo r All Parties
Parties Involv ed
▪ The franchise system waswas set up to benefit all parties, both franchisors who wanted to grow their
businesses and market share as well as franchisees who wanted to run a business that they could
be reasonably sure would be successful. Although due diligence is always required and some
franchises do fail, the franchise system has brought many different goods and services to market
at lower prices and with greater reliability than entrepreneurs could ever do alone, which also
benefits consumers.
▪ Indeed, franchisors themselves

themselves are some of the the most successful entrepreneurs, who have ffigured
igured
out how to replicate successful business models all over the U.S. and the world with the help of
franchisees who want the chance to run successful businesses and learn from the best. The
advantages of franchising clearly eclipse other models of doing business for those interested in
reducing their risks while still benefitting from a successful business.
Act iv it ies /Asses

/As ses sment
sm ent s:
1. How can an entrepreneur exhibit his cognitive adaptability?

adaptability? Cite an example.
2. Discuss the rrole

ole of government in
in Entrepreneurship. To what extent should it help protect people
from entrepreneurship?
3. What excit
excites
es you about being an entrepreneur in the future? What are your major concerns and
objectives?
4. List at lleast
east 5 successful
successful franchise businesses in the country. Describe what makes these franchises
franchises
appealing to entrepreneurs.
Lesson 2
OVERVIEW OF FRANCHISING
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OVERVIEW
Franchising as we know it today is a relatively recent phenomenon; although franchising has long been
used by governments as a means of procuring public services, not until this century was franchising widely
used by privately-owned businesses as a method of distribution and business expansion. In the private
sector, franchising was used initially by manufacturers as a means of expanding the distribution of their
products. Independent wholesalers and retailers then adopted franchising as a means of remaining
competitive against chain stores. Business format franchising — the licensing of a trademark in conjunction
with a prescribed business format and method of operation
o peration can be dated to the n
nineteenth
ineteenth century, but did
not develop in earnest until the 1950's. Business format franchising accounts for most of the explosive
growth in franchising that has occurred in the past five decades. Franchising in its most fundamental
fund amental sense
that of bestowing
the beginning a valuable privilege, or
of civilization. o r "franchise," for a consideration, has pro
probably
bably been practiced since
A franchise is a business that markets a product or service developed by the franchisor, typically in the
manner specified by the franchisor. Franchising is the system
system of operating a franchise governed by
b y a legal
agreement between a franchisor and franchisee. Franchisee is the second party to the franchise agreement
while the owner of the unit or territory
territory rights is known as the franchi
franchisor.
sor.
Learning Outcomes:
1. Discuss tthe
he origins
origins of franchising across the world;
world;
2. Explain the modern franchising;
3. Identify the benefits and drawbacks of franchising tthat

hat a franchisee can be experienced all
throughout the business endeavor; and
4. Compare and contrast the different

different types of franchise businesses.
COURSE MATERIALS
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Top ic 1: THE ORIGINS OF FRANCHISING
▪ Franchising has been a practiced from the longestlongest period of time. A secular authority
authority or ruler who
had been vested with certain authority and powers found it practical to delegate some of those
powers and to confer privileges on those who could provide needed services or money in return.
Land rights might be granted to a person who could pledge the services of an army, or a person
might be authorized to collect taxes in the name of the ruler, provided a certain portion of the
revenues was remitted to the ruler. The first example of franchising in the United States was
probably the legislative grant of rights to privately
p rivately owned businesses, which became public utilities,
such as railroads and banks.
▪ Even though the grant of these rights typically

typically entailed some form of public control over the
operation of these utilities, an exclusive right of exploitation provided an inducement for private
businesses to make substantial capital expenditures to develop these utilities. In this way,
franchising by the government provided a means for public utilities to be developed relatively quickly
and without public funds.
▪ Franchising by private businesses

businesses began when manufacturers granted exclusive exclusive distributorships.
distributorships.
As early
e arly as the 1860's,
18 60's, Singer Sewing Machine Co. used franchised distributors to sell its goods
throughout much of the United States. The McCormick harvesting Company began to utilize a
similar distribution concept in the same time frame. Early
Ea rly in this century, automobile manufacturers
began to establish franchised dealerships. Lacking the capital and the trained personnel to develop
and operate a large number of company-operated retail outlets, these companies turned to
franchising as a means of developing a network of retail outlets in a relatively short period of time.
Somewhat later, around 1930, the oi oill companies followed
followed suit and began to franchise
franchise gasoline
service stations. Initially they had relied exclusively upon company operated outlets to sell their
products, but within a short period of
o f time franchised units were their primary memethod
thod of distribution.
▪ The soft drink industry also began to franchise around the turn of the century. A franchised bottler
received proprietary syrup or concentrate, or the rights to produce syrup using a proprietary formula,
together with the right to produce
produ ce the soft drinks, identifies them with the franchisor’s trademark and
distribute them in an exclusive area. The franchisor generally provided marketing and other support
services, and required the bottler to produce the soft drinks in accordance with defined quality
standards. Without franchising, it would have been difficult for proprietary brands of soft drinks to
achieve wide distribution. Soft drink bottling had developed as a localized business because the
finished product could not be economically shipped over long distances,
distan ces, and because of the use of
returnable bottles. These limitations on soft drink distribution did not apply to soft drink syrups and
soft drink companies were able to increase the sales and name recognition of their products by
selling syrups to bottlers and licensing them to produce the finished product. In doing so, however,
they needed to maintain standardization and control over the quality of the soft drinks produced and
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distributed by their franchised bottlers. The franchised bottler's extensive
extensive role in production
p roduction and sale
of the soft drink product and the franchisor's
franch isor's control over the franchisee's production and distribution
differentiated soft drink bottling franchises from typical product distribution franchises. The soft drink
bottling franchise contained many of the elements
elemen ts of the modern business format franchise.
▪ Although the early use of franchising was

was primarily by manufacturers, independent wholesalers
wholesalers and
retailers soon found a use for franchising. Faced with the growth of corporate chains and other
competitive factors, these independents found that franchising enabled them to compete more
effectively. Around 1902, the seeds of the Rexall drug store franchise were planted when a group
of independent druggists formed their own private label manufacturer. This cooperative
arrangement made it possible for the druggists to decrease their product costs and increase their
profit margins. As the cooperative flourished, it established its own chain of Rexall stores. After
World War I, Rexall decided to franchise independent drugstores to use the Rexall name and sell
private label products, finding it an easier and more profitable method of expansion. Other franchise
networks established by independent wholesalers and retailers in the 1920's and 1930's were
Western Auto, Ben Franklin and Super Value Stores. These and other wholesaler sponsored
networks prospered, with franchised stores numbering in the thousands.
▪ The ololdest
dest business format franchise network
network is
is believed to be
be the Harper Hairdres
Hairdressing
sing Parlors,
Parlors,
established by Martha Matilda Harper in 1891. Harper had beenbe en a domestic servant for many years.
After she established her first Harper Hairdressing Parlor in Rochester, New York, she needed
capital and motivated business operators to expand her new concept of hair and skin care for
women to other cities. The business opportunity offered by Harper was designed to enable poor
women, many of whom were former domestic servants, to become prosperous business owners.
The Harper Hairdressing Parlor franchise offered comprehensive training and continuing guidance
relating to the "Harper method." Training was conducted at the first Harper Parlor until a school
schoo l was
established in 1926. The training program used a textbook on the Harper philosophy and business
operations. Candidates who successfully completed training were assigned a territory within which
to establish a Harper Hairdressing Parlor. In addition to hair and skin care services, the parlors were
retail outlets for various hair and skin care products that Harper man
manufactured.
ufactured.
▪ Elements of modern franchise

franchise networks were utilized
utilized by the Harper network, e.g.,
e.g., conventions of
Harper Parlor owners, regional associations of Harper owners and a n network
etwork newsletter. By 1928,
the worldwide total of Harper shops exceeded 500. The network continued until 1972, twenty-two
years after the death of its founder, when its assets were acquired by a competitor. The Harper
network was remarkable in its approach to training, guiding and supporting people without business
bu siness
experience or knowledge to become successful business owners. It is ironic that these opportunities
were made available to hundreds of women a century before women began to become major
players in franchise networks as franchisees and franchising company executive officers, a subject
16 | P a g e
that has received much press coverage in recent years. The principles of Martha Matilda Harper
are at the core of modern business format franchising.
▪ Franchising was introduced

introduced to the food service industry
industry in the 1930's, when
when Howard Johnson
established its first franchises. Johnson had successfully established two ice cream businesses and
a restaurant, but lacked the capital to open additional restaurants. He agreed to help a former
classmate design, furnish, and supervise a restaurant and
a nd to sell him ice cream and other supplies
under a Howard Johnson's franchise. When the first franchise was successful, Johnson granted
other franchises and opened additional restaurants of his own. By 1940, over 100 Howard
Johnson's restaurants were in operation. Many of these were owned by franchisees who had no
prior experience in the restaurant business. Through franchising, the restaurant owners obtained
the benefit of the franchisor's expertise and guidance, and the opportunity to profit from a proven
concept. In return, Howard Johnson's made a profit from the supplies it sold to its franchisees.
▪ Until tthe
he 1980's, the utilization
utilization of franchising was significantly less
less in other countries than in the
United States. In industries
industries such as motor vehicles and gasoline, American companies and some
companies based in other countries have utilized franchising type distribution relationships for many
man y
years, and American and some foreign companies that franchise travel related services (e.g.,
lodging and automobile rental) began to expand outside their domiciliary markets in the 1960's. The
major growth of franchising outside the United States and Canada, by both domestic and foreign
franchisors, began in the 1980's. Cooperatives, which have certain attributes in common with
franchising, have been extensively utilized in Scandinavian and other European
Eu ropean countries for many
years, but modern franchising is a relatively recent phenomenon
p henomenon outside the United States.
Top ic 2:
2: THE MODER
MODERN
N FRANCHISING
▪ There are many definitions of a franchise. They all essentially

essentially describe a comprehensive
relationship in which one party (the franchisor) grants to another party (the franchisee) the right to
operate a business that sells products and/or services produced or developed by the franchisor,
under the franchisor's business format and management system (also referred to as an "operating
17 | P a g e
COLLEGE OF BUSINESS
system") and identified by the franchisor's trademark. Franchising can also be thought of as a
pooling of resources and capabilities.
▪ The franchisor contributes the initial capital investment, development efforts, know-how and
experience and the franchisee contributes
con tributes the (usually far greater) supplemental capital investment,
plus motivated effort, operating experience
experience in a variety of markets and innovation.
innovation. A modern
franchise includes a format for the conduct of a business, a management system for operating the
business and a shared trade identity. Franchising is a comprehensive business relationship, not
just a buyer-seller relationship,
re lationship, and
a nd there is considerable interdependence between a franchisor
and its franchisees. It is a business method and relationship, not an industry. Franchising is the
predominant business relationship in many industries and business segments and is becoming
more common in others.
▪ Although fr franchising
anchising became an established business
business relationship in
in the United States during the
the
first half of the twentieth century, major growth in franchising occurred after World War II. Several
factors made the post war period ripe for the rapid development of franchising.
franchising. A booming economy
and growing population created a rapidly increasing demand for goods and services, and an
opportunity for enterprising businessmen to provide them. Returning servicemen had access to
Veterans Administration loans to finance their business ventures. Franchising enabled these
servicemen and others who were ambitious but inexperienced in business to start their own
businesses with training and supervision from a franchisor. Businessmen who had innovative
concepts or valuable business experience found that by franchising they could exploit their ideas
and experience without the capital required for other methods of expansion.
▪ Today, tthe
he abuses once associated
associated with franchising appear to be less prevalent. However,
However, certain
elements
that do notofhave
the franchise
exclusiverelationship (e.g., network
marketing territories expansion control
and franchisor conflictsofwith existing
approved franchisees
suppliers and
use of that control as a profit center) continue
con tinue to generate some tension in the franchise relationship
and occasional litigation between franchisors and their franchisees. No federal regulation, and on only
ly
one state law (Iowa), applicable to the franchise relationship generally (rather than the distribution
relationships in a specific industry) has been adopted since 1980. However, it should be noted n oted that
the last two decades have been a politically conservative period and that the number of regulatory
proposals introduced in state legislatures and Congress has not significantly diminished.
▪ Currently, several hundred franchisors based in in the United

United States operate and franchise thousands
of outlets in other countries. Canada, Europe, Japan, the Pacific Rim, Australia, Mexico, the
Caribbean, South American and the Middle East are the principal
pr incipal markets of this expansion. China,
India, Russia and Africa (which, collectively, contain one half of the world's population), are currently
the frontiers of franchising. If the legal and political climate in these countries and regions continues
to become friendlier to business development, and to franchising, franchising will almost certainly
18 | P a g e
COLLEGE OF BUSINESS
continue to develop there. The number
n umber of franchisors of other coun
countries
tries franchising outside of their
home countries is also growing rapidly.
Benefits
Benefits of Franchisi ng
▪ The following
following are the
the benefits
benefits of engaging in a franchising business:
CAPITAL. The franchisor’s capital requirements will be lower because the franchisees provide the
capital to open each franchised outlet.
MOTIVATED AND EFFECTIVE MANAGEMENT. The local management of each franchised unit
will be highly motivated and very effective. They treat the franchise units as their own and that will
usually lead to higher sales
s ales and profit levels.
FEWER EMPLOYEES. The number of employees which a franchisor

franc hisor needs to operate a franchise
network is much smaller than they would need to run a network of company owned units.
SPEED OF GROWTH. The franchise network can grow as fast as the franchisor can develop its
infrastructure to recruit, train and support its franchisees.
REDUCED INVOLVEMENT IN DAY-TO-DAY OPERATIONS. The franchisor will not be involved

in the day-to-day operations of each
e ach franchised outlet.
LIMITED RISKS AND LIABILITY. The franchisor will not risk its capital and will not have to sign
lease agreements, employment agreements, etc.
INCREASING BRAND EQUITY. Levereging off the assets of franchisees helps franchisors grow
their market share and brand
b rand equity more quickly and effectively.
ADVERTISING AND PROMOTION. Franchisor will reach the target customer more effectively
through co-operative advertising and promotion initiatives.
CUSTOMER LOYALTY. Franchisors use the power of franchising as a system to build customer
loyalty- to attract more customers and to keep them.
INTERNATIONAL EXPANSION. This can be easier and faster, since the franchisee possesses the
local market knowledge.
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COLLEGE OF BUSINESS
Drawbacks
Drawbacks of Franchisi
Franchisi ng
▪ At fi
first,
rst, it might seem that
that franchising
franchising has only benefits; however, there are some drawbacks to be
considered as well such as
➢ Developing a franchise network can be expensive,

expensive, in terms
terms of management time and initial
initial
capital outlay.
➢ Franchisee’s investment cannot be recovered until franchisees are appointed and start to
receive fees from them.
➢ As franchisees are independent business people, they might sometimes disregard their
obligations related to the franchise system.
▪ There are certain risks

risks involved at each stage
stage of franchising, therefore, developing a successful
successful
franchise requires careful planning, continuous monitoring and support from professionals.
Top ic 3: DIFFER
DIFFERENT
ENT TYPES OF FRANCHISE
▪ Franchising is a relatively flexible method, and just about any type of business can be franchised.
There are many types of franchises that can be categorized according to different factors, like
investment level, franchisor’s strategy, operations, marketing and relationship models, etc. The five
major types of franchises are: job franchise, product franchise, business format franchise,
investment franchise and conversion franchise.
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COLLEGE OF BUSINESS
➢ JOB FRANCHISE
Typically, this is a home-based or low investment

franchise that is taken by a person who wants to start and
run a small franchised business alone. Franchisee usually
has to purchase minimal equipment, limited stock and
sometimes a vehicle. A wide and diverse range of services
fall into this group, like travel agency, coffee van, domestic
lawn care service, plumbing, drain cleaning, commercial and
domestic cleaning, cell phone accessories and repair, real
estate service, shipping service, pool maintenance,
corporate event planning, children’s services, etc.
➢ PRODUCT (OR DISTRIBUTION) FRANCHISE

FRA NCHISE
Product-driven franchises are based on

supplierdealer relationships, where franchisee distributes
the franchisor’s products. The franchisor licenses its
trademark but usually does not provide franchisees an
entire system for running their business. Product franchises
deal mainly with large products, such as cars and car repair
parts, vending machines, computers, bicycles, appliances,
etc. Product distribution franchising represents the highest
percentage of total retail sales. Some well-known product
distribution franchises are Exxon, Texaco, Goodyear
Good year Tires,
Ford, Chrysler, John Deere and other automobile
producers. Sometimes franchisor licenses not only
distribution, but also part of the manufacturing
man ufacturing process, like
in the cases of soft drink manufacturers Coca-Cola and
Pepsi.
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COLLEGE OF BUSINESS
➢ BUSINESS FORMAT FRANCHISE
The business format franchisee also gets to use

the franchisor’s trademark, but more importantly, it gets
the entire system to operate the business and market the
product and/or service. The franchisor offers a detailed
plan and procedures on almost every aspect of the
business, provides initial and ongoing training and
support. Business format franchising is the most popular
type of franchise system and the one generally referred
to when talking franchising. Businesses from more than
70 industries can be franchised, and the most popular
are fast food, retail, restaurant, business services, fitness
and other.
➢ INVESTMENT
INVESTMENT FRANCHISE
Typically, these are large scale projects which

require a large capital
ca pital investment, such as hotels and the
larger restaurants. The franchisees usually invest money
and engage either their own management team or
franchisor to operate the business and produce a return
on their investment and capital gain on
o n exit.
➢ CONVERSION
CONVERSION FRANCHISE
Conversion franchising is a modification

mod ification of standard
franchise relationships. Many franchise systems grow by
converting independent businesses in the same industry
into franchise units. The franchisees adopt trademarks,
marketing and advertising programs, training system and
critical client service standards. They also usually increase
procurement savings. The franchisor in this model has a
potential for very rapid growth in terms of units and royalty
fee income. Examples of industries that extensively use
conversion franchising are real-estate florists, professional
services companies, home-services, like plumbing,
electricians, air conditioning, and so on.
22 | P a g e
COLLEGE OF BUSINESS

/As ses sment
sm ent s:
1. Highlights tthe
he traditional and modern franchising.
franchising. Provide an example to
to justify your answer.
2. If you were given the chance to invest in a franchise, what are your primary considerations and
concerns? Explain why.
3. What makes product (distribution)

(distribution) franchise attractive
attractive to Filipino
Filipino entrepreneurs? Briefly explain your
answer.
4. Interview at lleast
east two franchise owners
owners and ask them
them what types
types of franchise they invested into to,
the benefits and what are the common throwbacks they are facing or experiencing right now.
23 | P a g e
COLLEGE OF BUSINESS
Lesson 3
THE BUSINESS MODELS
OVERVIEW
Business models are one of the integral parts of entrepreneur’s business success and the enterprise
competitive advantage. When it comes to starting or planning for business success, the entrepreneurs’
business model is essentially in making decision about how
ho w they intend to add value – which is another way
of saying – how they intend to make profit. Entrepreneurs are very cognizant with their adapted business
models these days because of the stiff competition iin
n the market. Every business does basically
basically four things:
(1) Make product to offer – this might mean an actual product, but it also includes making a determination
about what markets to enter and how to innovate, (2) Market product/service – whatever the business is
meant to do it can’t survive long unless people know about, understand it and are motivated to buy from it,
(3) Deliver stuff – this is where the real value exchange happens.
happens. No matter if this is a product or a result;
the business must exchange what has been promised, and (4) calculate – this is what most would call
finance, but to me it also includes measuring and analyzing all manner of data, both tangible and intangible.
The raising question is how is an appropriate business model selected? Mostly, through research followed
by trial and error; research not only provides insight into the potential profitability of a product it can also
point out how a product can best achieve profitability. Trial and error involves bending and shaping ideas
into practice because when it comes to business models one size does not no t fit all. What works in one location
or for one product
p roduct or set of customers may not work for another. Put another way, good products or services
can (and do) fail if they aren’t offered to customers properly.
Learning Outcomes:
1. Recognize the concept of business model as part of the enterprise’ success;
2. Determine the iimportance

mportance of business model for creating, delivering, and capturing m
market
arket value;
3. Compare and contra

contrast
st various types
types of business
business model that entrepreneurs can be considered; and
4. Understand business model in terms of enterprise’ investment and cost.
24 | P a g e
COLLEGE OF BUSINESS
COURSE MATERIALS
Top ic 1: THE CONC

CONCEPT
EPT OF BUSINESS MODELS
▪ Business Model – refers to a workable business strategy or the way an orgorganization

anization does business.
A business model can therefore be based on a sales technique, a pricing
p ricing strategy, the wants and
needs of a target market, or any method that offers a product
p roduct or service in a way that capitalizes
cap italizes on
what the business does best and what customers want most. In a fast food restaurant this can
translate into quick, one-on-one service becoming a service deliverer instead.
▪ According to management guru Peter Drucker

Drucker (1985), a business model is supposed to answer
who your customer is, what value you can create/add for the customer and how you can do that at
reasonable costs. Thus, a business model is a description of how a c
company
ompany creates, delivers, and
captures value for itself as well as the customer.
The Importance
Importance of Business Model
Model
▪ The business model acts as the blueprint of the business and a roadmap for its success
success (or failure)
as it explains how the business creates and captures value through its decisions and processes.
▪ Earlier, when there weren’t many competitors in the market, entrepreneurs used to start a business
and its business model used to evolve over time. However, with the increased number of players in
the market, developing a business model has become almost a necessity to decide how the
business will operate, connect with stakeholders, and differentiate
d ifferentiate itself in the market.
▪ Business model gives a reason for the

the customers to choose the offering
offering over others in the market.
For instance, People chose Facebook because it helped them connect and chat with other people
around the world (operating model) and it didn’t even charge for it (revenue model).
25 | P a g e
COLLEGE OF BUSINESS
Top ic 2: DIFFER
DIFFERENT
ENT TYPES
TYPES OF
OF BUSINESS MODELS TO CONSIDE
CONSIDER
R
▪ Product/service: A business can make and sell its own products and
a nd services. This is probably the
most common approach. E.g. Evernote makes a great software product and distributes it through a
free to upgrade approach. A marketing consultant sells a consulting engagement for a monthly
retainer fee. Products and services can be packaged
packaged and distributed
distributed through a multitude of
channels and delivered in physical form, digital form and as one time purchases or ongoing
subscriptions.
▪ Reseller : Resellers don’t necessarily m ake or even warehouse what they sell. They find products
or represent brands and generally make profit based on the difference between the price they sell
a product for and the price they must pay to
to acquire or sell the product. Affiliate marketers fall into
this category as do what are commonly referred to as value added resellers (VARs). Microsoft
partners, for example, sell and install Microsoft products and add services, such as customization
and training, to enhance the basic product.
▪ Broker: The broker essentially

essentially brings buyer and seller
seller together and takes a transaction
transaction fee. They
may also provided services that make a transaction happen more smoothly, such as the case of a
real estate agent. This category has exploded with the growth of online p platforms
latforms that make bringing
buyers and sellers together from anywhere in the world much easier. In many cases this business
model includes the creation of a marketplace, handling transactions and ensuring security. PayPal
is an example of brokering servi ces between a buyer and seller. In this case, it’s the actual exchange
of money.
▪ Agg regato r: An aggregator builds a community and then charges for access
reg ator: access to the community.
community. In
many ways publications and news sites fit this model as they build a subscriber base and then
charge advertisers a fee to gain
ga in access, by way of a positioned ad, to their community.
▪ Manufacturer: A manufacturer makes finished products from raw materials. It may sell directly to
to
the customers or sell it to a middleman. For instance is another business that sells it finally to the
customer like Ford, 3M, and General Electric.
▪ Franchise: A franchise can be a manufacturer, distributor or retailer. Instead of creating a new

product, the franchisee uses the parent business’s model and brand while paying royalties to it.
Examples – McDonald’s, Pizza Hut.
26 | P a g e
COLLEGE OF BUSINESS
▪ E-Commerce: This type of business model is an upgradation of the traditional brick-and-mortar
business model. It focuses on selling products by creating
crea ting a web-store on the internet.
▪ Subscription: If customer acquisition costs are high, this business model might be the most
suitable option. The subscription business model lets you keep customers over a long-term
long -term contract
and get recurring revenues from them through repeat purchases. Examples – Netflix, Dollar Shave
Club.
▪ Online Marketplace: Online marketplaces aggregate

aggregate different sellers into
into one platform who then
compete with each other to provide the same product/service at competitive prices. The
marketplace builds its brand over different factors like trust, free and/or on-time home delivery,
quality sellers, etc. and earns commission on every sale carried on its platform. Examples –
Amazon, Alibaba.
▪ Adver
Ad verti sem ent:: This business models is evolving even more with the rise of the demand for free
ti sement
products and services on the internet. Just like the earlier
ea rlier times, these business models are popular
po pular
with media publishers like Youtube, Forbes, etc. where the information is provided for free but are
accompanied with advertisements which are paid for by identified sponsors.
▪ Crowdsourcing: It involves the users to contribute to the value provided. This business model is
often combined with other business and revenue models to create an ultimate solution for the user
and to earn money. Examples of businesses using the crowdsourcing business model are
Wikipedia, reCAPTCHA, Duolingo, etc.
▪ Network
Ne Marketing: Also known as multi-level marketing involves a pyramid
twork Marketing: pyramid structured network
network
of people who sell a company’s products. The model runs on a commission basis where the
participants are remunerated when they make a sale of the company’s product and their recruits
make a sale of the product.
▪ Data Lic encing / Data Sellin g: With the advent of the internet,
Data Sellin internet, there has been an increase iin
n the
amount of data generated upon the users’ activities over the internet. This has led to the advent of
a new business model – the data licensing business model. Many companies like Twitter and
Onesignal sell or license the data of its users or users of users to third parties which then use the
same for analysis, advertising, and other purposes.
27 | P a g e
COLLEGE OF BUSINESS
Top ic 3: UNDE
UNDERSTANDING
RSTANDING BUSINESS MODELS
▪ A business model is a high-level plan for profitably operating a business in a specific

specific marketplace.
A primary
p rimary component of the business model
mode l is the value
v alue proposition.
pro position. This is a description of the
goods or services that a company offers andan d why they are desirable to customers or clients, ideally
stated in a way that differentiates the product or service from its competitors.
▪ A new enterprise's business

business model should also cover projected startup costs
costs and financing
financing sources,
the target customer base for the business, marketing strategy, a review of the competition, and
projections of revenues and expenses. The plan may also define opportunities
opp ortunities in which the business
can partner with other established companies. For example, the business model for an advertising
business may identify benefits from an arrangement for referrals to and from a printing company.
▪
Successful
price and a businesses
sustainable have
cost. business mo
models
Over time, dels that
many allow them
businessesthem to fulfill
revisefulfill
theirclient
client needs
business at
at a competitive
models from time
to time to reflect changing business environments
env ironments and market demands.
▪ When evaluati
evaluating
ng a company
company as a possible investment, the
the investor should find
find out exactly
exactly how it
makes its money. This means looking through the company's business model. Admittedly, the
business model may not tell you everything about a company's prospects. But the investor who
understands the business model can make better sense of
o f the financial data.
Acti
Ac ti viti
vi ti es/Ass
es/A ss ess ments
men ts :
1. Describe five
five business models that
that are very common among Filipino
Filipino entrepreneurs. What makes
these business models successful?
2. If you were
were going to establish
establish your own business,
business, what kind
kind of business models
models are you goi
going
ng to
adapt? Why? Briefly explain your answer.
an swer.
3. What makes a chosen business model a profitable

profitable and can create value to th
the
e society? Cite
Cite an
example to justify your answer.
4. Discuss how business model can be a tool to achieve competitive advantage and business
business
sustainability.
28 | P a g e
COLLEGE OF BUSINESS
Lesson 4
THE FRANCHISE E - FRANCHISOR RELATIONSHIP
OVERVIEW
Franchising is one of the only means available to access investment capital without the need to give up
control in the process; under the franchising agreement, the franchisor has all the control and authority to
make business decisions even though the franchiser undertakes the business operations. By nature of the
franchisor-franchisee relationship, the franchise agreement will be imbalanced in favor of the franchisor,
as the franchisor must all the time remains in control over certain standards critical to the on-going success
of the business format. Liang (2009) constructed a dynamic model to value the franchise co contracts
ntracts that
take into account the structure of guarantee profit for the franchisees. They find that guarantee profits
become more crucial in competition when the franchisor is less profitable or the business environment is
getting volatile. The environment where the franchise is located is a an important factor to consider vis-à-
vis financial performance is concerned. In the case of global franchisor and domestic franchisee, there
must be a certain degree of autonomy for the franchisee to decide on issues affecting his franchise unit
that is relevant to business profitability). Too much control from the franchisors would curtail chances for
the franchisees to exploit emerging opportunities and overcome impending problems. The success ability
of a franchise business may be impaired due to reasons which may not be expected by the potential
franchisees.
The management
must of a by
be well-executed business format franchising
the franchisee because itmust
can bebeagiven
greatenough
influenceattention by the
in gaining franchisor
financial and
success
to both parties. A franchisor–franchisee relationship that is derived from a give-and-take
g ive-and-take state of affairs can
be considered as flexible and dynamic; the capability of each party to arrange the agreement based on
his/her benefits or advantages is depending
depend ing on the balance of res
resources
ources of two involved parties.
29 | P a g e
COLLEGE OF BUSINESS
Learning Outcomes:
1. Understand the concept and importance

importance of a franchise agreement between
between the franchisee and the
franchisor;
2. Identify the various types of franchise relationship

relationship structures;
3. Analyze tthe
he economic and financial relationship of the franchisee
franchisee and the franchisor; and
4. Recognize the rol

roles
es of franchisor on the economic and financial
financial progress of the franchisee.
COURSE MATERIALS
Top ic 1: THE FRANCHIS

FRANCHISE
E AGREEMENT
▪ Franchising iis
s a business arrangement wherein a firm (the franchisor)
franchisor) collects
collects up-front and ongoing
fees in exchange for allowing other firms (franchisees) to offer products and services under its brand
name and using its processes. Moreover, the franchisee is supported by the enduring commercial
and technical assistance from the part of the franchisor.
franc hisor. This all happens during the term of
o f a written
franchising contract that is concluded for this purpose between
b etween the two parties.
▪ The franchise agreement is essentially a legal document between the franchisor and you (the
franchisee). It is a legal binding agreement. It explains in detail what the franchisor expects from
you, as a franchisee, in the way you operate
ope rate every facet of the business. There is no sstandard
tandard form
of franchise agreement because the terms, conditions, and the methods of operations of various
franchises vary widely depending on the type of business. Every franchisee is required to sign the
franchise agreement, and the franchisor will also sign the document. A word of cacaution,
ution, a franchise
agreement is a binding legal document and
a nd you may want to have a franchise attorney review it on
your behalf prior to signing.
▪ On the provision of the franchise agreement, the franchisee is granted the privilege to sell a product
or service and undertake business as individual but is required to operate the enterprise according
to the methods and terms and conditions
co nditions of the franchisor (Berdnt, 2009).
30 | P a g e
COLLEGE OF BUSINESS
▪ The su
success
ccess of the
the franchisor-franchisee
franchisor-franchisee relationship
relationship might depend on the contractual arrangement
of both parties; the transaction between a franchisor and franchisee is a lot more complex than
traditional buyer-supplier interactions, not only are there certain responsibilities in a franchise
relationship to retain the value of the trademark, but the relationship are also sensitive to conflicts
due to power and dependence between the parties. The relationship should always be a win-win
situation and this aspect of the commercial relationship must see by the franchisee and the
franchisor on the franchising contract.
Contents of a Franchise Agreement
▪ Terms of Agreement – specify how long the franchise agreement

a greement will last.
▪ Renewal – this will grant the franchisor the chance to review the franchise agreement thus enabling
him to decide whether to renew the agreement or not.
▪ Investment amount and fees – this explains the total amount

amo unt investment costs and its inclusions
as well as the date the franchisor is to be paid including:
➢ Franchise fees – the initial franchise fee and this may be non-refundable. It is paid at
the start of a franchise relationship thus giving the franchisee the right to engage in
a business using the franchisor’s name and the business system.
➢ Royalties – these are usually the percentage of the franchisee’s sales and are
typically paid weekly, bi-weekly or monthly.
mon thly.
➢ Marketing contribution – this is also based on the franchisee’s sales.
➢ Training and Support – the franchise agreement should state the training and support
the franchisor will provide.
➢ Purchase of products – supplies and products are used in the franchise system
should maintain consistency, hence a detailed list of suppliers accredited by the
franchisor is provided in the Operations Manual.
➢ Territory – this determines the geographical boundaries a franchise may operate or

within which no other unit of the franchisor’s businesses may compete.
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▪ Termination – this explains the grounds for termination of the contract. In some cases, violations
of such conditions may be remedied over time; such may lead to termination of the franchise
contract.
Benefits
Benefits of Franchise Relationshi
Relationshi p
▪ The franchise organization needs to to promote a healthy two-way

two-way way relationship between
between
franchisor and franchisee; in the case of the franchising relationship, the franchisee would
determine whether the franchise had met (or exceeded) his/her expectations and what emotions
accompany this situation. Franchisees tend to benefit more intensely from the franchi sor’s service
assistance and knowledge at the beginning of
o f the franchise agreement than later on.
▪ According to Hisrich et al. (2010), what you may buy in

in a franchise as a franchisor
franchisor includes
includes a product
or service with established market, favorable market, patented formula or design, trade name or
trademarks, financial management system for controlling the financial
financ ial revenue, managerial advice
from experts in the field, economies of scale for advertising and purchasing, head office services
and a tested business concept. A franchise business can be conceived as beneficial to franchisor
and franchisee; the franchisor achieves a greater financial success with just a limited or sma
smallll capital
outlay while the buyer of the franchise has all the privileges to own and
an d operate the enterprise with
proven business methods and procedures and assisted by an expert. These only prove that this
kind of business relationship can bring dyadic
d yadic benefits to both parties.
▪ Keeping tthe
he relationship of the
the franchisor-franchisee harmonious
harmonious usually seems toto fall on the
franchisor. Some franchisees crave constant communication, regular updates,
u pdates, new and innovative
ideas and as much support as they can get. Working for a franchisor, can sometimes be a result of
a broken relationship that can
ca n lead to the untimely demise of a once-successful franchise store.
▪ Norman Scarborough (2011) mentioned that a franchisee gets the opportunity to own a small
business relatively quickly, and because of the identification with an established product and the
brand name, a franchise often reaches the break-even point faster than an independent business
would; this is probably because the franchise system has already gain recognition not only in the
domestic market but globally with its very impressive record of success of operations.
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Top ic 2: THE FOUR
FOUR PHASES OF FRANCHISEE-FRANCHISO
FRANCHISEE-FRANCHISOR
R REL
REL ATIONSHIP
▪ The franchisor-franchisee relationship goes through four phases.
Phase 1. RECRUITMENT – the franchise relationship begins when the prospective franchisee is
first recruited. During the recruitment process, the franchisor’s and franchisee’s expectations of
each other are established. Both parties will put on their best faces trying to impress each other.
During this phase there will be a lot of contact. Each party is trying to show the other party why they
need each other. There is often mutual infatuation. It is during this stage that each party will develop
deve lop
trust of the other along, with a shared
sh ared desire for success and profitability. Through all of this contact
both parties will develop rapport, trust and confidence in each other leading to the signing of a
franchise agreement. At this point, the franchisor and franchisee are very positive about each other o ther
and look forward to a very bright future together.
▪ Phase 2. GROWTH – from the signing of the franchise agreement through the opening of the
franchise and until the end of the first three years of operation, the franchisee’s need of th e
franchisor’s support services is at its greatest. The ―growth stage‖ of the franchise relationship
begins once the franchise agreement is signed. At this point, everything is new to the franchisee
and he is on a steep learning curve. During this period, the franchisee will go through an
a n extensive
training program that should build a strong, close relationship between the franchisor and the
franchisee. After the comprehensive initial training program and the grand opening, the support
services provided are just as important. The franchisor will also provide ongoing training.
Additionally, the franchise relationship may be cultivated through newsletters, product updates,
marketing suggestions, new advertising ideas, birthday cards, and personal telephone calls and
visits from the franchisor’s representatives to see how the franchisee is doing. During this phase
there will also be a lot of contact between the franchisee and the franchisor. If things have been
going as planned, the franchisee will have learned a lot that has led to a successful opening and
operation of his franchised business. During this period, the franchisee will have stayed in regular
contact with the franchisor. On the other hand, this phase can also evoke negative traits. For
example, maybe the training was not as comprehensive as the franchisee expected. Or, perhaps
the franchisee has not received support materials, accounting aids, marketing suggestions,
promotional and advertising support, or other items as regularly as expected. At this time the
franchisee might begin to feel that he has signed on with a second-rate franchisor. During this phase
any number of things can happen that lower the expectations of the relationship.
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▪ Phase 3. MATURITY– the third phase of the franchisor-franchisee relationship is referred to as the
―maturity stage.‖ During this phase the franchisor and franchisee know what to expect from each
other. In other words, things are predictable. If all has gone according to plan, the franchisor and
the franchisee have developed a mutual understanding and friendship. The franchisee has come to
expect and rely on the franchisor to provide comprehensive and ongoing training, effective
marketing aids and advertisements, new products, and other support services to further enhance
the relationship. In return, the franchisor has come to expect an ever increasing sales volume with
the corresponding
corresponding royalty
royalty increases along with
with the franchisee
franchisee following
following closely the terms and
conditions of the franchise agreement and operations manual. The danger of the maturity stage is
that the franchisee may feel that he is no longer receiving continuing value from the franchisor.
This goes back to the old question: What have you done for me lately? During the first two phases
of the franchise relationship, the franchisee has a tremendous amount to learn. Now that the
franchisee has been operating for several years he may feel that he is no longer receiving his
money’s worth from the franchisor; if th ings have not gone well then the franchisee will become
disenchanted with the franchisor. This could result for several reasons. For example, the franchisor
might not have kept up the infrastructure to support all of the franchisees. The franchisor might have
h ave
diverted some of their resources in the recruitment of new franchisees. Or, the franchisor might no
longer contact either by phone or in person the franchisee as it once did because of the feeling that
this franchisee no longer requires that type of contact.
co ntact. All of this could leave the franchisee feeling
alone and disenchanted. Once a franchisee feels that he is no longer receiving his money’s worth,
the relationship will start to sour.
▪ Phase 4. THE END OR A NEW BEGINNING – the final phase of the franchisor-franchisee
relationship will go in one of two directions. On one hand, the franchisee may be disenchante4d
with the franchisor. At this point the franchisee may seek to terminate his franchise agreement. The
franchisee may have already decided that he will not renew his franchise b because
ecause he feels there is
a lack of support from the franchisor. Additionally, his business could be declining. As a result
resu lt of the
franchisor not maintaining the growth of his infrastructure, the franchisee may find that his business
is falling further and further behind the competition. As a result, the franchisee becomes less and
less concerned with adhering to its franchise agreement and operations manual. At this point the
relationship’s decline could begin to quicken.
▪ On the other
other hand, the franchisee
franchisee may have decided to renew his franchise
franchise agreement and continue
with the relationship. The franchisee’s relationship with the franchisor could be stronger than ever.
The reason for this is that the franchisor has not only continued to give plenty of support to the
franchisee but has continually updated its support services to meet and exceed any competitive
challenges. As a result the franchisee has been provided with, on a regular basis, new products and
services, marketing and advertising strategies, and current research and development concepts.
As a result
result the
the franchisee’s
franchisee’s business
business has continued to thrive
thrive and grow.
grow. Therefore,
Therefore, the franchisee
franchisee is
34 | P a g e
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very happy with his relationship with the franchisor
fran chisor and wants to continue with it. In other words, the
situation has truly been a winning one.
Top ic 3: TYPES OF FRANCHISE

FRANCHISE RELATIONSHIP STRUCTU
STRUCTURE
RE
▪ Franchising can be a wonderful way to become a business owner, and there is a wide variety of
opportunities available. As entrepreneurs begin to explore either becoming a franchisor or
franchisee, it is important to understand the variety of structures used in franchising today. The
different franchise structures can be enumerated as follows:
➢ Single-Unit Franchises. A single-unit or direct-unit franchise is where a franchisee

invests in the right to operate one location or branded business. This is the oldest and
simplest form of the franchise relationship. Owning and operating one
on e franchised location
is the classic ―mom and pop‖ structure used in franchising and, until recently, was the
most common type of relationship found. While single-unit franchising is still very common
and can be a wonderful way to invest in business ownership, it does have some
weaknesses for franchisors as each location requires a new fran
franchise,
chise, franchise system
growth may be slower than multi-unit franchising, and the cost of providing services to
the franchise system may be more costly because each unit has to be supported
individually.
➢ Multi-Unit or Area Developers. Multi-unit development is quite common today in

franchising. It is estimated that over 50% of franchised locations are owned by people
that have more than one location. Multi-unit developers are granted the right and the
obligation to a set number of locations, during a fixed period of time, and generally in a
defined geographic territory. Development of multiple units differs from how a singleunit
franchisee may acquire additional locations; in addition to signing a franchise agreement,
multi-unit franchisees sign a development agreement at the commencement of the
relationship. The area development agreement gives the right and the obligation to open
multiple locations, and obligates the franchisor to allow
allo w them to complete a development
schedule.
➢ ster Franchis ing. A master franchise relationship can look very similar to a multiunit
Master
Ma
development structure but has one significant difference. Under a master franchise
agreement, in addition to having the right and obligation to open and operate
o perate a number
of locations in a defined area, the master franchisee also has the right and the obligation
to offer and sell franchises to other people looking to bec
become
ome franchisees of the system.
The master franchisee becomes the franchisor in their market area. The master
35 | P a g e
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franchisee will generally be required to own and operate at least one or two locations
themselves but may be allowed to sell those units to new franchisees at some point in
time if they choose to do so.
Other Franchise
Franchise Options
There are other franchise structures used less frequently in franchising:
▪ A con
conversion
version franchise
franchise is a relationship
relationship established with an existing
existing independent operator, in
in the
same general business as the franchise system that agrees to sign a franchise agreement and
convert their business into a franchise.
▪ Non-traditional locations are those generally found in mass gathering

gathering locations such as airports,
airports,
train stations, hospitals, college campuses, sports stadiums, ballparks, food courts, portable kiosks
in parks, etc. These are the types of locations where customer traffic is generated by the other
activities in the host facility: few people go to a baseball game just to buy a hot
h ot dog, but there are a
lot of hot dogs sold during a ball game. Also included in this category are host locations such as
convenience stores and big-box retailers.
Topic 4: ECONOMI
ECONOMIC
C AND FINANCIAL
FINANC IAL RELAT
RELATIONSHI
IONSHIPS
PS OF FRANCHISORS AND FRANCHISEES
▪ The franchisor may serve in multiple roles in a franchise network. As the licensor
licensor of a trade or
service mark, and a format for conducting business, the franchisor furnishes the trade identity and
basic business plan of the franchise. The franchisor also furnishes know- how, operating experience
and problem solving guidance to its franchisees. The franchisor may be the supplier of the principal
product line sold by the franchisee or of equipment, ingredients and supplies that the franchisee
uses in producing products or performing services. Franchisors administer centralized advertising
and marketing programs. The franchisor may be a direct or indirect source of financing to its
franchisees or develop programs to assist them in securing financing. The franchisor will frequently
frequen tly
serve as a product and market
m arket research and development resource for its franchisees and develop
programs and format changes to enhance the competitive performance of its franchisees. The
franchisor may actively assist franchisees in selling their franchise businesses and,
a nd, not infrequently,
will be the buyer.
▪ The economic and financial

financial characteristics of franchising
franchising vary widely depending on the type type of
franchise, the type of franchise system, the investment
investmen t required in the franch
franchisee's
isee's outlet, the type
of product or service and other factors. In a product franchise relationship, the primary economic
and financial characteristics relate to the sale of the franchisor's product line (and accessory
36 | P a g e
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products) to the franchisee, the prices charged to the franchisee and the terms of payment.
Warranty service payments and cooperative advertising reimbursements to the franchised dealer
may also be significant. If the product sold
so ld is expensive and customarily finance
financedd (e.g., automobiles)
the franchisor will probably furnish consumer finance services. If the product requires ongoing
service and parts replacements, the franchisor is likely to be a supplier of parts.
The product franchisor usually does not finance the d evelopment of the dealer’s business facility,
though many manufacturers offer floor plan financing and some (e.g., automobile manufacturers)
have offered other financing programs to their dealers, including equity financing for the dealership.
d ealership.
▪ The business format franchisor

franchisor generally charges an initial fee
fee for the
the grant of the franchise. This is
usually a single fee, but it is sometimes broken down into separate fees for the franchise, training,
site selection, lease review, outlet development and/or other services. The business format
franchisee also generally pays a continuing fee. This fee is usually a percentage of gross sales or
revenues (excluding sales taxes), but may be measured by unit sales, products purchased, other
transactions or the franchisee's gross or net profit, or be a flat fee payable periodically
pe riodically and subject
to inflation adjustment. Business format franchisees are also typically required to contribute to a
franchisor administered advertising fund that pays the costs of creating advertising and marketing
materials and developing and implementing advertising and marketing programs. The business
format franchisor may also lease real property, offer financing and serve as a supplier to its
franchisees. Franchisors have many roles to play in the the economic and financial progress of the
franchisees such as:
➢ The Franchisor
Franchisor as a Supplier of Inta
Intangibles Services – a franchisor supplies a
ngibles and Services
variety of intangibles and services to its franchisees. The franchisor is a supplier of
intellectual property, granting to its franchisees the right to use trademarks, trade dress,
confidential information, a business format and a management

m anagement system.
➢ Franchisor as a Supplier of Tangible Products – a franchisor may be a supplier,
The Franchisor
or designate a limited number of approved suppliers entirely for quality control or trade
secret protection purposes, or to establish a convenient, reliable and low cost supply
source for its franchisees and franchisor owned outlets (charging only small mark-ups on
goods sold to franchisees and relying on fees as its principal source of revenue). A
franchisor also may structure its supply program as a significant profit center (in lieu of or
in addition to fee revenue).
➢ The Franchi Sour ce of Capital – though probably only a minority of franchisors

Franchi sor as a Sour
offer financing, or make arrangements for third party financing, to their franchisees, it has
become more common in recent years for franchisors to be a direct
d irect or indirect source of
capital for their franchisees. Financing may be provided directly, indirectly through
37 | P a g e
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general or limited guarantees or buy-back
b uy-back or resale arrangements with third party lenders
lend ers
or suppliers, by leasing a business
bu siness facility to the franchisee or by other
othe r means.
➢ Franchisor as Landlord – in some franchise networks, the franchisor may be the

The Franchisor
franchisee's landlord, either leasing to the franchisee a site owned by the franchisor or
subleasing to the franchisee a site to which the franchisor holds the prime lease.
Generally, only mature and well capitalized franchisors are able to act as landlords to
their franchisees and this relationship is most common in food service and in franchise
networks that lease sites in regional malls (where the franchisor will usually be a more
acceptable tenant).

/As ses sment
sm ent s:
1. What is the importance of a franchise agreement/contract? Is the agreement should be always

applicable and followed at all times?
t imes? Justify your answer by providing an example.
2. Discuss the difference of single

single unit and multiple unit franchise structures in terms of geographic
territory.
3. To what extent franchisor-franchisee relationship

relationship can be nurtured all throughout their business
engagement?
4. What do you think iis

s the most crucial
crucial stage in the franchisor-franchisee relationship? Why? Ci
Cite
te an
instance to further elaborate your answer.
a nswer.
5. Explain this statement: “The harder the conflict, the more glorious the triumph.” – Thomas Paine
Lesson 5
SIGNIFICANT
SIGNIFICANT ASPECTS OF THE FRANCHISE RELATIONSHIP
REL ATIONSHIP
38 | P a g e
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OVERVIEW
The succeeding discussions will focus on factors that bear on the development of franchise programs and
management of franchise relationships. Other than starting with elements of successful franchising related
to the development of a program to expand a distribution network through franchise relationships and the
establishment of such relationships, the order in which these subjects is presented
presen ted is not intended to imply
relative importance; each of these areas — intelligent planning and testing before granting franchises,
selecting high potential franchisees, effective training, furnishing valuable support services
serv ices and maintaining
effective communication are critical to successful franchising and significant to the expansion and
management of a successful franchise network.
It will also be obvious that most franchising companies will take years to adapt and implement all of the
elements outlined and many will never implement all of them;
the m; companies and franchisees must realize that
these elements of successful franchising can serve as a useful road map for companies that range from
start-ups to mature companies developing franchise programs to mature franchise networks that are
endeavouring to establish durable franchise relationships with high potential franchisees and effectively
manage those relationships.
Learning Outcomes:
1. Describe how company decides on its business expansion through

through franchising;
franchising;
2. Determine the readiness of the company to franchise and its

its considerations on the different factors;
and
3. Analyze tthe
he relevant of human capital and organizational value in growing the franchise network.
network.
COURSE MATERIALS
39 | P a g e
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Top ic 1: THE DECISION
DECISION TO EXPAND THROU
THROUGH
GH FRANCHISING
FRANCHISING
▪ Most franchise networks do not begin with firm plans or any thought at all, relating to franchising.
Without regard to whether the business operates from a single location or several
sev eral outlets, whether
to expand, and if so, the method to use, frequently is a question generated by the success of the
business after several years of operation. Whether to expand at all should, of course, precede
consideration of method. Many businesses are not easily expanded into a network of ou outlets
tlets Many
entrepreneurs are not temperamentally suited to manage expansion and will be happier, and
probably more successful, operating their original businesses or growing only to a second or third
outlet in the same city. The determination of whether or not to expand can be considered the first
step.
Methods
Methods to Expand
▪ Once the decisi

decision
on to expand is is made, the different methods by whichwhich expansion can be
accomplished will naturally be considered. One obvious method is the establishment of additional
outlets patterned on the original business and financed with its net cash flow, debt, equity from
friends and relatives or a combination of one or more o
off these sources.
▪ Expansion by this method is slowslow and may strain

strain the management (see the Introduction to this book
for a discussion of this method of expansion). A variation on this method
me thod would be the establishment
of first ventures, either with passive investors (a financing device) or active operators to insure that
tha t
owner-operators will be responsible for the management of each ou outlet).
tlet).
▪ The method chosen is likely tto o be influenced in in part by the goals of the business
business owner. If the goal
is a relatively small, local chain of outlets,
ou tlets, expanding with company owned outlets, or possibly joint
ventures with passive investors, probably is the most sensible method. If the goal is to build a
regional or national, network of outlets, franchising is the logical choice. In many instances a
decision is made to expand with both company owned outlets and franchisees, perhaps by
establishing the original market as a company store territory with franchising reserved for other
metropolitan areas. In order to develop in new markets,
marke ts, a few franchise networks have established
company outlets in such markets and ultimately sold them to franchisees. In many larger franchise
fran chise
networks the ratio of company and franchisee operated outlets has fluctuated greatly during the
past two decades, most recently tending toward a greater percentage of franchisee ownership.
▪ The selection of franchising as an expansion method should be made subject to meeting the criteria,
and the willingness of the owner to follow the guidelines, discussed in this chapter. The success of
the company’s brand will be determinative of the success of its expansion by franchising and
developing and enhancing a successful brand in a franchise network is a complex and demanding
40 | P a g e
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endeavor. As will be discussed at length below, franchising is much more than selling franchises
and opening outlets.
Sound Concept
▪ Once the Franchising has been used extensively as a method of expanding businesses in 75 or
more business classifications, and has therefore been an effective business
b usiness relationship for a wide
variety of businesses. This rapid growth of franchising in a wide, and ever increasing, variety of
service and product businesses has influenced many would be franchisors to believe that
franchising is a relatively simple business technique, readily applied to almost any business. As
noted above, this is not a realistic view. To be ready to develop and implement a franchise
expansion program that has a reasonable prospect for success (even survival), a business must
meet certain criteria and its management must be prepared to follow certain guidelines. If the
business has an operating history of several years and operates in more than a single location,
these criteria already may have been met,
m et, at least to some degree.
▪ The fir
first
st criterion
criterion is a product or service for which there is an established and growing
growing demand, or
at least good potential to achieve such demand. A start-up franchisor with a sensational product or
service concept is nevertheless at a disadvantage vis-à-vis established franchisors in attempting to
sell franchises to high potential franchisees. If the demand for the company’s product or service is
not expanding relative to business generally, or is little different from the offerings of many other
franchisors, its start-up handicap is increased.
▪ It is also important for the company’s business to have some degree of distinctiveness. The more
unique or distinctive the business concept (subject, of course,
cou rse, to a proven demand for its products
produ cts
or services), the easier it is to attract franchisees and d evelop a market for the franchise network’s
goods and services. A copycat business will have difficulty attracting high potential franchisees. The
market for high capability franchisees is increasingly competitive. Different elements of a franchised
business can make it distinctive: (1) its operating systems, (2) its products and/or services, (3) its
delivery systems, (4) its trademarks and trade dress, including a unique feature or symbol that is
easily remembered and can be prominently featured in advertising and (5) its marketing, including
both regular advertising and marketing, sponsorships and public relations that generate publicity.
Top ic 2: WHEN IS COMPANY

COMPANY READY TO FRANCHIS
FRANCHISE?
E?
▪
Companies can
considerations aredetermine
taken intoits
its readiness to engage in
account. in a franchising
franchising business if the following
41 | P a g e
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➢ Prototype. Fully tested prototypes of the business are essential. Prototypes test and refine
the business concept, products/services and operating system that the franchisor will
license to franchisees. They are the models of the business to be franchised. Prototypes
should be tested in different types of markets and locations - and for a sufficient time period.
The operation of one or more prototypes will afford the prospective franchisor the
opportunity to test and refine the following:
a. designs, layouts, décor and signage;

b. products and services;
c. customer reactions and satisfaction;
d. equipment and fixtures;
e. training methods;
f. advertising and marketing;
g. job descriptions;
h. number of employees needed
needed at different times;
i. required skill levels; (10) wage levels and benefits; and
j. other operating characteristics and costs.
costs.
➢ Financial Criteria. To be effectively

effectively franchised, a business must be capable of producing
a reasonable return on the franchisee’s investment ― after deducting the value of the
franchisee’s labor. In other words, a reasonable return on the franchisee’s invested capital.
The profit potential of the business must appeal to high caliber franchise buyers and
compare favorably with other franchises. The business must also be able to generate
sufficient revenue to the franchisor to support essential franchisor services and generate a
sufficient return on the franchisor’s investment in fran chising. A business cannot be
successfully expanded by franchising if it has any major operational or financial deficiencies.
deficien cies.
This does not mean that a business outlet cannot be more profitably operated by a
franchisee. Franchisee owned outlets frequently, though by no means uniformly, have
higher revenue and profit and better system standards compliance than franchisor operated
outlets. An owner-manager has greater
g reater motivation and incentive than an employee to make
the business successful. Thus, a business with multiple retail outlets, some or all of which
are underperforming, or even struggling financially, could convert those outlets to franchisee
ownership and realize an improvement in their operations and financial performance.
However, owner management will not overcome a fundamental operational defect or
financial deficiency.
➢
Business Plan. ItAhas
of the business. business plan is the
theobserved
been accurately design forthat
theabusi
business
nessismodel
design and
the first the expansion
signal of human
intentions. This proposition applies equally to architectural designs and plans for a business
42 | P a g e
COLLEGE OF BUSINESS
and its expansion. A company considering franchising
franchising as its expansion
expansion method needs is a
business plan. A sensible business plan for a would be franchisor includes actually testing
prototypes of the business that franchisees will be required
req uired to operate. The ve
very
ry fact that a
franchisor proposes to develop a business concept and format that will be implemented by
independent contractors requires that its business plan be carefully developed and
thoroughly tested before it is implemented. A company that develops a business plan that
will be implemented by its own personnel will have opportunities to adjust elements of that
plan as it is executed.
➢ Sufficient Capital. To develop and implement a franchising program, a company needs

sufficient capital. Both a franchisor and its franchisees contribute capital to an expanding
franchise network. The franchisor contributes the capital to develop, test and refine the
business concept and operating system that the franchisor licenses. Franchisees contribute
some of the capital (frequently, most of the capital) that is used to develop and grow the
network. A franchisor needs capital for many essential elements of developing a franchise
network such as
a. operating system;
b. products and services;
c. trade identity;
d. prototypes;
e. professional fees;
f. experienced personnel;
g. marketing and advertising;
h. regulatory compliance;
i. franchise sales; and
j. assisting
➢ Capable Management. Expansion by franchising requires experienced management

personnel. Franchisor management must have real skills in franchise
franch ise network management
to recruit, train, communicate with and support
supp ort franchisees. Required experience and skills
span a wide range of functions such as franchise sales, franchisee training, site selection
and outlet development, start up assistance to franchisees, legal compliance, monitoring
franchisee compliance with system standards, continuing operational assistance to
franchisees, communications with franchisees, network and franchisee advertising and
marketing, and developing and implementing technology for the franchise network. At the
commencement of its expansion, a typical franchisor will generally have limited
management and most managers will perform two or more functions. As the network
expands the franchisor’s management will become more specialized, growing both by
promotion from within and hiring experienced franchise company managers from other
43 | P a g e
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companies. The relative importance of different specialties and skills will change as the
network grows.
Top ic 3: GROWIN
GROWING
G THE
THE FRANCHISE NETWORK
▪ The greatest obstacle to growing a franchise network successfully

successfully is
is finding and recruiting
recruiting the right
right
franchisees. The capabilities, resources and attitudes of the franchisees of a network will have an
enormous influence on the network success. The best concept,
concep t, operating system, site selection and
marketing will not result in a successful franchise business and network
ne twork if franchises are granted to
the wrong people. In contrast, high potential
po tential franchisees can overcome deficiencies in the franchise
business and the locations of franchised outlets. The most productive and successful franchisees
are far more valuable to a franchisor and its network than average franchisees in terms of revenue
and outlet growth, fewer problems, lower operating costs and brand enhancement.
▪ Many franchise networks

networks have
have expanded because their franchisees had the skills and work ethic toto
become multi-unit owners. Many of these food service franchisees operate large numbers of outlets
of one or two franchise networks. Such multiple outlet ownership and management by a single
franchisee organization is a powerful engine for network expansion, results in faster growth of the
network, enhances the capital formation in the network and probably reduces franchise turnover
rates and expansion risk. However, the development of multi-unit franchisees, controlling large
numbers of franchise outlets, can result in substandard operations that are more difficult for the
franchisor to monitor and control and a greater dependency on a small number of franchisees,
whose financial or operational problems can have a far greater impact on the franchise network
than comparable problems of franchisees operating one
on e or two outlets.
Organizational Cor e V
Values
alues
▪ A very important core value

value is a positive
positive attitude toward employees
employees (viewing
(viewing employees
employees as an asset
rather than as a cost, a willingness to treat employees with respect, a willingness to invest resources
and effort in the training and mentoring of employees and the leadership qualities to build an
organization to operate the franchise business). A franchisee who takes a participative approach
as opposed to an autocratic approach to managing employees will have a happier, more productive
44 | P a g e
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staff and lower employee turnover. A more satisfied staff reduces training costs for replacement
employees and improves customer relations. Leonard Roberts, then the CEO of
Radio Shack, observed that ―before a store can be a great place to shop, or a restaurant a great
place to eat, it must be a great place to work. And franchisees dictate that culture.‖
▪ Other core values that franchisors have identified

identified include
include positive
positive responsiveness
responsiveness to customers —
even unreasonable customers; the motivation to be successful (people who believe they can and
will be successful, and have positive attitudes toward life and business, tend to be successful;
people with negative attitudes look for excuses for failure, do not accept responsibility and will
usually blame the franchisor); a strong work ethic (managing a business is hard work and can
require long hours for many years); the ability to work independently, with a mindset of ―how can
I make this business perform be tter;‖ receptivity to new ideas relating to marketing, selling and
operations; a willingness to share ideas and work cooperatively with others (e.g., the employees,
suppliers, the franchisor, other franchisees); sociability (the ability to work interactively and
effectively with large numbers and different
d ifferent types of people (emp
(employees,
loyees, customers, suppliers, the
franchisor’s management personnel and other franchisees) in a variety of situations - an attitude
toward working with people that will bring out the best qualities and efforts of those people); a
willingness to become involved in the community (which can be helpful in bu building
ilding a customer base).
▪ In general, the success of franchisees

franchisees will depend upon and correlate well
well with the character of the
relationships they establish and maintain with their customers, employees, suppliers, fellow
franchisees and the franchisor.
Acti
Ac ti viti
vi ti es/Ass
es/A ss ess ments
men ts :
1. Why is there a need for business organizations to expand

expand their business operations? Cite an
instance to justify your answer.
45 | P a g e
COLLEGE OF BUSINESS
2. What is the importance of developing a prototype in relation

relat ion to the company’s decision to franchise?
3. What is the purpose of writing a business plan when buying a franchise is ―ready -to-operate‖
business?
4. Enumerate various management competencies needed when company decided to expand its
franchise business operations.
Lesson 6
FRANCHISING AS A SUPERIOR EXPANSION METHOD
46 | P a g e
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OVERVIEW
Franchising is essentially a method of distribution that combines some of the advantages of an integrated
corporate network with those inherent in independently owned and operated businesses. A franchisor does
not have to acquire and deploy the capital, manpower or organization of a vertically integrated chain. The
franchisor is able to obtain the benefits of franchisee financed gro
growth,
wth, owner management and avoidance
of the costs of centralized management. Moreover, the franchisor is at least partially insulated from the
failure of an individual outlet. The benefits usually attributed to franchising as a method of business
expansion fall into two general categories: (1) benefits relating to the capital investment furnished by
franchisees to develop retail outlets and expand the franchisor's network and (2) the motivated
management by franchisees of the businesses in which they haveh ave made substantial investments. Relatively
low entry barriers have made franchising an attractive method of business expansion. A franchisor does
not require large amounts of capital to develop and implement a franchise expansion program. These
benefits are enhanced by the interdependence that exists in the franchise relationship. The franchisor relies
on franchisees to expand its network and enhance its trademark and the franchisees rely on essential
services and support from their franchisor to be competitive and operate profitably. Franchising also offers
personal satisfaction benefits to an entrepreneur that conceives an idea for a business develops that idea
in one or more prototypes and then expands the business into a regional or national network of similar
business operated by independent owners
o wners who are enabled to be
become
come successful business owners.
Learning Outcomes:
1. Identify the benefits related to

to capital franchise
franchise by the franchisee and the
the motivated management
of franchised outlets;
2. Understand ffranchising
ranchising from
from the perspective of the franchisee;
franchisee; and
3. Evaluate the significant elements of a business

business format franchise.
COURSE MATERIALS
Top ic 1: BENEFITS RELATED TO CAPITAL FURNISHED

FURNISHED BY FRANCHISEES
47 | P a g e
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a. Rapid
Rapid expansion of the franchise network
▪ Franchising enables a company to establish a large number of business outlets in in a relatively short
time period. The capital and part of the work to locate and acquire sites and develop outlets is
supplied by the franchisee. Many industries in which franchise systems are prevalent are
characterized by capital intensive retail outlets (e.g., food service, lodging and motor vehicle rental)
and the role of the franchisee as a source of capital is an obviously significant element of the
franchise relationship.
▪ The ttraditional
raditional method of financing
financing utilized
utilized by franchisees isis a combination of their own resources,
resources,
money invested or loaned by family members or friends
friend s and capital extracted from the equity in the
franchisee's home or other investments. Banks and other lending sources utilizing business loan
guarantee programs have financed many thousands of franchised businesses (a source of capital
that is not available to a vertically integrated chain of businesses). In most situations, a franchisor
does not have the asset base or business experience to raise the amount of capital that will be
furnished by its franchisees to expand the franchise network. Such a company might be able to
raise additional capital periodically for expansion (as long as the great majority of its outlets are
profitable), but its growth rate would be severely constrained.
▪ It is the unique opportunity

opportunity offered by franchising, for an individual
individual to own a business that is
is part of
a network of similar businesses that motivates such individuals to offer substantial amounts of
capital for the expansion of a franchise network. If good locations for outlets are not abundant and
are being sought by competitors, rapid expansion of a network enhances its chances of acquiring
better locations and thereby acquiring market share
sh are and economies of scale at a faster rate. Rapid
expansion builds consumer recognition and understanding of the product or service sold by the
franchise network and creates recognition and value of the network trademark.
b. Franchisees
Franchisees share risk of expansion of the franchise network
▪ Franchisees ffurnish
urnish most of the capital
capital required to expand the franchisor's network. The franchisee
franchisee
furnishes equity and borrowed capital to pay for real estate, leasehold improvements, equipment,
fixtures, furnishings, inventory and working capital required to establish the franchisee's outlet. In
addition, the franchisee pays the franchisor a fee for the grant of the franchise that is usually set at
48 | P a g e
COLLEGE OF BUSINESS
a level that will cover a substantial part of the franchisor's cost of site selection, franchisee selection,
selection ,
training and opening assistance.
▪ The franchisor's cost of expansion is usually limited to to the overhead costs associated
associated with site
selection, franchisee recruitment, training
training and pre-opening
p re-opening assistance that are not covered by initial
franchise fees. Continuing fees paid by franchisees cover a wide range of services furnished to
franchisees, advertising and marketing programs (which enhance recognition and goodwill of the
franchisor's trademark), product and service development and expansion of the franchisor's
network.
▪ A franchisi
franchising
ng company is less
less vulnerable to cyclical
cyclical fluctuations
fluctuations and outlet
outlet failures. Changes in fee
revenue due to the fluctuation of sales of franchised outlets are significantly less than fluctuations
of profits at franchisor-owned outlets. A failing franchisee has a lesser financial impact than a failing
company-owned outlet.
c. A franchisi ng com pany can realize

realize a higher return on its capital
▪ Because the investment in the development of outlets is typically made by franchisees, a franchisor
is able to operate with few fixed assets other than the outlets that it owns. Therefore, though its
revenue from franchised outlets (composed primarily of fees and product sales to franchisees) is
substantially lower than it would be from
f rom owned outlets, a higher percentage of the revenue is profit
and that profit is generated
gen erated with a much lower capital investment, resulting in a potentially very high
rate of return on invested capital.
d. Fra
Franchise
nchise networks can realize
realize economies
economies achieved by company - owned outlets thr ough
jo in t pro
p ro cu rement
rem ent
▪ Franchisors typically
typically develop supply programs for equipment, ffixtures,
ixtures, furnishings, signs, supplies,
insurance, marketing and advertising services required by their franchisees. Such programs can
49 | P a g e
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furnish to a franchise network the advantages of combined purchasing power enjoyed
enj oyed by a network
of company-owned outlets.
e. Rea
Reacquisi
cquisi tion of franchis ed businesses
▪ A successful regional or national franchisor is in a position to buy back franchisee-owned businesses

to expand the number of franchisor-owned and operated businesses in the network. Most large
franchise networks consist of both franchisor and franchisee-operated
franchisee-o perated businesses. In some cases,
the principle owner of the franchisee will join the management of the franchisor following the
acquisition.
Top ic 2: BENEFITS RELATED TO THE MOTIVATED MANAGEMENT OF

OF FRANCHISED
FRANCHISED
OUTLETS
a. Franchisees are motivated owner-managers
▪ In a franchise network,
network, the business
business plan is executed
executed by business owners, not employed
employed managers.
A franchisee
franch isee has a direct and continuing financial interest in, and a ccommitment
ommitment to, his business
and is usually a motivated manager. The opportunity to become a business owner is perceived to
be of great value to many
m any people, in particular those who are tired of working for companies in which
advancement is slow and uncertain and those who have lost a job one or more times and do not
find the prospects of finding a comparable
compa rable job attractive.
▪ A franchise offers such persons the opportunity to become a business owner in a network of
businesses operating under a common trade identity, with tested and successful (at least in a local
or regional market) operating and marketing systems and training, continuing support, economies
of joint procurement and the other services available to franchisees. Also attractive is the relative
low cost and financeability of many franchised businesses. Successful franchisees have the
opportunity to acquire additional franchises and a great many have done so, becoming relatively
affluent business owners.
b. Franchisees
Franchisees are idea/information
idea/information resources to a franchisor
▪ A business owner generally has a higher level of motivation to innovate than a nonowner- manager.
Franchisees are a productive source of new products, services, operating methods and m marketing
arketing
concepts. If a franchise network is structured to collect, evaluate and disseminate throughout the
50 | P a g e
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network the operational experience and innovative ideas of franchisees, the franchisor and all
franchisees will benefit.
c. A Franchising co mpany has a simpler and more efficient management

management structu re
▪ A franchisor is an administrator and service provider, furnishing information and other services to its
franchisees. The operating responsibilities of its management personnel are reduced and they are
able to direct their attention and energies
e nergies to long-term strategic planning. A franchisor needs fewer
levels of management. Fewer field supervisors are required to assist and inspect franchisees than
are required for company-owned outlets.
o utlets. A franchisor's revenue is usually based on the gross sales
sa les
of its franchisees, which are easier to monitor than retail outlet profits. The problems associated
with hiring, training, compensating, insuring, supervising and motivating employees, and related
"paper work," are shifted to franchisees.
d. Franchising
Franchising o ffers opportun ities for employees
employees to acquire franchises
▪ Franchisors can offer franchises to experienced employees and thereby reduce the "dead end job"
syndrome and motivate employees that have reached their highest likely management level. The
opportunity to acquire a franchise may prevent the loss of experienced managers to competitors.
Experienced employees frequently make productive franchise owners. Some franchisors offer
special incentives to their employees, such as credits toward the purchase of a franchise earned
during employment reduced initial franchise fees and financing of an employee's investment to
develop his or her franchised business.
Top ic 3: FRANCHIS
FRANCHISING
ING FROM PERS
PERSPECTIVE
PECTIVE OF THE FRANCHISE
FRANCHISEE
E
▪ For many persons, due to lack

lack of experience and limited financial
financial resources, a franchise iis
s the only
realistic means to become a business owner. A franchise confers
con fers a variety of benefits and imposes
certain costs and obligations upon the franchisee. The key economic issues are the probable
prob able value
51 | P a g e
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of the benefits of a given franchise and the relationship of that value to the costs the franchisee will
incur. If the franchisor furnishes some or all of a strong trade identity and consumer good will;
valuable know-how and experience; effective site selection; financing assistance; outlet
development assistance; training and start-up support; procurement programs; advertising and
marketing services; research and development; and continuing guidance
gu idance and support, the value of of
the franchise is likely to exceed the costs that the franchisee will incur. If the franchisor's services
are focused primarily on the opening
ope ning of the franchisee's business, the franchisee may find that the
costs associated with the franchise will, in the long run,
run , exceed the value of its benefits.
ben efits.
▪ The cost benefit analysis involves a good deal of prediction and projection into the future of past
operating history of the franchisor. There are many potential events which may change the
performance of the franchisor, causing the costs of the franchise to exceed its value. For example,
the illness, death or retirement of the founder of the franchisor; the acquisition of the franchisor; or
changes in its management personnel, that result in new operating philosophies, may change the
way the franchisor relates to its franchisees. A franchisor may be acquired by a company that has
goals and objectives that are not consistent with those of its franchisees. A franchisee casts his lot
with the franchisor and thereby becomes dependent upon the effectiveness of the franchisor in
becoming and remaining an effective
e ffective competitor
competitor in its market, because
be cause the franchisee will probably
be restricted by contract from owning or operating a competitive business outside of the franchise
network and may be able to disaffili
d isaffiliate
ate from the network only by selling his or her business at a loss.
▪ The prospecti
prospective
ve franchisee should anticipate
anticipate the possibility
possibility that the franchisor will become less
competitive, that the cost-benefit analysis of the franchise may change, and that expansion within
the franchise network may be barred by unavailability of additional franchises or the expansion of
other franchisees or franchisor owned outlets. In any of these situations, the prospective franchisee
should also consider the extent to which obligations and restrictions of the franchise will preclude
business activity outside the franchise network.
▪ The iissue
ssue of the trade
trade off the franchisee
franchisee makes to join a franchise network — surrendering a degree
of independence in the operation of its business in exchange for the guidance, support and other
benefits of being a network member — has been extensively discussed. A franchisee's degree of
independence may be measured by the extent to which the franchisee may ope operate
rate the franchised
business according to his/her own wishes. Franchisee independence is limited by the mandatory
specifications, standards and operating procedures with which the franchisee agrees to comply.
The notion that franchisees are independent business owners has been overemphasized. No
business owner is totally independent and free of controls, since all businesses are subject to
controls and limitations imposed by government, suppliers, creditors, employees and accounting
rules.
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▪ Successful franchising depends upon the maintenance of uniform specifications,
specifications, standards and
operating procedures in the operation of the franchisee's business to ensure a uniform image and
uniform quality throughout the franchise network. Such requirements, however, tend to lessen the
degree of independence of the franchisee. Nevertheless, the franchisee typically has considerable
latitude in the operation of his/her
h is/her business, and ultimately determines its success or failure.
Top ic 4: SIGNIFIC
SIGNIFICANT
ANT ELEMENTS OF A BUSINESS FORMAT FRANCHISE
▪ The following is a discussion

d iscussion of the most significant elements of a business format relationship. These
elements are found in and
an d are important to most business format franchise relationships.
➢ Trademarks and Trade Dress. An important element of each franchise is the license of a
trademark or service mark by the franchisor to the franchisee. Not all words and symbols
are protectable or registerable as trademarks. In the United States, trademarks become
valuable by extensive use and and promotion. If a trademark is a collection
collection of letters with
with no
meaning (e.g., EXXON, KODAK and XEROX), a generic word used for an unrelated product
or service (APPLE for computers) or suggestive (but not descriptive) of a product or service.
A trademark owner acquires "common
"common law"law" ri
rights
ghts in its mark in the geographic area in in which
which
it conducts business by virtue of its use, even if the mark is unregistered. However, prior to
filing an application for a federal registration of a trademark, anyone else who in good faith
(i.e., without knowledge of the prior user)
use r) uses the same o orr a confusingly similar trademark
outside the geographic trading area of the first user may gain superior rights in the
subsequent user's geographic market. Therefore, the owner of an unregistered trademark,
and its licensees, may face one or more other users that possess superior rights to the
trademark in potentially large geographic trading areas. An unregistered "common law"
trademark is, therefore, significantly less valuable than a trademark that is registered on the
Principal Register.
➢ Business Format and Operating System. In addition to a trademark, franchisors license

Operating System.
to their franchisees a business format and operating system.
s ystem. As in the case of trademarks,
the more established and successful the franchisor's format and system, the greater the
value of the franchise. The operating system of a franchisor will frequently include elements
and operating information that constitutes a trade secret of the franchisor. Many franchisors
are careful to protect their trade secrets by
b y obligating franchisees (and requiring franchisees
to obligate their managerial employees) to maintain the confidentiality of such trade secret
information (e.g., by signing confidentiality agreements) and prohibiting franchisees from
53 | P a g e
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owning an interest in or maintaining any relationship with a directly competing business
during the term of the franchise and for one or two years following the expiration or
termination of the franchise. Such restrictions
res trictions may also apply to members of the franchisee's
immediate family and other members of the franchisee's management. The failure to protect
trade secrets from disclosure or use in a competing business will cause them to lose their
status as trade secrets and become part of o f the public domain.
➢ Site Selection
Selection and Business Facility Development. Business format franchisors
Facility Development. franchisors typically
typically
furnish services to their franchisees relating to the selection of the site for the franchisee's
business and the development of the franchisee's business facility. These services range
from furnishing site selection criteria, approval of a site selected by the franchisee and
furnishing layouts or preliminary plans for facility development (minimum services), to
developing a complete facility at a site selected and purchased or leased by the franchisor
and selling or leasing that facility to the franchisee (maximum services). Between these
extremes franchisors offer such services as assistance in site selection and purchase or
lease negotiations, the preparation of plans and specifications for the franchisee's business
facility, recommendation of contractors and supervision of development, including the
purchase and installation of equipment and a nd inventory and advertising and marketing relating
to the opening of the franchisee's business. Effective site selection and the timely
development of the franchisee's facility in conformance with the franchisor's standards and
specifications are critical to the successful start of a franchisee's
franc hisee's business. Site selection is
a critical service in a location sensitive business, e.g., food service. Franchisor services
relative to site selection and facility development are important and valuable to franchisees
and are generally most highly developed in larger franchised networks.
➢ Adver
Ad verti
ti si ng and Marketi ng . Most business format franchisors undertake to perform
Mark eting
advertising and marketing services for their franchisees.
franc hisees. Such services are usually furnished
in the form of a central advertising and marketing fund established and managed by the
franchisor, to which franchisees contribute. Such funds develop advertising and marketing
programs and materials, place media advertising, conduct market research and purchase
public relations' services for the franchised network. The pooling of resources of franchisee
franch isee
and franchisor operated businesses to create and implement effective advertising and
marketing programs is usually of critical importance to the success of a franchisor and its
franchisees.
based Some franchised
retail stores networks
pay high rents do not
for the re ly
rely
large heavilyattracted
crowds on advertising
to the (e.g.,
mallsregiona
regional
l mall
and usually
spend proportionately less on advertising). However, most retail businesses must advertise
54 | P a g e
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and market. Many industries in which franchising are a prominent form of business
organization are highly competitive and are dependent on effective advertising and
marketing. A significant feature of
o f a successful franchised network is usually an advertising
and marketing fund effectively managed by the franchisor, usually with input from an
advisory committee or association of franchisees.
➢ Training. The great majority of franchisors furnish training to each franchisee, and
frequently to the managerial personnel of the franchisee's business. Training is usually a
combination of classroom instruction and actual hands on experience in an operating
business. The comprehensiveness and effectiveness of the initial training of franchisee
personnel is generally believed to be critical to the successful development and operation
of the franchisee's business.
➢ Continuing Assistance and Guidance.

Guidance. Substantially all franchisors furnish
furnish some degree
of continuing assistance and guidance to their franchisees. Continuing assistance and
guidance takes several forms, including:
1. a comprehensive operat
operations
ions manual that is periodically updated (ope
(operations
rations manuals describe
describe in
detail the elements of the operation of the franchised business and frequently are contained in several
loose leaf binders consisting of
o f several hundred pages);
2. periodic written and electronic com communications

munications that address developm
developments
ents in the franchised
networks' industry, information regarding competitors and operational and marketing information
relating to the franchised network;
3. field visits by franch

franchisor
isor personnel, during w
which
hich the franchisor's representative
representative (a) observes the
franchisee's business
input from the facility
franchisee, and table
a time operations,
for theexplains any
correction ofdeficiencies observed
such deficiencies; (b) and formulates,
consults with with
the franchisee with respect to any operational or marketing problems that the franchisee is
experiencing; (c) discusses with the franchisee any changes in the franchisor's format, operations or
marketing that are under consideration or have been decided, including a time table for their
implementation; (d) and discusses with the franchisee any other concerns or issues that the
franchisee raises; and
4. continuing comm
communication
unication by telephone (the great majority of franchising companies
companies maintain toll free
numbers that their franchisees may use), telecopy and electronic mail.
➢ System Standards. Business format franchisors formulate specifications,
standards
the and operating
franchised businessprocedures
(generallyrelating
knowntoasthe"system
development and operation
standards"). System of
standards are usually contained in an operations manual that is made part of the
55 | P a g e
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franchise relationship and may be periodically modified by the franchisor. The
more complex the franchised business, the more comprehensive will be the
system standards that apply to its development and operation and the operations
manual that codifies those system standards. System standards include the
appearance and maintenance of the franchisee's business faci facility;
lity; authorized
products and services; restrictions on sources of supply for equipment and
supplies; employee qualifications, training and dress; operating hours; insurance
requirements; use of trademarks; production, presentation, packaging and
delivery of products and services; use of standard forms and accounting systems;
signs and advertising; credit practices; and other elements of the franchised
business.
➢ Renewal and Trans fer. Franchise agreements typically include provisions

Term, Renewal
governing the term for which the franchise is granted; whether, and under what
conditions, the franchise may be renewed or extended when its initial term expires;
and whether, and under what conditions, the franchise is transferable by the
franchisee. From the perspective of a franchisee, a long term, renewal rights and
reasonable transfer rights make the franchise more valuable. As franchising has
evolved, the concepts and practices relating to term, renewal and transfer of
franchises have changed. The terms for which franchises are granted have
lengthened, particularly for franchises that require
req uire a substantial investment by the
franchisee. Large investments in facilities and equipment must be amortized over
the initial term of the franchise (renewal is never assured and the franchisee is
frequently prohibited by a covenant not to compete form operating the same type
of business at the location of the franchised business after the initial term of the
franchise has expired) and amortization charges would become prohibitive if
investments of several hundred thousand to several million dollars had to be
amortized over a relatively short term. Equally important, franchisees would be
unable to secure long term financing of their investments without a long term
franchise. Therefore, the terms for which franchises are granted have increased
and 10-20 years has become the common range. Franchises requiring large
investments are generally granted for a term of 15-20 years. A longer term is
viewed as enhancing the value of a franchise to the franchisee and improves the
marketability of the franchise.
➢ Terms and Conditi ons. There are other significant terms and
Otherr Signific ant Terms
Othe
conditions found in franchise agreements. These include the territorial protection
to be granted
trading to the
area by thefranchise (i.e.,
franchisor andrestrictions
its otheron competition and
franchisees) in theterritorial
franchisee's
and
customer restrictions on the franchisee (i.e., limitations on where and
a nd to whom the
56 | P a g e
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franchisee may advertise and/or sell); covenants not to compete applicable
a pplicable to the
franchisee (and members of his or her immediate family and senior management
of the franchised business) during the term of the franchise and subsequent to its
expiration or termination; the conditions under which the franchise may be
terminated by the franchisor and the franchisee; and dispute resolution
procedures. Though these terms and conditions can affect the value of a franchise,
the impact on the value of a franchise of such terms and conditions is less than
the impact of the value of the franchisor's trademark and trade dress, business
format and operating system, system standards, site selection and facility
development services, advertising and marketing programs, training and
continuing assistance and guidance, and the term for which the franchise is
granted, the franchisee's renewal rights and the franchisee's right to transfer the
franchise.
➢ Fees. Virtually, all business format franchise relationships iinvolve

nvolve the payment of
fees by the franchisee to the franchisor. Such fees are usually in the form of an
initial franchise fee that is intended to reimburse the franchisor for services
furnished to the franchisee in connection with the establishment and opening of
the franchised business, and a continuing fee (a "royalty" or a "royalty and service
se rvice
fee"). The continuing fees payable by a franchisee are the significant consideration
paid by the franchisee for the rights granted and services furnished by the
franchisor. In a typical franchise relationship, the cumulative total of the continuing
co ntinuing
fees paid over the term of the franchise will greatly exceed the initial fee for the
grant of the franchise. Continuing fees are usually calculated as a percentage of
the gross sales (exclusive of sales taxes) of the franchised business.
Acti
Ac ti viti
vi ti es/Ass
es/A ss ess ments
men ts :
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1. In the Philippines, what are the major sources of capital for an entrepreneur to establish an
enterprise or buy a franchise?
2. Discuss how franchise owners can be motivated w

with
ith their chosen franchise business model? Briefly
explain your answer.
3. List at lleast
east 5 common franchise
franchise businesses in
in the country. How these franchise
franchise businesses bring
bring
economic opportunity to entrepreneurs? Provide an example to elaborate
elaborate your answer.
4. Highlight each aspect of a business franchise relationship.
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Lesson 7
INNOVATION AND THE FRANCHISE EXPERIENCE
OVERVIEW
It can be a serious mistake for a franchisor to fail to learn from franchisee experience, stimulate franchisee
creativity and take advantage of franchisee ideas. Franchisees interface with customers, they know the
competition and they are a highly valuable repository of operating experience. Franchisee experience is
particularly important in predominantly franchised networks. Franchisees are a fertile source of innovation.
Ray Kroc, the founder of McDonald’s, observed that his best ideas came from his franc hisees because
they talked to customers every day and some of them listened to what customers said. There are many
examples of franchisee innovation, such as new n ew products, operating system improvements, cost reduction
ideas and advertising and marketing ideas. A franchisor should encourage its franchisees to share ideas
and should also develop methods to capture franchisee experience and innovation. Franchisees should
be asked to submit ideas for evaluation. The best ideas can ca n be presented by the franchisees who submitted
s ubmitted
them at annual or regional franchisee meetings. Awards can be given for the best ideas. Franchisee
innovations that benefit the network business should be shared with the network, network, with credit to
to the
innovating franchisee. Most people welcome and appreciate recognition and the willingness of a franc franchisor
hisor
to acknowledge the good ideas that come from its franchisees, which be benefit
nefit all network franchisees, will
resonate well in its franchisee community.
Learning Outcomes:
1. Understand the concept of innovation;
2. Determine tthe
he seven sources of innovative opportunities
opportunities for entrepreneurs;
3. Recognize the requirements

requirements for a knowledge-based
knowledge-based innovations; and
4. Evaluate the iimportance

mportance of a good and sound
sound negotiation experience by the franchisees.
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COURSE MATERIALS
Top ic 1: THE CONC

CONCEPT
EPT OF INNOV
INNOVATION
ATION
▪ Innovation – the process of translating an idea or invention into a good o

orr service that creates value
or for which customers will pay. To be called an innovation, an idea must be replicable at an
economical cost and must satisfy a specific need. Innovation involves deliberate application of
information, imagination and initiative in deriving greater or different values from resources, and
includes all processes by which new ideas are generated and converted into use useful
ful products.
▪ Invention – a new scientific or technical idea and the means

m eans of its embodiment or accomplishment.
To be patentable, an invention must be novel, have utility, and be non -obvious. To be called an
invention, an idea only needs to be proven as workable. Invention was mysteries resulted from
―flash of genius‖.
▪ Research – it is a systematic, purposeful activity, which is planned and organized with high
predictability both of the results aimed at and likely to be achieved; something similar now has to
be done with respect to “innovation”.
Systematic
Systematic Innovation
▪ Successful franchisees have to learn

learn to practice systematic innovation. They go to work, they try
to create new and different values and new and different satisfactions, to convert a ―material‖ into
a ―resources‖, or to combine existing resources in a new anda nd more configuration.
▪ The concept of “change” always provides the opportunity for a new and uniqueness. The
overwhelming majority of successful innovations exploit change.
▪ A systematic Innovation consists in the purposeful and organized search for changes, and in the
systematic analysis of the opportunities such changes might offer for economic or social innovation.
It is considered as the discipline of innovation (and it is the knowledge base of entrepreneurship) is
a diagnostic discipline: a systematic examination of areas of change that typically offer
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entrepreneurial opportunities. Systematic innovation means monitoring seven sources for
innovative opportunities.
The Three
Three types of innovation
1. Ordinary - New products with

with little technological change.
2. Technological – New products with significant technological advancement.
3. Breakthrough – New products with some technological change.

Product Evolution
**Image from the book Entrepreneurship by Hisrich et.al, 2008
▪ Production-Evolution Process – it is the process for developing and commercializing an innovation.
Top ic 2: THE SEVEN

SEVEN SOURCES
SOURCES OF
OF INNOVATIVE
INNOVATIVE OPPORTUNIT
OPPORTUNITIES
IES
▪ The first four sources (the unexpected, incongruity, process need, and industry and market
structure) lie within the enterprise, and are visible primarily to people within. They are highly reliable
indicators of changes that already happened or can be made to happen with little effort.
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▪ The second three sources (demographics and changes in perception) involve changes outside
the enterprise or industry.
▪ The seven sources (new knowledge) require a separate analysis, for each has its own distinct
characteristic.
The Seven
Seven Sources of Opportunities
**Image from https://innovationcloud.com

https://innovationcloud.com
1. The Unexpected
▪ The following are the

the sources of unexpected sources of innovative opportunities:
➢ The unexpected success – this offered the richest opportunities

oppo rtunities for successful innovation with
less risky and less arduous; yet the unexpected success is almost totally neglected. The
unexpected success is an opportunity because it demands innovation.
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➢ The unexpected failure – if something fails despite being carefully planned, designed and
conscientiously executed, that failure often bespeaks underlying change, and with it,
opportunity. The assumptions
assumptions on which a product or service,
service, its design or its marketi
marketing
ng
strategy, were based may no longer fit reality. Any change like this is an opportunity for
innovation. Failure should always be considered a symptom of an innovative opportunity, and
taken seriously as such.
➢ The unexpected outside event – it is a condition of success

suc cess in exploiting the unexpected event
that it must fit the knowledge and expertise of one’s own business, Exploiting the unexpected
outside event appears to be something that particularly fit the existing enterprise ,and a fairly
sizable one.
2. The Incongruities
▪ It iis
s the reality
reality as itit actually is, assumed
assumed to be, and ought to be. There are several kinds of
incongruity:
➢ An incongruity between the economic

economic realities of an industry
industry or of a public-service area);
area);
➢ An incongruity between the reality of an industry (or of a public-service area) and the
assumptions about it;
➢ An incongruity between the efforts
efforts of an industry (or a public- service area) and the values
and expectations of its customers; and
➢ An internal incongruity within the rhythm or the logic of a process.
3. Innovatio n Based On Process Need

Need
▪ Need is a major innovative

innovative opportunity.
opportunity. A Process need exists
exists within the process of a
business, an industry ,or a service; it perfects a process that already exists, replaces a link
that is weak, redesigns an existi
e xisting
ng old process
pro cess around newly available knowledge.
▪ Incongruities and demographics may be the most common

common causes
causes of a process need
The Five Basic Innovation Criteria of Process Need
➢ A self-contained process
➢ One ―week‖ or ‖missing‖ link
➢ A clear definition of objective
➢ That the
the specification
specification for the solution can be defined clearly
clearly
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➢ Widespread realization that ―there ought to be a better way.‖ that is, high receptivity.
4. Industry and Market

Market Structure
▪ Industry and
and market structure sometimes
sometimes last for many years and seem completely
completely stable
stable
but actually, market and industry structure are quite brittle. One small scratch and they
disintegrate, often fast and when this happens,
happe ns, every member of the industry has to act.
▪ A change in in industry structure offers exceptional opportunities,

opportunities, hi
highly
ghly visible and quite
predictable to outsiders. But the insiders perceive these same changes primarily as threats.
The outsiders who innovate can thus become a major factor in an important industry or area
quite fast, and at relatively low risk.
▪ Innovations that exploit

exploit changes in industry structure are particularly effective if the industry
industry
and its markets are dominated by one very large manufacture or supplier or by a few. Again
and again, when market or industry structure changes, the producers
produ cers or suppliers who are
today’s leaders will be found neglecting the fastest-growing market segments
5. Demographics
▪ Of all external changes, demographics—defined as changes in population, its size, age

structure, composition, employment, educational status, and income —are the clearest.
They are unambiguous and they have the most predictable consequences. Demographics
have major impact on what will be bought, by whom, and in what quantities.
▪ What makes demographics

demographics such a rewarding
rewarding opportunity
opportunity for the entrepreneur is precisely
its neglect by decision makers, whether businessmen,
bu sinessmen, public-service staff, or governmental
policymakers. They still cling to the assumption that demographics do not change or do not
change fast. Indeed, they reject even the plainest
p lainest evidence of demographic changes.
6. Changes In Perception
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▪ Perception can be defined as the process by which people translate sensory impressions
into a coherent and unified view of the world around them. Though necessarily based on
incomplete and unverified (or unreliable) information, perception is equated with reality for
most practical purposes and guides human behavior
b ehavior in general.
▪ When a change in perception takes place, the facts do not change, their meaning does.
The meaning changes from seeing oneself as ―working -class‖ and therefore born into
one’s ―station in life,‖ to seeing oneself as ―middle -class‖ and therefore very much in
command of one’s social position and economic opportunities. This change can come very
fast.
▪ Very often
often perception cannot be quantified; or rather, by the time it can be quantified,
quantified, itit is
too late to serve as an opportunity for innovation. But it is not exotic
e xotic or intangible; is concrete
and can be defined,
d efined, tested, and above all exploited.
7. New Knowledge
▪ Knowledge-based innovation is the ―super-star‖ of entrepreneurship because it gets the

publicity, it gets the money and it is what people normally mean when they talk of innovation.
Of course, not all knowledge based innovations are important. Some are truly trivial. But
amongst the history-making innovations, knowledge-based innovations rank high. The
knowledge, however, is not necessarily scientific or technical. Social innovations based on
knowledge can have equal or eveneve n greater impact.
▪ Knowledge-based innovation differs from all other innovations in its basic characteristics:
time span, casualty rate, predictability, and in the challenges it poses to the entrepreneur.
And like most ―superstars,‖ knowledge-based innovation is temperamental, capricious,
―superstars,‖ knowledge
and hard to manage.
Characteristic
Characteristic s of K nowledge-Based
nowledge-Based Innovation
➢ Lead time: Knowledge-based innovation has the longest lead time of all innovations. There is, first,
a long time span between the emergence of new knowledge and its becoming applicable to
technology. And then there is another long period before the new technology turns into products,
processes, or services in the marketplace.
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➢ Convergence: The second characteristic of knowledge-based innovation and a truly unique one is
that they are almost never based on one factor but on the convergence of several different kinds
of knowledge, not all of them scientific or technological.
Requirements for a Knowledge-Based Innovation
1. In the first place, knowledge-based

knowledge-based innovation requires careful analysis of all the necessary factors,
whether knowledge itself, or social, economic, or perceptual factors. The analysis must identify
whatbe
can factors are notas
produced yet available so that
tha t the entrepreneur can decide whether these missing factors
— the Wright Brothers decided in respect to the missing mathematics or whether
the innovation had better be postponed as not yet feasible.
2. A clear focus on the strategic position. It cannot be introduced tentatively. The fact that the
introduction of the innovation creates excitement, and attracts a host of others, means that the
innovator has to be right the first time.
3. Finally, the knowledge-based innovator and especially the one whose iinnovation
nnovation is based on
scientific or technological knowledge needs to learn and to practice entrepreneurial
management. In fact, entrepreneurial management is more crucial to knowledge-based innovation
than to any other kind. Its risks are high, thus putting a much higher premium on foresight, both
financial and managerial, and on being market-focused and market-driven.
The Do, Don’ts and Conditions of Innovations
The Do’s
▪ Purposeful, systematic innovation begins with the analysis of the opportunities.

opportunities.
▪ Innovation iis
s both conceptual and perceptual. Entrepreneurs look at figures, and at the same time,
they look at people,
▪ An innovation, to be effective,
effective, has to be simple and it has to be focused. It should do only
only one
thing, otherwise, it confuses. If it is not simple, it won’t work.
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▪ Effective innovations start

start small and +not grandiose. They
They try
try to do one specific thing. Innovations
had better be capable of being started small, requiring at first little money, few people, and only a
small and limited market
▪ A successful innovation aims

aims at leadership. ItIt does not aim necessarily at becoming eventually a
―big business‖; in fact, no one can foretell
forete ll whether a given innovation wil
willl end up as a big business
or a modest achievement.
The Don’ts
▪ Do not to try to be clever. Innovations have to be handled

han dled by ordinary human being. Incompetence,
after all, is the only thing in abundant and never-failing supply. Anything too clever, whether in
design or execution, is almost bound
bo und to fail.
▪ Do not diversify, don’t splinter, and don’t try to do too many things at once. This is, of course, the
corollary to the ―do‖: be focused! Innovations that stray from a core are likely to become diffuse.
They remain ideas and do not become innovations. The core does not have to be technology or
knowledge.
▪ Do not try to innovate for the

the future. Innovate for the present! An innovation
innovation may have long-range
impact; it may not reach its full maturity until twenty years later.
The Three
Three Conditio
Conditio ns o f Innovations
1. Innovation is work. It requires knowledge.

knowledge. It often requi
requires
res great ingenuity.
ingenuity. There are clearly
people who are more talented innovators than the rest of us. Also, innovators rarely work in more
than one area. Innovation becomes hard, focused, purposeful work making very great demands on
diligence, on persistence, and on commitment. If these are
a re lacking, no amount of talent, ingenuity,
ingenu ity,
or knowledge will avail.
2. To succeed, innovators must build on their strengths. Successful innovators look at

opportunities over a wide range. It may be more important in innovation to build on one’s strengths
because of the risks of innovation and the resulting
resulting premium on knowledge
knowledge and performance
capacity. And in innovation, as in any other venture, there must also be a temperamental ―fit.‖
Businesses do not do well in something

som ething they do not really respect.
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3. Innovation is an effect in economy and society. A change in in the behavior of customers, of
teachers, of farmers, of eye surgeons —of people in general. Or it is a change in a process that is,
in how people work and produce something. Innovation therefore always has to be close to the
market, focused on the market, indeed market-driven.
Top ic 3: THE NEGO

NEGOTATION
TATION EXPER
EXPERIENCE
IENCE
▪ A ffranchisor
ranchisor should be prepared to negotiate with franchisees. Change
Change can precipitate the need for
modification of the franchise relationship. Some modifications may be unilaterally implemented, but
others may have to be negotiated. For example, it may become necessary to restructure the
economics of the relationship, modify the territorial rights of franchisees, expand the advertising
program or change other
o ther elements of the franchise relationship.
▪ Likely subjects for

for negotiations include
include e-commerce policies, expansion conflict,
conflict, facility upgrades
and renewal issues. Negotiation is common in the context of events such as the acquisition by a
franchisee of a new franchise or an existing franchised businesses, the offer of a co-branding
opportunity to a franchisee and a franchisee default. Negotiation may involve a single franchisee,
all franchisees in an area or type of location or the entire network. Negotiation may relate to a
specific issue or a broad range of network issues and may be with franchisees individually, an
advisory council or a franchisee association.
▪ Negotiations may vary widely in

in difficulty and result,
result, depending on the issues involved, the number
number
of franchisees affected and the personalities of the franchisees with whom the franchisor
negotiates. A mechanism is required to confirm changes negotiated with a franchise association or
advisory committee. Usually this mechanism is an amended or revised franchise agreement offered
to all or affected franchisees. Those who do not elect to sign this document do not participate in the
changes that are advantageous to franchisees (e.g., extended term, advertising fee and royalty
modifications).
Acti
Ac ti viti
vi ti es/Ass
es/A ss ess ments
men ts :
1. Discuss how franchisees practice

practice innovation in
in the context of a franchising business.
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2. Which do you
innovation think iis
s less
opportunities? complicated
Cite an exampletotohandle the iinside
j ustify your
justify nside sources or the outsi
answer. outside
de sources of
3. What makes the tthree

hree considerations
considerations of innovation opportunities
opportunities an important principle
principle for an
entrepreneur? Cite an instance to briefly
b riefly explain your answer.
4. Why is iitt important to establish

establish a good and
and sound negotiating
negotiating experience with franchisees? Cite an
example to elaborate your answer.
Lesson 8
THE ROLE OF COMMUNICATION IN A FRANCHISING SYSTEM
OVERVIEW
Effective communication is an essential predicate to maintain complex, long term relationships and it is
fundamental to building a sound
soun d foundation for franchise relationships. Enhancing communication should
be a priority in all planning with respect to implementation of franchise relationships and the day to day
operation of the franchise network. A franchisor must positively encourage constructive communication,
be receptive to it and act in response to it. Effective communication begins with accurate and complete
information during sales process and continues byb y keeping franchisees fully informed about the experience
of the network, operational changes and marketing strategies. Communication must include bad news as
well as good, failures as well as successes. Nothing remains secret for very long and it is far better for
franchisees to learn of problems directly from the franchisor rather than from second hand sources. All
franchisors face the continuing challenge to effectively communicate the basis for their decisions and to
demonstrate, in their communications, their interest in the success of their franchisees.
Effective communication is particularly helpful when a franchisor determines to make a significant change
(e.g., the franchisor introduces a new product or service; makes a major modification to its operating
system or business format; introduces, expands or changes advertising; makes material additions or
changes to the business facility;
facility; or acquires or is acquired by a competitor or other company). In these
circumstances, communications serves two functions: (1) to explain the changes that the franchisor
believes are needed and secure franchisee support; and (2) to solicit both critique and ideas from the
franchisees. A smart franchisor manager knows that they do not have all the answers, or even fully
understand the factors precipitating changes. Franchisee input may well avoid costly mistakes and reduce
the overall cost of implementing changes, and it will greatly facilitate securing franchisee support for
change.
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Learning Outcomes:
1. Recognize the importance of an effective

effective communication
communication in a franchising system;
2. Understand the process of an effective communication;
3. Describe tthe
he effectiveness of using intranets in
in achieving effective
effective communication;
communication; and
4. Identify the different

different barriers to communicate effectively.
COURSE MATERIALS
Top ic 1: EFFECT
EFFECTIVE
IVE COMMUN
COMMUNICATION
ICATION
▪ Communication is most effective when it is: (1) delivered through multiple channels and media (e.g.,
annual and regional meetings; meetings with a franchisee advisory council or a franchisee
association board of directors; intranet and printed newsletters; faxed bulletins; group
teleconferences and a watts line; (2) is repeated frequently; (3) is delivered at the right times and
kept updated if the implementation is over time; (4) has the right tone; (5) is delivered by different
persons and (6) is sufficiently explained .
▪ People learn inin different ways and a message is most effective when
when it is designed to attract
attract the
attention of a wide spectrum of the target audience and is delivered in a wide spectrum of media.
Multiple messages in multiple media increase the likelihood that personal
perso nal barriers to communication
by one medium will be overcome by another medium. Working with a franchisee advisory council
or association can result in a more
m ore effectively delivered message.
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Importance of Communic
Communic ation in Franchising
▪ The importance
importance of communication in a franchising system can be summarized as follows:
follows:
➢ Communication promotes
promotes motivation by informing and
and clarifying the both parties
parties about the
task to be done, the manner they are performing the task, and how to improve their
relationship.
➢ Communication is is a source of information for franchisee for decision-m

decision-making
aking process as it
helps identifying and assessing alternative course of actions.
➢ Communication also helps in socializing.

socializing. One cannot survive
survive without
without communication.
➢ Communication alsoalso assists in controlli

controlling
ng process. It helps controlling information and
franchiser and franchisor behaviors in various ways such as certain agreement and
guidelines that franchise agreed on the franchise contract. They must comply with what
have agreed upon and communicate any problem and concerns to the franchisor. Thus,
communication helps in controlling function of management.
The Role of Feedback

Feedback in Effective Communication
▪ Feedback refers to the information transmission of evaluative or corrective information about an

action, process or event to the controlling source. A franchisor should develop methods to secure
regular feedback of franchisee opinions. A franchisor needs to know franchisee perceptions and
attitudes regarding franchisor services, the products and services sold by
b y franchisees, advertising
and marketing programs, network competitiveness, overall franchisor performance and the
franchisor’s relationships
relationships with its franchisees.
▪ A ffranchisor
ranchisor should
should also
also determine what its franchisees expect
expect of the franchisor,
franchisor, what they find
positive in the franchisor's management and what they consider negative.
ne gative. Franchisors use several
sev eral
techniques to get such feedback, including periodic written evaluations; quarterly conference calls
with senior management — open to all franchisees; small group teleconferences; and one on one
discussion with franchisees and the franchisee advisory council
c ouncil or association.
▪ Franchisee percepti
perceptions
ons and attitudes
attitudes may be negative, but that information is nevertheless
invaluable. It is more important for a franchisor to be aware of negative franchisee perceptions
regarding its performance than to know that franchisees give it a high
h igh approval rating. A franchisor
that is unaware of what franchisees are thinking will have difficulty improving performance and
managing its network. A franchisor should be open minded, welcome constructive criticism and
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recognizequickly
respond the possibility that a questions,
to franchisee critical franchisee has
concerns a valid
and point orFranchisees
objections. a good
goo d idea.voicing
It is important
concernsto
should be asked for suggestions and the franchisor should show respect for their concerns and
ideas.
Top ic 2: PROCE
PROCESS SS OF EFFECT
EFFECTIVE IVE COMMUNICATIO
COMMUNICATION N
▪ Communication is the process containing three elements – sender, message and receiver . These
three elements are essential to complete the communication process. The diagram below shows
the process of communicant in the organization.
organ ization.
The Organizational Communication Process
▪ The following steps are involved for completion of communication process:
➢ nder or commun icator prepares the message neatly. He is the source where message
Sender
Se
is generated. It is he who starts the communication process.
➢ The message is to be encoded symbolically which is to be conveyed. This message is the

idea came into the mind of sender which he wanted to convey.
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➢
The
is tomessage
be made.is
isThe
to bemessage
transmitted
transmitted
maythrough
through a me
method
thodorally
be transmitted of communication the choice
face to face, through of which
messenger,
through air or a written note in the form of order, memo, leaflet etc. It is up to sender to
make appropriate choice.
➢ dium of commun ication includes telephone, internet, through messenger, post, fax, E-
Medium
Me
mail, etc. The choice of medium again depends
de pends on the sender.
➢ Receiver or communicator is a person for whom message was sent by the sender or
communicator. Receiver after receiving the message must understand it in proper
perspective then only the purpose of
o f communication will be fulfilled.
➢ The receiver after decoding the message must act or take action as per instructions
contained in the message.
➢ The last step is to take feedback . The feedback means the sender should know whether
the receiver has received the message and understood it. The confirmation regarding this
is feedback. The positive feedback is effective communication. With feedback the
communication process is complete.
Top ic 3: THE INT

Topic INTRANE
RANETS
TS
▪ An intranet is a private network contained within an enterprise that is used to securely share
company information and computing resources among employees. An intranet can also beb e used to
facilitate working in groups and teleconferences.
▪ Intranets increase communication

communication within an organization by allowing
allowing employees to easily access
important information, links, applications and forms as well as databases that can provide company
records. Security can also be increased within the intranet by establishing a database that
maintains all of the usernames of people who are allowed access to the network.
▪ A franchisor can use an intranet to enhance communication within the franchise network (i.e.,
between the franchisor and its franchisees and among the franchisees). An intranet greatly
enhances communication, but it does not substitute for face to face meetings and direct
communication by telephone, a ―live voice‖ telephone contact. Many franchisors that require calls
from franchisees be answered by management personnel (i.e., either the executive or his or her
assistant) or a help desk operator. It is also common for franchisors to have a 24 hour response
policy from the appropriate department.
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Uses
Uses of the intranet
Potential uses of an intranet include:
▪ Streamlining everyday activities by making repeated tasks more feasible.
▪ Centralizing and managing important information and company

company data in a single
single database.
▪ Making collaboration easier since information

information can be shared
shared across the entire network.
▪ Providing personalized content to employees based

based on their role within
within the company.
▪ Improving internal communication by making employee directories,

directories, company news and
organization charts readily available.
▪ Providing fast and easy access to information

information about company p
policies,
olicies, benefits and updates.
Benefits and Challenges of the Intranets
Some potential benefits of using an intranet include:
▪ Improved communication, information sharing and collaboration

collaboration within a business.
▪ An iincreased
ncreased return on investment
investment (ROI)
(ROI) due to the
the low
low implementation
implementation and operating costs.
costs.
▪ The ability for human resources to manage employee records and for customer service
representatives to track help requests.
▪ The use of the intranet as a testing environment

environment for new ideas before they are implemented on the
company's Internet webpage.
▪ An improved corporate culture

culture within a business through the use of a social intranet
intrane t tthat
hat is built
around people and focused on enabling widespread participation and interaction.
Some challenges faced when using an intranet include:
▪ A llack
ack of intranet users and therefore a lack of the content, communications and documents that is
is
necessary to make the intranet beneficial.
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▪ A loss of interest
interest amongst users after the initial
initial excitement and novelty
novelty of the intranet has worn off,
also resulting in a lack of content.
▪ Limited user support due to the high cost of adding a support team
team to the payroll. As a result,
result, when
the inevitable software bugs or other issues arise, there is no one to resolve the problems.
▪ Continuous examinations and maintenance checks are required to ensure the network is running
properly and does not become outdated with old and irrelevan
irrelevantt content.
Top ic 4: BARRIERS TO EFFECT

EFFECTIVE
IVE COMMUNICATIO
COMMUNICATION
N
▪ Communication between leaders and employees is important for a company to thrive and grow in.
For effective communication to take place, it must be received in the way it was intended to by the
sender. When this doesn’t happen, it creates the ultimate barrier to achieving desirable message
delivery outcomes. The following are the barriers
b arriers that stops leader to effectively communicate:
➢ Language Barriers – these are the main barriers to effective communication. The
language being used and linguistic ability of the sender and receiver affect the flow of an
effective communication. However, even if the same language is being used to
communicate, the terminology, jargon and abbreviations used in the message may not be
fully understood by the receiver if they are not familiar with it.
➢ Physical Barriers – These barriers to communication is the actual distance between the
sender and receiver(s). Communication is generally easier to be heard from shorter
distances when a person is speaking at the front of a room. On the other hand, people who
are physically further away from the speaker, or who have physical problems, may not
receive the information clearly.
➢ Att it ud in al Bar ri ers . Language is a human behavior and attitude is everything in any task
we do in our lives, whether it is in the workplace or personal relationships. No matter how
simple or complex the process of our communication is, having a good attitude is the key
to being successful. Attitudinal barriers can be the result of personality conflicts, poor
management, and resistance to change or a lack of motivation. With the nature of conflict
involved in communication, it can be very difficult to allow the expression of ideas from
ourselves and others. This is where having a good attitude comes in; effective senders and
receivers of messages should choose to overcome
o vercome their own attitudinal barriers to facilitate
effective communication.
76 | P a g e

➢ Psychological Barriers. These are due to individual differences between people in their
mentality and behavioral aspects. The most common aspects of the barriers are; stress,
anger and unfamiliar accent. Many people experience stress, anger and frustration
throughout their lives and sometimes it can be difficult to manage or control our emotions
when we communicate. Having bursts of emotions such as anger can cause distortion of
information from sender to receiver. Self-esteem is a personal strength to help manage
any situation with a great capacity of assertiveness.
Acti
Ac ti viti
vi ti es/Ass
es/A ss ess ments
men ts :
1. Why is communication so important and can be one of the bases of a good

franchisorfranchisee relationship?
2. What do you think is the most crucial process in

in the communication
communication process? Why? Explain
your answer by citing a business scenario.
3. In what w
ways
ays destructive feedbacks
feedbacks coming from franchisees can
can be handled effectively
effectively by
the franchisor? Provide an example
e xample to elaborate your answer.
4. Aside from technology, what are other variety of factors that can affect effective
communication between the franchisor and the franchisee?
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Lesson 9
FRANCHISING IN THE PHIL IPPINES
PHILIPPINES
OVERVIEW
For a lot of Filipinos, having their own business

bu siness is the ultimate dream, but often an unrea
unrealized
lized one. This is
not surprising, as starting a business is extremely risky in manner that you literally will start from scratch
and will surely cost one’s hard -earned money, effort, and time and engaging in business has not been
always a guarantee for success, mostly it turned out as business failure due to m many
any factors such as lack
of knowledge in running a business, mismanagement, lack of financial financial source among others. For all of
these, the best option for future entrepreneurs is to to buy a franchise. It is the best option and a way for
people to go into business
bu siness without starting from scratch (and arguably with higher success rates).
Based on the data of the Philippine Franchise Association (PFA) in 2012, there are five principal
franchise sectors in our country specifically the fast food sectors, retail clothing, cafes, confectioneries,
and bakeshops, hospitality and wellness, and food carts. Among the entire
en tire franchising sectors, food brands
make up 41%, service establishments 32%, and retail outlets 27% respectively; these franchise
businesses contributed around 6.6 billion of dollars of the Domestic Gross Product (GDP) in ou ourr economy.
Among all types of business models namely manufacturers, distributors, retails, and franchise, the
franchise type of business model is the most popular and preferred most by future entrepreneurs because
it lessens the risk of doing business because the entrepreneur is buying an established brand and
customer-based type of business model. This has been observed in many developed and developing
countries today that franchising is considered as one of the best options in engaging in a business aside
from buying an existing business and put up your own enterprise.
Filipino entrepreneurs can take advantage ofo f the availability of resources and as a ffinancial
inancial tool to
uplift their economic status in society and create opportunities
oppo rtunities to succeed with less possible risks because
of the presence of the franchisors. From the perspective of a franchisee, it is relatively riskier and more
challenging to start a business
bu siness from scratch since he/she not only has to deal with all business functions,
78 | P a g e

including:
products. Itprocurement, distribution,
is quite challenging salesthat
to ensure andallmarketing on his/herare
business functions own but also
fulfilled develop
and ev
even his/her
en more own
difficult to
have some control of the profits.
Learning Outcomes:
1. Recognize tthe
he different
different steps in starting
starting a franchise business;
business;
2. Know the different existing

existing franchise associations
associations in
in the country; and
3. Analyze the different considerations before engaging in franchising.
COURSE MATERIALS
Top ic 1: HOW TO START FRANCHISING
The following three steps can be useful in knowing how to start franchising:
1. CHOOSE A FRANCHISE
FRA NCHISE
▪ Whether you are aiming for a small food cart business or a restaurant chain, it’s important that
you take into account certain factors and do proper research first when selecting a franchise
business.
➢ Budget – establish the amount that you’re willing to invest, so you can narrow down
your options. If you find yourself being short on capital, you could consider getting a
franchise business loan.
➢
Company Reputation
Reputation and Legitimacy – nobody wants to unknowingly invest in an
illegitimate and unreliable business, but it doesn’t mean it’s impossible to find success
79 | P a g e

with lesser
licensed andknown franchise
registered brands. Find
in appropriate out if theoffices
government personlike
or DTI
company is properly
and SEC. It also
helps to check if they’re a part of reputable franchise
franchise groups like AFFI (Association of
Filipino Franchisers, Inc.), PFA (Philippine Franchise Association), and FIFA (Filipino
International Franchise Association).
A ssociation).
➢ Market, Location, and Competition – brand power alone isn’t always enough to
make a franchise business successful. Make sure that whatever franchise you choose
would fit in your preferred site location and the nearby marke
market.
t. For instance,
➢ it might not be the best idea to set

set up a high-end restaurant franchise near
near an
elementary school where the primary markets are
a re kids.
Popular Franchise
Franchise Brands i n the Philippines
✓ Potato Corner ✓ Dunkin’ Donuts
✓ Master Siomai ✓ Chooks To Go
✓ Siomai House ✓ Jollibee
✓ 7 Eleven ✓ Mang Inasal
2. APPLY
APPL Y FOR YOUR CHOSEN FRANCHISE
▪ Once you’ve trimmed down your franchise

franc hise options to one, you can finally proceed with applying!
Application procedures and requirements differ from franchisor to franchisor, but in general,
you can expect to do the following:
Submission o f Documents. Below are the usual documents that many franchisors require. It’s a
good idea to prepare these even if you haven’t fully decided on what franchise you want. But if you
already have a particular franchise business in mind, you can check their website or get in contact
with them for other requirements they might have.
h ave.
✓ Letter of Intent
✓ Application Form (completely filled-out)
✓ Valid Government-Issued IDs
✓ Resume
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✓
✓
Target SiteSite
Meetings, Location Details
Inspection, and Evaluation
▪ After submit
submitting
ting your documents, the franchisor will
will reach out to you to schedule a meeting
and/or site inspection. In these meetings, expect to be interviewed and oriented on the details
of the franchise. You can also take this chance to ask them any important questions that you
might have.
81 | P a g e
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES Polytechnic University

University of the Philippines
COLLEGE OF BU
BUSINESS
SINESS ADMINISTRATION
BUSINESS ADMINISTRATION
ADMINIS TRATION DEPARTMENT OF
Contract Signing. Finally, you’ll be contacted again if you’re deemed qualified to be a franchisee.
Review the contract thoroughly, and sign it if you’re okay with the terms and conditions.
3. MANAGE YOUR FRANCHISE BUSINESS WELL
▪ Even with existing guidelines, always strive to continuously improve the business and how you
manage it in ways that you can. Enhance
En hance your marketing skills. Improve the quality and speed
of your service. Keep track of any market or industry trends. Reach out to the franchisor or
fellow franchisees for tips and advice. Remember, getting approved for a franchise is just the
beginning! Don’t let the journey end so soon by mismanaging your franchise business.
Top ic 2: FRANCHISE ASSOCIATIONS IN THE

Topic THE PHILIPPINES
PHILIPPINES
▪ Philippine Franchise Association (PFA). The Philippine Franchise Association (PFA) is the
(PFA).
voluntary self-regulating body for franchising in the Philippines. Its members are bound by the
Fair Franchising Standards (FFS), the Association’s code of ethics, which exhorts members to
practice transparency and fairness in the conduct of sale of their franchises. Hence, PFA is
home to the Philippines’ most trusted franchise brands, many of which already have overseas
outlets or are ready to go international. Guided by its mission to promote franchising as a tool
for economic development and nation-building through enterprise development and
employment generation, PFA has transformed the Philippine franchising sector into an
important contributor to the Philippine economy. It also continues to work for an enabling
environment that will promote the growth and success of international and home grown
franchises and make the Philippines an ideal regional headquarters for international franch
franchises
ises
operating in the Asia-Pacific.
Equally important, PFA continues to undertake capacity-building initiatives to see more

Philippine franchise brands expand to international markets. PFA is currently the Secretariat of
the Asia Pacific Franchise Confederation (APFC) and a member of the Working Committee of
the World Franchise Council (WFC), whose task is to create activities that will advance
franchising globally.
▪ Filipino International Franchise Association (FIFA). The association brings together

Franchisors, Franchisees, and those with an interest in the franchise sector to facilitate the
process of learning and sharing information and to encourage high standards
stan dards of conduct. FIFA
is a non-stock, non-profit organization and all officers are experienced executives in the
franchise business. The association is not limited to Franchisors located in the Philippines as
we accept Franchisors from any country who wish to get a Master Franchise in the
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COLLEGE OF BU
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Philippines.
The Association promotes a Code of Ethics by which all members must abide. There is no
specific franchise legislation in the Philippines (although franchised business are covered by
normal commercial law), but the Association’s Code provide for full disclo sure of information to
potential Franchisees in order to allow them to make realistic and informed decisions.
Through publications, meetings, seminars and other related events & activities,
ac tivities, the Association
aims to help those who consider buying a franchise
franch ise and to get help in m
making
aking the right decision.
It also assists those involved in franchising their own businesses to ensure that the correct
procedures are put in place right from the start.
Top
Topic
ic 3: MAJ
MAJOR
OR CONSID
CONSIDERATIONS
ERATIONS BEFORE BUYING A FRANCHISE
Before buying a franchise, an entrepreneur

e ntrepreneur must consider the following:
1. Ask yourself why you

you want to own a franchise.
2. Begin the search. Look for opportunities that are in harmony with you and that greatly interest
interest you.
3. Do your own research by having a complete understanding of the business.
4. Check on your personal resources and experience

experience in running a business.
5. Concept – look into the good or service and discern what makes in stand out among other existing
ex isting
businesses in the market.
6. Location, location, location!

location! Ask about the territory
territory rights of the franchise
franchise and make sure to get a
strategic site for your franchise.
Otherr Considerations
Othe
▪ The Procurement Programs. Many franchisors implement procurement programs for

equipment, fixtures, inventory, supplies and services that their franchisees must buy to develop
and operate their businesses. Such programs enable the franchisor to utilize the collective
resources of its network to secure better prices and service, higher quality and greater reliability
83 | P a g e

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of supply and can potentially reduce significantly the cost of development and operations of
franchised businesses (assuming that a substantial part of the savings are passed on to
franchisees). The franchisor may buy and take title to goods and
a nd resell them to its franchisees
(or to distributors who resell to the franchisees), or simply
simp ly may operate procurement programs
in which various suppliers sell directly to franchisees (or distributors). In addition to significant
cost reduction potential, procurement programs enable a franchisor to more effectively police
quality control in its network by specifying the goods and materials utilized by franchisees in
the development and operation of their
the ir businesses.
▪ Training Technologies. Successful franchisors utilize advanced education and training

technologies, such as computer based, interactive systems, for training franchisees and their
management personnel and for training the franchisee’s employees. Such systems include
testing and certification functions. Most franchisees have or can inexpensively acquire internet
access to utilize such systems. The best programs combine visual, auditory an interactive
components. Some training programs will be specific to the network; other programs may be
generic for the industry of the franchised network (e.g., sales training, English language
training). Some programs are designed for personnel who train other employees (train-
thetrainer). Trainees utilizing internet training can complete training at convenient time p
periods,
eriods,
thereby avoiding travel time and expense, increasing effectiveness and reducing the cost of
training. The use of internet training standardizes the training of
o f network employees. Software
products known as authorizing tools are used to create
crea te online training programs deliverable via
the internet.
▪ Operating System and Service. Successful franchisors offer

offer their franchisees a well designed
and tested operating system and distinctive business format; a distinct and protected trade
identity; business facility development specifications; equipment, fixture and decor
specifications; product/service, packaging, order processing and delivery specifications; quality
and operating standards; operational guidance; staffing specifications; marketing techniques;
record keeping, accounting, cost control and inventory management procedures; functional and
cost effective technology platforms; and other services designed to enhance franchisee
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profitability. The benefits of such services are not always obvious and may not always seem
important, but franchisor services can be the difference between a growing franchise network,
with profitable, expanding franchisees, and a franchise network that stagnates or declines.
Effective franchisor services are particularly important when the economy is soft, or competition
increases, and sales gains are difficult to achieve. The specific categories of services discussed
in the following sections can all help franchisees to operate their businesses more productively
and efficiently, realize a higher level of profit, expand into multiple outlet ownership and realize
the benefits of their investment and efforts when they sell their outlets.
Acti
Ac ti viti
vi ti es/Ass
es/A ss ess ments
men ts :
1. What do you think is the logic of most franchise owners in

in the country commonly preferred to buy
food franchise business?
2. How franchise associ

associations
ations in the country
country might serve as an avenue for entrepreneurs to look for
a potential business opportunity? Explain your answer
an swer by citing an example.
3. How can the franchisor helps the franchisee in maintaining

maintaining well the management of the business?
4. Assuming that y
you
ou are going to invest in a franchise business, enumerate
enumerate and discuss briefly your
primary considerations in choosing the best franchise for you.
85 | P a g e

COLLEGE OF BU
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GRADING SYSTEM
Class Standing
✓ Long test 70%
✓ Summative test
✓ Case analysis
✓ Project Portfolio
Midterm and Final examination 30%

Total 100%
Midterm Grade + Final Term Grade = FINAL GRADE

2
REFERENCES
Barringer, B., et. al. (2013). Entrepreneurship: successfully launching new ventures 4th ed. Pearson/Prentice Hall 2
Expanding a business by Franchising. DLA Piper US LLP-US LLP CHGO1\30907950.1 3/2/07. Retrieved from
www.franchise.org
Drucker, P. & Harper, R. (1985) Innovation and Entrepreneurship.

Entrepreneurship.
Hisrich, R.,et.al. (2008). Entrepreneruship 7th Edition. McGraw-Hill
https://www.franchisegator.com/articles/franchising-vs-entrepreneu
https://www.franchisegator.com/articles/franchising-vs-entrepreneurship-how-to-get-all-the-benefits-w
rship-how-to-get-all-the-benefits-without-
ithout-
therisks-12433/ https://francity.com/about-franchising/types-of-franch
https://francity.com/about-franchising/types-of-franchises/
ises/
https://www.franchising.com/guides/the_franchise_agreem
https://www.franchising.com/guides/the_franchise_agreement.html
ent.html https://www.thebalancesmb.com/franchise-
https://www.thebalancesmb.com/franchise-
relationship-structures-1350436 https://whatis.techtarget.com/definition/intranet
https://whatis.techtarget.com/definition/intranet
https://www.securitybank.com/blog/what-why-how
https://www.securitybank.com/blog/what-why-how-franchising-philippines/
-franchising-philippines/ http://ww
http://www.pfa.org.ph/tem
w.pfa.org.ph/template/How-
plate/How-
to-Invest-Booklet-2017.pdf http://fifa.ph
James, G., et. al. (2006). Organizations: Behavior, structure, processes. Boston, McGraw-Hill/Irwin
86 | P a g e

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The Philippine Franchising Association www.pfa.org.ph

Slater, W. (2019). The basics of franchising: the relationship. Retrieved from
https://www.franchise.org/franchiseinformation/the-basics-of-franchising-the-relationship
FRANCHISING
Midterm
Midterm Examination
Examination
Prof. Cresilda M. Bragas, MBA
Part One: FILL IN THE BL ANKS (2 points each)

Instruction: Choose the correct word(s) inside the box to complete the sentence
sentence and form an idea.
market management
management profitability legal
performance
performance business plan franchise contract effectuation
relations innovative products and services entrepreneur

entrepreneur
franchisor entrepreneurial
entrepreneurial action objectives franchise system
characteristics
characteristics opportunity franchisee right
performance
performance decision cognitive adaptability growth
87 | P a g e

COLLEGE OF BU
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1. An entrepreneur is an individual who takes

takes initiative
initiative to bundle resources in _________ ways
and willing to bear the risk or uncertainty to act.
2. Many of today's most famous franchises

franchises started
started because someone identified
identified an ___________to
fill a need and then created an economy that would fulfil it.
3. The seven sources of innovative opportunities

opportunities require separate analysis, for each has its own
distinct ______________.
4. A good ______________is essential to develop an opportunity and determine the right

resources required, and successful managing the franchise
fran chise business.
5. The franchisee signed formal contracts to acquire desirable behavior from thetheir
ir franchise
partners, and establish valuable business relations that can give mutual benefits and attain
common _____________.
6. The ____________ allocates

allocates to the
the other party the right to sell of the goods and services, use
the name of the franchise business
bu siness for a specific span of time.
7. It iis
s necessary to ensure that franchisees
franchisees are satisfied with the
the _____________of the franchisor
in the context of the relationship, while also determining the areas of satisfaction that the
franchisee experiences.
8. An entrepreneur in a particular situation

situation may think differently
differently when faced with
with a different task or
_________environment.
9. The desire
desire of the ______________to be independent with less interference
interference from the franchisors
and the conflict in business goals between them are
a re some of the issues which are of concern to
franchisors.
10. Nowadays, some of the bases for new _______________ innovation can be groundbreaking
and revolutionary, resulting from the birth of new
n ew technologies.
11. The concept of franchising

franchising cannot be equal to the concept of partnership, especially due to the
_________advantages the franchisor has over the franchisee.
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COLLEGE OF BU
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12. A sound and productive franchisor-franchisee relationship iis

s the cornerstone of the successful
_________________.
13. _______
_____________
_________
___ is reflected in
in an entrepreneur’s
entrepreneur’s ability
ability to reflect,
reflect, understand,
understand, and
and control
one’s thinking and learning.
14. Franchisees who are happy with their

their franchisors have some or all have positive perceptions of
their franchisors in terms of _________and good
g ood business relationship.
15. A _______________ usually lasts for a fixed time period (broken down into shorter periods,
which each require renewal), and serves a specific territory or geographical area surrounding its
location.
Part Two:
Two : ENUMERATIO
ENUMERATION
N (2 points each)
1–3 Concepts of entrepreneurial perspectives
4 – 9 Common business
business models adapted by entrepreneurs in the country
10 – 14 Importance of a sound franchisor-franchisee

franchisor-franchisee relationship
relationship in achieving mutual interests
interests
15 – 17 Differences between
between franchising and entrepreneurship in terms of market and geographical
geographical territory
18 – 20 Entrepreneur’s considerations in choosing a business model
FRANCHISING
Final Examination
Prof. Cresilda M. Bragas, MBA
Part One: Case Analysis
Big Bottom Market is a year-old restaurant and specialty food store in Guerneville, Calif., that also sells wine and
locally made crafts. It is a moonlighting venture for its three owners, among them is a San Francisco public
pu blic relations
executive, Michael Volpatt, who saw an opportunity to fill a local need after buying a weekend home in this Sonoma
County town of 6,500.
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COLLEGE OF BU
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How to survive
opening the lean
in July 2011, months,posted
the market October through April,
encouraging when
weekly visitors
sales to the to
of $20,000 Russian River
$24,000 getaway
in August decline?
— that After
plummeted
to as low as $4,000 by November, prompting staff layoffs and an emergency retreat to assess options. Mr. Volpatt,
who describes himself as a ―serious foodie and serious oenophile (lover of wine),‖ had long dreamed of opening a
specialty food and wine store. He decided to go ahead after settling deeper into
in to the community of Guerneville, a once-
booming logging town formerly known as Big Bottom for its location on the alluvial flats of the Russian River.
Nowadays, the gay-friendly town is popular with weekenders and vacationers visiting nearby vine vineyards,
yards, kayaking on
the river or hiking in nearby Armstrong Woods in what remains of the old-growth redwoods. Mr. Volpatt, 40, would
keep his lucrative day job: he owns half of a 10-year-old bicoastal public relations firm, Larkin/Volpatt
Communications, serving clients such as the digital divisions of Publishers Clearing House and Hearst. Mr. Volpatt
and his business partner, Kate Larkin, 45, who is based in New York, had already invested some of their ea earnings
rnings in
real estate, including part ownership in an
a n apartment building in St. Louis.
Both felt a market/breakfast and lunch spot was just what Guerneville needed. Chasing that opportunity was a leap
into the unfamiliar world of retailing and restaurants but one they cushioned by entrusting the kitchen and market
operations to a third founding partner with food and hospitality experience. Mr. Volpatt had become friends with Crista
Luedtke, a San Francisco mortgage broker and hands-on owner of Boon Hotel and Spa and Boon Eat and Drink, two
popular Guerneville businesses. With Ms. Luedtke overseeing day-to-day operations, Ms. Larkin acting as chief
financial officer and Mr. Volpatt in charge of marketing, Big Bottom Market opened in a 1,500square-foot Main Street
storefront. The three partners provided $100,000 to transform the space, stock the shelves and supply operating
capital.
The new look was hip-casual. Hardwood floors, plenty of barn board, funky metal chairs at nine tables, stools at a
counter and a communal table. The executive chef, Tricia Brown, off a stint at New York’s Gramercy Tavern, created
a menu featuring baguette sandwiches, soups and salads, and a signature-item-in-the-making: Big Bottom biscuits
(regular, Cheddar and thyme, ham and cheese, even a ―sea biscuit‖ with house -smoked salmon and capers and
pickled red onions). The biscuit recipe belonged to Ms. Luedtke’s mother, who, as one of 20 employees, helped with
the baking.
Sales roseprofitable,
remained like the biscuit dough
and with in biscuits
the the peakgetting
summer weeks
good andthe
buzz, then taperedowners
fledgling off in September.
pondered aStill, the business
spinoff venture,
considering wholesaling batches of frozen biscuits beyond the ones they sold from their own freezer cases. Then, in
October and November, the bottom fell out for Big Bottom. ―At the rate you guys are going,‖ their accountant warned,
―You’re going to have to close your doors.‖Yes, the owners had expected a downturn. ―We thought maybe we’d
lose about 30 to 40 percent of our business,‖ Mr. Volpatt said; but not 80 percent. ―This is my first time at the rodeo,
and I’ll tell you, we were freaking out.‖
Requirements:
1. Discuss key issues and causes of the problems in the case. (10
(10 point s)
2. List at least 5 possible alternative course of action or solution and choose the best
among them. (10 points)

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COLLEGE OF BU
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3. Explain briefly how chosen solution can give an opportunity for the business. (20 points)
Part 2: WRITE
WRITE UP (30
(30 point s)
Write a story emphasizing the effective

e ffective communication process in a franchising busine
business
ss scenario.
Observe proper sequence, grammar and logical content of your write up.

FRANCHISING

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Polytechnic University of the Philippines

COLLEGE OF BUSINESS ADMINISTRATION

Course Overview ............

ON 1: Entrepreneuri al Perspectiv e ............

Topic 2: How Entrepreneurs think ......................

ON 2: Overview of Franchis ing ..........

Topic 1: The Decision to Expand Through Franchising ...................................

ON 7: Innovatio n and the Franchise Experience ........

Topic 3: The Negotiation Experience ......................

ON 9: Franchis ing in the Philip pines ......

Recognize the significant role of communication in franchise relationship;

Be familiar with the various elements

Explain the importance of innovation in the franchisee experience in pursuing success;

Develop an understanding on the significant aspects of the franchise relationship;

2. Describe how entrepreneurs think and develop the notion

3. Recognize the distinction

4. Compare and contrast the different

Top ic 1: The ENTREPRENEUR

Being an entrepreneur today:

▪ Entrepreneurial action - behavior in response to a judgmental decision under uncertainty about a

The Four Distinct Pha

The Four Distinc t Phases

2. Develop a business plan - The description

Top ic 2: HOW ENTREPRENE

▪ Given the nature of their decision-making environment, entrepreneurs need to sometimes:

Achieving cognitive adaptability

Learning from Bus iness Failure

▪ Uncertainty, changing conditions, and insufficient

▪ Emotional recovery from failure

▪ Primary descriptions of the process of recovering are:

➢ Loss-orientation – an approach to negative emotions that involves working through, and

➢ Restoration-orientation – an approach to negative emotions based on both avoidance and

▪ This dual process speeds the recovery process.

Top ic 3: FRANCHISING VS. ENTREPRENEUR

▪ Franchising and Entrepreneurship are two different business

▪ One major difference with

▪ The level of support franchisees can

▪ Another way to handle the autonomy issue is to look for

to the rules you yourself would set up for your

▪ Indeed, franchisors themselves

Act iv it ies /Asses

1. How can an entrepreneur exhibit his cognitive adaptability?

2. Discuss the rrole

3. Identify the benefits and drawbacks of franchising tthat

4. Compare and contrast the different

▪ Even though the grant of these rights typically

▪ Franchising by private businesses

▪ Although the early use of franchising was

▪ Elements of modern franchise

▪ Franchising was introduced

▪ There are many definitions of a franchise. They all essentially

▪ Currently, several hundred franchisors based in in the United

FEWER EMPLOYEES. The number of employees which a franchisor

REDUCED INVOLVEMENT IN DAY-TO-DAY OPERATIONS. The franchisor will not be involved

local market knowledge.

➢ Developing a franchise network can be expensive,

▪ There are certain risks

Typically, this is a home-based or low investment

➢ PRODUCT (OR DISTRIBUTION) FRANCHISE

Product-driven franchises are based on

The business format franchisee also gets to use

Typically, these are large scale projects which

Conversion franchising is a modification

Act iv it ies /Asses