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T O MY
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Growth of Franchising
 Singer Sewing Machine – first franchise (mid-19th
century)
 Automobile (e.g. Ford), petroleum products (e.g.
Shell), soft drinks (e.g. Coca Cola)
 Food and restaurants (e.g. McDonald’s,
Starbucks)
 Growth of Franchising
 Home markets saturated – attractive
opportunities overseas
 Lack of/relaxation of regulations in most
countries
 Expansion of international trade
 Exposure to international media
 Brief Outline

 What is franchising?
 Types of franchising
 Why franchise? Why is franchising important to
SMEs?
 Considerations for franchisor/franchisee
What is franchising?
“A franchise operation is a contractual relationship between
the franchisor and franchisee in which the franchisor offers
or is obliged to maintain a continuing interest in the
business of the franchisee in such areas as know-how and
training; wherein the franchisee operates under a common
trade name, format and/or procedure owned or controlled
by the franchisor, and in which the franchisee has or will
make a substantial capital investment in his business from
his own resources.”
 What is franchising?
 Legal and commercial arrangement concerning the
successful business of a franchisor
 Use of franchisor’s trade name, format, system and/or
procedure under license
 Means to raise capital and expand quickly
 Assistance to franchisee
 Marketing, management, advertising, store, design,
standards, specifications.
 Payment by franchisee by way of royalty, licensee fee
or other means
 TYPES OF FRANCHISE
 3 main types of franchise:

 Product distribution franchise;

 Business format franchise; and
 Management franchise.
PRODUCT DISTRIBUTION
FRANCHISES

 A product distribution franchise model is very

much like a supplier-dealer relationship.

 Typically, the franchisee merely sells the

franchisor’s products. However, this type of
franchise will also include some form of
integration of the business activities.
PRODUCT DISTRIBUTION
FRANCHISES

 Examples of famous product distribution franchise:

PRODUCT DISTRIBUTION
FRANCHISES
Produces the syrup
concentrate

Sells the syrup

concentrate

Produces the final

FRANCHISEE drink

Retail Stores
Restaurants & Vending
F&B Outlets Machine
Operators
BUSINESS FORMAT
FRANCHISING
 In a business format franchise, the integration of
the business is more complete.

 The franchisee not only distributes the

franchisor’s products and services under the
franchisor’s trade mark, but also implements the
franchisor’s format and procedure of conducting
the business.
Famous Examples
BUSINESS FORMAT FRANCHISING -

outlet in outlet in
Sale, Australia Marseille, France
MANAGEMENT
FRANCHISE

 A form of service agreement.

 The franchisee provides the management

expertise, format and/or procedure for
conducting the business.
Famous Examples
Why is franchising important to SMEs?
 Leveraging on a recognised brand name
 Enhancing business image
 Ensuring consistent quality
 Attaining higher productivity/better motivated
staff
 Access to good locations
 Economies of scale
 Reducing risks of failure
WHY FRANCHISE?
 Franchises offer important pre-opening
support:
 site selection
 design and construction
 financing (in some cases)
 training
 grand-opening program
WHY FRANCHISE?
 Franchises offer ongoing support
 training
 national and regional advertising
 operating procedures and operational
assistance
 supervision and management support
 increased spending power, access to bulk
purchasing and economies of scale
Common considerations of franchisors

 Developing franchise concept

 Market research
 Familiarity with local laws and regulations
 Providing training and support to franchisees
Franchisor–Franchisee relationship

Regulated by contract which usually covers:

 Initial fee
 Royalty fee/Management fee
 Capital required from franchisee
 Territory/Area of operation
 Duration of license and renewal
 IPRs
 Termination
BE CAREFUL

 The franchisee is not completely independent.

 In addition to the initial franchise fee, franchisee

must pay ongoing royalties and advertising fees.

 Franchisee must be able to balance restrictions

and support provided by the franchisor with their
own ability to manage the business
FRANCHISEES IN SINGAPORE

 Generally young and well educated

 62% below 40 years old
 57% had post-secondary education
 32% own their own outlets
 46% occupy the outlets as tenants
Conclusion

 Franchising – a great model for

SMEs
 Proven formula for success
 Due diligence
 Central role of IPRs
 Avoidance of dispute
Thank You So Much