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8/10/2019 Itl Franchising Fp

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International Franchising as

an Approach to InternationalTrade and Business

SUBMITTED BY:

Tan, Lawrence li!er "#



$ According to histor%, &ranchising has 'een around &or a long ti(e# It has 'een dated as&ar 'ac) as the %ear $*+# The 'usiness has grown o!er the %ears until to the present ti(e# Theconcept o& &ranchising 'egan with a sewing (achine (anu&acturer na(ed Singer# In the $*+-s,the Singer sewing (achine co(pan% produced sewing (achines 'ut didn-t ha!e enough capitalto pa% their sales(en salaries since the% ha!e .ust started their 'usiness# /ith this pro'le(,the% created a networ) o& dealers# These dealers paid Singer a &ee to wor) in a particular

territor% and earned (one% &or each sale o& a sewing (achine the% 'ought &ro( the co(pan%and resold# Singer can 'e la'eled as a pioneer o& &ranchising as their signi&icance in the start o& the &ranchise and the opportunities it created ca(e &ro( the creation o& the contract that is usedtoda% 'etween the &ranchisor and &ranchisee# Another &a(ous 'usiness co(pan% that startedthe &ranchise 'usiness is the "oca0"ola "o(pan%# "oca0"ola co(pan% started onl% as a&ountain drin)# In $*11, two (en, Tho(as and /hitehead, o'tained a short 20word contractand the per(ission to 'ottle the soda# E!en with the great idea, the% couldn-t a&&ord to create a'ottling co(pan%# /ith this hindrance, the% created a &ranchise co(pan% selling the right to'ottle the product to indi!idual 'ottling plants# Another &a(ous 'usiness co(pan% would 'e the3F" or widel% )nown as 3entuc)% Fried "hic)en# The &ranchise 'egan with 4arlin Sanders or the "olonel# There was a ti(e that his 'usiness started to &ail when a highwa% was createdse!en (iles awa% &ro( his restaurant# Because o& this, his 'usiness was going down and 4e

had to &ind new wa%s to get his chic)en to people# /hen 4arlin Sanders- 'usiness &inall% wentdown, he had to go door0to0door to sell his chic)en recipe# /ithin a &ew %ears, he had restaurantowners co(ing to hi(# 4e was a'le to set up &ranchises and as o& toda% there are o!er $,3F" restaurants all o!er the world# Aside &ro( 3F" and "oca0cola, e5a(ples o& other &ranchises o& United States would 'e the &a(ous 6i77a 4ut, T8IF, and o& course Star'uc)s#

/ith all these esta'lish(ents li)e the "oca0"ola and others li)e led the wa% &or 'usinesses to e5pand all o!er the world# It ga!e a new (ode &or opportunit% &or newentrepreneurs# Based on records, (an% o& the 3F"-s &irst &ranchise owners 'eca(e (illionaires#/ith these co(panies, we ha!e the opportunit% to share in the success o& other 'usinesses and'usiness owners ha!e the opportunit% to e5pand their drea( '% (a)ing 'usiness#

Aside &ro( the United States, other countries also ha!e an enor(ous a(ount &ranchiseand these &ranchises are regulated '% certain Franchise laws# An e5a(ple would 'e "hina#

According to statistics, "hina has the (ost &ranchises in the world 'ut the% are considered s(allones unli)e the ones in the United States# "hina has a &ranchise law that was enacted in the%ear 9+ and re!ised in 9# The laws that were constituted are transactions in!ol!ingtrade(ar) co('ined with pa%(ents and (an% o'ligations on the &ranchisor# For each countr%,we ha!e di&&erent re;uire(ents &or &ranchising and the re;uire(ents in the 6hilippines shall 'eelucidated (ore in the latter parts o& the paper#

Be&ore we start, what is &ranchising per se< Franchising is a (ethod o& doing 'usiness

wherein a &ranchisor licenses trade(ar)s and tried and pro!en (ethods o& doing 'usiness to a

1 http://en.wikipedia.org/wiki/Franchising



&ranchisee in e5change &or a recurring pa%(ent, and usuall% a percentage piece o& gross sales

or gross pro&its as well as the annual &ees# =arious tangi'les and intangi'les such as national or

international ad!ertising, training, and other support ser!ices are co((onl% (ade a!aila'le '%

the entit% licensing the >chain store- or &ranchise outlet and (a% indeed 'e re;uired '% the

&ranchisor, which generall% re;uires audited 'oo)s, and (a% su'.ect the &ranchisee or the outlet

to periodic and surprise spot chec)s# Failure o& such tests t%picall% in!ol!e non0renewal or cancellation o& &ranchise rights#

Franchising or &ranchise usuall% last &or a &i5ed ti(e period which re;uire a renewal a&ter

e5piration# It ser!es a speci&ic territor% or area surrounding its location# Franchise agree(ents

t%picall% last &ro( &i!e to thirt% %ears in which co(es with pre(ature cancellations or

ter(inations depending on the stipulations o& the parties# In &ranchising, it is (erel% a te(porar%

'usiness in!est(ent, which in!ol!es renting or leasing an opportunit%# Franchising does not

include 'u%ing the 'usiness &or the purpose o& ownership#

In other words, &ranchising is a contract or agree(ent, e5press or i(plied, oral or written

'etween two or (ore persons '% which a &ranchisee is granted the right to engage in the'usiness o& o&&ering, selling or distri'uting goods or ser!ices under a (ar)eting plan prescri'ed

in su'stantial part '% a &ranchisor? The operation o& the &ranchisee-s 'usiness pursuant to that

plan or s%ste( as su'stantiall% associated with the &ranchisor-s trade(ar), ser!ice (ar), trade

na(e, logo t%pe, ad!ertising, or other co((ercial s%('ols designating the &ranchisor or its

a&&iliates? and The &ranchisee is re;uired to pa% directl% or indirectl%, a &ranchise &ee#

ther de&initions9 in!ol!ing &ranchise are:

• Franchisor @ The parent co(pan% or operator o& a &ranchise concept or s%ste( that

grants, &or a &ee and other considerations, the right to use its na(e and s%ste( o&

'usiness operations#• Franchisee @ An independent 'usiness person or no!ice entrepreneur who has 'een

granted '% the &ranchisor the right to duplicate its entire 'usiness &or(at at a particular location and &or a speci&ied period, under ter(s and conditions set &orth in the contract&ranchise agree(ent#

• Franchise Agree(ent @ A written contract detailing the (utual responsi'ilities o&

&ranchisors and &ranchisees# It is usuall% &or a se!eral0%ear ter(, and when the ter( isup, the contract e5pires and (ust 'e renewed# So(e state laws re;uire the contract to'e renewa'le at the &ranchisee-s option# Usuall%, a &ranchise agree(ent (a% not 'e sold,trans&erred or otherwise assigned without the &ranchisor-s per(ission#

• perations Manual @ A written docu(ent which clearl% e5plains the &ranchisor-s

standards o& operation, and identi&ies the operational tas)s re;uired to esta'lish and

operate the &ranchise 'usiness# The operations (anual supports and pro(otes the useo& consistent and uni&or( da%0to0da% procedures at each &ranchise unit within thenetwor) &ranchise unit in order to (aintain the ;ualit% o& ser!ice and products in e!er%&ranchise outlet#

• Franchise pportunit% @ A &ranchise opportunit% is a 'usiness opportunit% that in!ol!es

the sale o& good and ser!ices that ena'le a no!ice entrepreneur to 'egin a &ranchise'usiness#

2 http://www.franphil.com/franchise-terms-and-denitions/



• Master or Cegional Franchising @ A (odel o& (ulti0le!el &ranchising wherein the (aster

&ranchisor sells the de!elop(ent rights in a particular geographic (ar)et to a (aster &ranchisee, who, in turn, sells indi!idual or single0unit &ranchises within the territor%# Inreturn &or a &ront0end (aster &ranchise &ee, the (aster &ranchisee has the soleresponsi'ilit% o& de!eloping that area or (ar)et under a (utuall% agreed upon schedule#The (aster &ranchisee is rewarded '% sharing in the &ranchise &ee and ongoing ro%alties

paid '% the &ranchisees within the territor% to the (aster or parent &ranchisor#• Area De!elop(ent Agree(ent @ This is another !ariation o& (ulti0le!el &ranchising where

the &ranchisor grants e5clusi!e de!elop(ent rights &or a particular geographic area to anarea de!elop(ent in!est(ent group or an area de!eloper# In return &or the rights to ane5clusi!e territor%, the area de!eloper pa%s the &ranchisor a &ront0end de!elop(ent &eeand co((its to de!elop a certain nu('er o& units within a speci&ied period o& ti(e#

• Initial in!est(ent @ The total capital re;uired to start a &ranchise 'usiness# This t%picall%

includes Franchise Fee, Ceno!ation, E;uip(ent Fi5tures, Centdeposits, and Initial In!entor%#

• Franchise Fee @ The initial &ee paid to the &ranchisor# The Franchise Fee usuall% includes

training, site selection and e!aluation assistance, and the rights to use the &ranchisor-s

trade(ar) and 'usiness s%ste(#• Co%alt% @ This is the &ee paid to the Franchisor &or continuing use o& the trade(ar) and

in e5change &or the &ranchisor-s ongoing support ser!ices# This is usuall% a percentageo& the &ranchised outlet-s sales and is t%picall% paid on a (onthl% 'asis#

• Ad!ertising Fee @ Fee paid to the Franchisor as the &ranchisee-s contri'ution to the

(ar)eting e&&ort# This is usuall% a percentage o& the &ranchisee sales and is o&ten paid ona (onthl% 'asis#

• Initial Ter( o& Agree(ent @ The length o& ti(e the Franchise Agree(ent is in e&&ect# I&

t%pical re!enue and e5pense scenarios hold, the &ranchisee should 'e a'le to reco!er his initial in!est(ent within the initial ter( o& agree(ent#

In 'u%ing a &ranchise or loo)ing &or e5isting 'usiness to &ranchise, there are nu(erous

issues to consider# ne o& the usual pro'le(s is deciding on which t%pe o& &ranchising issuita'le to their indi!idual needs# There are &i!e (ethods o& &ranchising # These &i!e (ethodswould 'e: single0unit &ranchising, se;uential &ranchising, area de!elop(ent, su'&ranchising, andarea representation#

In Single0unit &ranchising, this is where a pri!ate person or &ranchisee is interested in'u%ing a &ranchise 'usiness &ro( a &ranchisor# Then this &ranchisee would operate the 'usinessin a particular location or area# This is the (ethod which (ost people are &a(iliar with#

The second (ethod is Se;uential &ranchising# In this (ethod, the &ranchisor (a% allowthe &ranchisee to purchase a second or third &ranchise# Using se;uential &ranchising, theseadditional &ranchises are granted on a one at a ti(e 'asis# The &ranchisee, a&ter esta'lishing the

second &ranchise, would need to pro!e he is capa'le o& operating 'oth stores 'e&ore allowed topurchase a third &ranchise# The reason &or this re;uire(ent is that it 'eco(es di&&icult &or the&ranchisee to (aintain direct in!ol!e(ent in each o& the 'usinesses# 4e would need to hire and(anage e(plo%ees in order to run the di&&erent 'ranches#

The third (ethod is area de!elop(ent# In this (ethod, the &ranchisor would gi!e the&ranchisee the rights to (ultiple &ranchises without the need o& pro!ing his capa'ilit% as re;uired

3 http://www.franchise.co.view/57-franchise-association-calls-for-positive-reg!lation



in se;uential &ranchising# The &ranchisor would e5pect the &ranchisee to esta'lish and (anagethe stores hi(sel&, with the assistance o& e(plo%ees# Under this (ethod, the &ranchisee (a% 'ere;uired to esta'lish a certain nu('er o& stores within an agreed ti(e period '% the &ranchisor#

The &ourth (ethod would 'e su'&ranchising# In su'&ranchising, it in!ol!es two le!els o& &ranchises: su'&ranchisor and su'&ranchisees# Su'&ranchisors are also li)e &ranchisor in which

the% will 'e responsi'le &or recruiting and pro!iding support to operating &ranchisees# 4owe!er,in co(parison to the &ranchisor, the% are responsi'le &or a s(aller area onl%# An illustration herewould 'e A &ranchisor o&&ers B su'&ranchisor &or a certain 'usiness in ue7on "it%# /ithin thisarea, B could 'e e5pected to attract, select, train and pro!ide support to &ranchisees or )nownas su'&ranchisees#

The &i&th (ethod would 'e Area representation# Econo(ist la'els this (ethod as lessco((on than su'&ranchising# In this (ethod, there are also two le!els li)e su'&ranchising# The(ain di&&erence would 'e that the area representati!es are gi!en less responsi'ilities '% the&ranchisor# The purpose o& this is that the &ranchisor will 'e the one recruiting and pro!idingsupport to &ranchisees within the region o& the area representati!e#

Be&ore a person decides to enter in or ac;uire a &ranchise 'usiness, usuall% duediligence should 'e done '% the &ranchisee# 4e, the &ranchisee, and &ranchisor (ust 'e dul%registered with the Depart(ent o& Trade and Industr% DTI or the Securities and E5change"o((ission SB"# the &ranchisee (ust secure or re;uest disclosure in&or(ation &ro( the&ranchisor# This in&or(ationG would 'e:

• Business address, e(ail address, internet ho(e pageHwe'site, &a5 nu('ers and other

contact details?• "op% o& DTI or SE" Cegistration u('ers?

• 6arent co(panies and a&&iliates, i& an%, and their respecti!e roles in the Franchise, and

&ranchisor-s declaration i& an a&&iliate is a supplier and what the% will suppl%?

• na(es o& the Board o& Directors and o&&icers with a 'rie& description o& their ;uali&ications

and 'ac)ground, ownership o& interests and re&erences?

• The contact nu('er and 'usiness location o& e5isting Franchisees?

• E5ecuted pro(otionalH(ar)eting (aterials?

• Description o& the 'usiness concept, which includes: 'rand i(age, 'rand personalit%,

uni;ue selling proposition, target (ar)et, (ission and !ision, a(ong others?

• Basic in&or(ation on training, co((ercial andHor technical assistance?

• "erti&icate that the Franchisor is a (e('er in good standing o& an% Franchisor Association and that the Franchisor has no pending ad(inistrati!e, ci!il or cri(inal case?

• Declaration o& the Initial Fee? a(ount that will 'e collected and ser!ices co!ering these

&ees?

" DTI Bureau Order No. 10-24, November 17, 2010



• Training that will 'e pro!ided: nu('er o& persons, how long and training (odules?

• u('er o& %ears co(pan% has operated and nu('er o& %ears it has &ranchised with

corresponding nu('ers o& co(pan% owned 'ranches and &ranchised 'ranches?

• Dra&t Franchise Agree(ent?

• Full disclosure o& the &inancial re;uire(ents o& the &ranchise 'usiness?

• A pro!ision that re;uires the &ranchise applicant to see) ade;uate legal and &inancial

counsel 'e&ore signing the Franchise Agree(ent? and

• Mechanis(s &or dispute resolution#

/ith regard to &ranchise ro%alties, these are paid to &ranchisors on a (onthl% 'asis and

are percentages o& sales (ade '% the &ranchisee-s 'usiness# Franchise ro%alties are di&&erent

&ro( &ranchise &ees as (entioned a'o!e in the de&inition part# Franchise ro%alties are paid to the

&ranchisor &or continuing the acti!ities in support and &or the ongoing use o& the na(e and

s%ste( o& the &ranchisee# /hile on the other hand, &ranchise &ees are paid in e5change &or theacti!ities and e5penses at the start o& the &ranchise agree(ent# This would 'e the rights to the

use o& trade(ar) and 'usiness s%ste(# Franchise ro%alties are paid on a (onthl% 'asis and is

deri!ed &ro( the percentages o& sales (ade '% &ranchisee# An e5a(ple here would 'e when a

&ranchisee earns 69,, sales &or a certain (onth, he (ust pa% +J or 6$, to the

&ranchisor# There are certain situations that &ranchise ro%alties are not collected an%(ore# The

alternati!e '% the &ranchisor would 'e that the% would re;uire the &ranchisees to purchase

supplies &ro( the(# /ith this, the &ranchisors also still (a)e (one% &ro( the (ar) up price o&

ite(s sold to the &ranchisees#

Another i(portant part o& the &ranchise s%ste( would 'e the &ranchise agree(ent# In this

agree(ent, it usuall% speci&% the gi!en territor% the &ranchisee will ha!e e5clusi!e control as wellthe e5tent to which the &ranchisor shall gi!e support to the &ranchisee# The &ranchisee (ust

care&ull% negotiate the license o& the 'usiness as also with regard to the &ranchisor, it (ust

de!elop a (ar)eting plan or 'usiness plan# In the &ranchise agree(ent, &ees (ust 'e &ull%

disclosed# The costs and wor)ing capital (ust 'e )nown to the parties# The &ranchisee (ust 'e

protected '% the &ranchisor &ro( an% trade(ar) in&ringe(ent '% third parties

The contents o& the &ranchise agree(ent+ are: the nature o& the contract, ter( or

duration o& the &ranchise, territorial rights, &ees, o'ligations o& the parties, and ter(ination# In the

nature o& the contract, the contract descri'es 'rie&l% the nature o& the &ranchise, its trade(ar)s,

s%ste( and who owns the(# The &ranchisee is the legal owner o& 'usiness 'ut the &ranchiser

retains control o& how the s%ste( and ser!ice is presented# In the ter( or duration part, there is

no speci&ic ti(e re;uired to operate a &ranchise# Usuall% there-s an option to renew the contract

when it e5pires# The territorial rights content o&&ers e5clusi!e rights to a territor% to gi!e

&ranchisee an opportunit% to distri'ute a (ar)et# In the &ees section, it sets usuall% sets down

how (uch a &ranchisee pa%s &or the pac)age including the (anage(ent# The period o& the

pa%(ents (ust 'e stated in the agree(ent# The o'ligations o& the parties will 'e elucidated

5 http://en.wikipedia.org/wiki/Franchise#agreement



(ore 'elow# In ter(ination, the parties (a% &orce either to ter(inate the agree(ent# In certain

situations li)e when the &ranchisee !iolates an% ter(s o& the agree(ent, &ranchiser (a%

ter(inate the agree(ent &or cause '% gi!ing a written notice to &ranchisee# The notice is usuall%

not less than da%s 'e&ore the date o& ter(ination# The &ranchisor (ust state the reason &or

the ter(ination# In case either o& the parties decides to end the agree(ent &or an% reason

without !iolation, the agree(ent should stipulate &or a re&und o& the initial in!est(ent in whole or in part to co(pensate the &ranchisor &or the hassle caused#

The &ranchisor usuall% grants a license to use# 4e pro!ides a (ar)eting plan and a

(anual that details operational s%ste(s and procedures &or the &ranchisee to use# 4e grants the

right to operate the &ranchise s%ste( &or a &i5ed period o& ti(e# 4e also &urnishes speci&ications,

standards or duties &or accounting and reporting procedures, ad!ertising, personnel

re;uire(ents, construction and design, site selection, &urniture, &i5tures and e;uip(ent, product

or ser!ice, and (aintenance#

n the other hand, the &ranchisee pa%s the &ranchisor an initial &ranchisee &ee, not &or

an% product, ser!ice or speci&ic assistance, 'ut &or the pri!ilege o& o'taining the &ranchise andassociated rights, and &or the right to o'tain the &ranchisor-s guide to ena'le the &ranchisee to

operate in the (ost pro&ita'le wa%# The &ranchisee (ust pa% a continuing ro%alt% in return &or the

&ranchisor-s continuing assistance and &or the ongoing pri!ilege o& using the s%ste(s and

(ethod o& &ranchisor# he (ust at all ti(es conduct the &ranchised 'usiness in strict co(pliance

as re;uired to the &ranchisor-s standards, procedures, and speci&ications# An i(portant

o'ligation o& the &ranchisee is not to di!ulge to a third part% an% con&idential in&or(ation,

)nowledge or the s%ste(# 4e should purchase all re;uired products, supplies, and (aterials

onl% &ro( the suppliers designated or appro!ed '% the &ranchisor# he should not relocate the

&ranchise without &irst in&or(ing the &ranchisor and, perhaps, procuring the &ranchisorKs appro!al#

4e (ust co(pl% with all e(plo%ee hiring and training re;uire(ents and consent to inspections

'% &ranchisor to deter(ine co(pliance with &ranchisorKs policies and procedures# 4e (ustdiscontinue, upon ter(ination or e5piration o& the &ranchise, use o& the &ranchisorKs na(e,

trade(ar) and ser!ice (ar)? cease operating or doing 'usiness under an% na(e or in an%

(anner which (ight cause the pu'lic to 'elie!e that a &ranchise relationship with the &ranchisor

still e5ists? and i((ediatel% and &ore!er cease using, in an% (anner, pa% the &ranchisor a

continuing ro%alt% in return &or the &ranchisorKs continuing assistance and &or the on0going

pri!ilege o& using the &ranchisorKs )now0how, s%ste(s and (ethods#

In putting up a &ranchise, there would 'e ad!antages and disad!antages on the part o&

the &ranchisor and &ranchisee This is the &low o& 'alance o& 'usiness# There will alwa%s 'e an

ad!antage &ollowed '% disad!antage# The ad!antages to the &ranchisor would 'e that it would

e5pand its 'usiness rapidl% than doing it alone with owned outlets# Franchisees contri'ute to the

ad!ertising &und which the &ranchisor has the control and option to e5pand 'rand awareness#

The co(pan% o& the &ranchisor would onl% ta)e (ini(u( ris) since the e5pansion o& the unit or

'usiness is &inanced '% the &ranchisee# Franchisees also are (ore responsi!e to the local

(ar)ets than salaried (anagers 'ecause the% treat their own unit as their own 'usiness# Lastl%,

&ranchisees are an i(portant source o& new (ar)eting and product concepts which can 'ene&it

the networ) o& &ranchisor# n the part o& the &ranchisee, he 'u%s into a pro!en 'usiness concept



which he does not ha!e to thin) o& in!enting# As the &ranchise networ) e5pands, he recei!es the

'ene&its o& enhance 'rand recognition

ow on the disad!antage 2side, &or the &ranchisees, the (ain disad!antage that usuall%

happens is the loss o& control# The e5planation here is that while the% gain the use o& a s%ste(,

trade(ar), assistance and (ar)eting, he is re;uired to &ollow the s%ste(# 4e is not allowed to

change the s%ste( 'ecause he is pa%ing the &ranchisor &or a s%ste( that is not his own# A

disad!antage on the part o& the &ranchisee and &ranchisor

For &ranchisees, the (ain disad!antage o& &ranchising is a loss o& control# /hile the% gain the

use o& a s%ste(, trade(ar)s, assistance, training, and (ar)eting, the &ranchisee is re;uired to

&ollow the s%ste( and get appro!al o& changes with the &ranchisor#

In response to the soaring popularit% o& &ranchising, an increasing nu('er o&

co((unities are ta)ing steps to li(it these chain 'usinesses and reduce displace(ent o&

independent 'usinesses through li(its on &or(ula 'usinesses#

Another pro'le( is that the &ranchisorH&ranchisee relationship can easil% gi!e rise tolitigation i& either side is inco(petent or .ust not acting in good &aith# For e5a(ple, an

inco(petent &ranchisee can easil% da(age the pu'lic-s goodwill towards the &ranchisor-s 'rand

'% pro!iding in&erior goods and ser!ices, and an inco(petent &ranchisor can destro% its

&ranchisees '% &ailing to pro(ote the 'rand properl% or '% s;uee7ing the( too aggressi!el% &or

pro&its#

According to statistics &ro( Depart(ent o& Trade and Industr%, it stated the top

'usinesses that people &ranchise in the 6hilippines# These would 'e water re&ill &ranchises,

education and training &ranchises, 'a)er% and &ood &ranchises, 'ar and ca&N &ranchises,

personal care &ranchises, ser!ice t%pe &ranchises, &ast &ood and restaurants &ranchises, and &ood

cart and )ios) &ranchises# For water re&ill &ranchises, the reason &or the success o& this &ranchise

is that water is a 'asic need# For education and training &ranchises, with (illions o& students that

graduate, re!iew centers are a good wa% to &ranchise# According to anal%sts, these &ranchise

ne!er &ade 'ecause the target (ar)et would 'e undergrad students who wants to ta)e

!ocational courses and preschools &or toddlers# For 'a)er% and &ood store &ranchise, it-s a 'ig

success here in the 6hilippines 'ecause Filipinos lo!e eating 'read and pandesal# The% are

pro&ita'le and as we all )now Filipinos lo!e to eat as part o& our culture# For 'ar and ca&N

&ranchises, owning a 'ar can alwa%s assu(e %ou will get the return o& %our in!est(ent i& one

)nows how to strateg%# /ith regard to ca&N shops, ca&N signi&ies class and people would want to

drin) co&&ee in a well )nown esta'lished na(e# Ser!ice t%pe &ranchises would 'e car wash

&ranchises, printing shops, and the usual call centers# These are considered pro&ita'le&ranchises# /ith an English spea)ing countr%, call centers are in de(and outside the

6hilippines# As (entioned in the introduction a'o!e, &ast &ood and restaurant &ranchises would

'e (cdonalds, 3F", and other such# Lastl%, &ood cart and )ios) &ranchises are necessit% here in

the 6hilippines# /e see &ood carts e!er%where and when we tal) a'out the price &or in!esting

one, it would usuall% cost around 69, that is ;uite reasona'le &or starting a 'usiness#

http://en.wikipedia.org/wiki/$he#Franchise#%!le



Effect of International franchising

International &ranchising has grown rapidl% since the $12-s 'ecause o& the e5panding

(ar)et o& each countr%# Franchisors were a'le to anal%7e and e5a(ine their opportunities

a'road and e5pound on pro&its# For &ranchisors to in!est wisel%, it is i(portant &or the( to

e5a(ine the le!el o& econo(ic and political well 'eing o& the countr%# These would 'e the le!el

o& population, purchasing power o& the citi7enr%, cost o& li!ing, and the growth rate o& the

econo(%# International &ranchising is 'oth an o&&ensi!e and de&ensi!e strateg% used '% large

and s(all co(panies to di!ersi&% into &oreign (ar)ets# This (a)es the &ir(s increasingl% less

dependent on its own countr% re!enues and de(and# So(e e&&ort is re;uired to tap the

'usiness (odel &or the target &oreign countries, research local &ranchise laws and regulations,

protect intellectual propert% rights and de!elop a (aster &ranchise paradig(# But the upside o&

these e&&orts is so !ast it (ore than .usti&ies the in!est(ent o& ti(e and (one%# ItKs critical to

reali7e international &ranchise e5pansion ta)es (ore than .ust a (aster &ranchise agree(ent#

4a!ing connections within target countr%, including people, who )now other, high0cali'er people,is critical# An international &ranchise partner can 'uild %our 'rand# But an inappropriate partner

can .ust as easil% wrec) the 'rand, usuall% in a !er% short ti(e#

Adapting to local custo(s is alwa%s a pro'le( &or an% international &ranchise e&&ort# For

e5a(ple, "olonel Sanders secret recipe o& her's and spices isn-t a draw &actor &or (an%

"hinese custo(ers# For health reasons, the% sh% awa% &ro( &ried chic)en and pre&er to eat the

&ish, porridge and egg tarts &eatured on the 3F" (enus# McDonalds uses a thin) glo'al, act

local international strateg% &or each target countr%# In Oapan, to (a)e its na(e easier to sa%,

McDonalds was changed to Ma)u0Donaldo# Adding a twist to its products to &it local dining

culture, in 4ong 3ong McDonalds launched rice 'urgers# /hile popular there, the rice 'urgers

do not ha!e the sa(e appeal a(ong Mainland "hinese, de(onstrating .ust how trul% localtastes in a region are# In Saudia Ara'ia, McDonalds does not displa% Conald McDonald,

respecting the Isla(ic prohi'ition against idols# In India, the chain ser!es =eggie Mcuggets?

also, the Big Mac was rena(ed Mahara.a Mac and is (ade &ro( la(' instead o& 'ee&#

E!er% 'rand, li)e e!er% person, is &ro( so(ewhere# And the appetite &or A(erican

&ranchises is a worldwide cultural pheno(enon# As one 'usiness person in Singapore o'ser!ed

PBring .ust a'out an% U#S# &ranchise here and it will do well# /e Singaporeans are &ascinated

with A(erican concepts#P, as stated '% the one o& the state heads o& Singapore#

The long0ter( goal o& an% &ranchise progra( is to esta'lish 'alanced, integrated,

success&ul &ranchise relationships with ;uali&ied indi!iduals who support %our co(pan%Ks goalsand i(age# "reating enduring &ranchise relationships re;uires a co(prehensi!e strateg% and!ision that addresses all aspects o& the &ranchise de!elop(ent endea!or# The starting point is adetailed anal%sis that co!ers:

7 International FranchisingHMultile!el Mar)eting: E&&ect o& Intellectual 6ropert%, Securities and

"orporate Laws on 6roduct Franchises and the E(ergent Celationships



$ identi&%ing pro&ile characteristics o& who will 'e the 'est &ranchise owners &or %our t%pe o& 'usiness?

9 co(petiti!e and i(age positioning to (a)e %our &ranchise stand out &ro( the other ,Q&ranchise co(panies that populate the industr%?

geographic scope 0 where and when will &ranchises 'e sold initiall%?

G anal%sis o& %our co(pan%Ks strengths and wea)nesses relati!e to &ranchising, soco(pensating ad.ust(ents can 'e (ade?

+ identi&%ing the appropriate organi7ational structure as well as sta&&ing re;uire(ents, dutiesand responsi'ilities?

2 structuring the &ranchise relationship &or a 'alanced, win0win scenario? and

considering and answering a (%riad o& strategic issues: how are protected territories

de&ined, what are the initial &ranchise &ees and ongoing ro%alt% pa%(ents, how is the networ)(ar)eting &und structured and i(ple(ented, how and when will ongoing support 'e pro!ided,what happens i& the &ranchise owner 'eco(es sic) or disa'led, wants to sell or decides to lea!ethe s%ste(, etc#, etc#

In su((ar%, &ranchising is (ore on a 'ene&it &or people rather than under(ines the

social 'usiness s%ste(# Ac;uiring a 'usiness &ranchise has a 'ene&it o& lowering ris) o& &ailure

than engaging in independent 'usiness# A &ranchisor o&&ers a product or ser!ice that has sold

success&ull% while an independent 'usiness is 'ased on 'oth an untried idea and operation#

Another 'ene&it would 'e that it is possi'le to o'tain lower0cost supplies and goods &ro( the

&ranchisor# the lowering cost would result &ro( the group purchasing power o& all &ranchises and



this protects the &ranchisor &ro( &ranchisees purchasing goods and supplies through other

resources# The esta'lished &ranchisors can o&&er national or regional na(e recognition and with

this there is a 'etter &low &or the &ranchisee to in!est# Franchisors who disco!er new operating

and (anage(ent e&&iciencies 'ene&it the &ranchisees# The &ranchisee is alwa%s guided '% the

(anage(ent assistance o& the &ranchisor# This usuall% includes accounting procedures,

personnel (anage(ent, &acilit% (anage(ent and other si(ilar &actors# ne o& the (ost di&&icultaspect o& a new 'usiness is its initial startup and with this, the &ranchisor, as an e5perienced

'usiness entit%, will help the &ranchisee to reduce (ista)es that are costl% 'ecause the

o'stacles will hinder the 'usiness o& the &ranchisor# A &ranchisor usuall% o&&ers se!eral (ar)eting

ad!antages such as pro&essional ad!ertising ca(paigns which would 'ene&it all the &ranchisees#

Usuall% this 'ene&it has a cost which would re;uire &ranchisees to contri'ute a percentage o&

their gross inco(e 'ut in the end it would still 'e 'ene&icial to the(#

itl franchising fp

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