Franchising as a tool for corporate expansion

Franchising aims to accelerate the development of franchised businesses, through the union of human and financial resources framed in a commercial solidarity relationship

Franchising is a system of distribution of products and / or services, according to which a company that has achieved commercial success in a specific area of business, transmits to another independent entrepreneur all its specific knowledge and experience about the original business, to change of an initial right plus a percentage of monthly royalties, allowing you to double it in its entirety, including the use of its trademarks and distinctive symbols. This dramatically reduces the chances of failure for the franchise acquirer.

Although many proclaim the modernity of franchising, the background of this business strategy dates back to the mid-19th century, when SINGER created it as a distribution system; Then, it was GENERAL MOTORS in 1898, which implemented it as an expansion strategy for its dealer network; But there are those who say that it was not until the thirties when the franchise appeared as a method of expansion, however, the strategy does not seem anything new.

The fundamental reason for the success of the franchise agreement is that it is the ideal link between big capitals and small and medium-sized companies, in addition to being an extraordinary diversification and marketing strategy, as a marketing system for a product or service; since it allows, on the one hand, geographical expansion and the conquest of unknown markets, occupying areas, controlling the distribution of products in these areas and, above all, promoting the brand. An example of this is the multinational franchise network COCA-COLA, which expanded into different countries of the world with unprecedented success, nor should we forget chains like MC'DONALDS that are found in almost every country in the world using this distribution and sale system, adding more and more value to the brand in question.

The amount

According to the United States Department of Commerce, 92% of franchised businesses started ten years ago survive, while of non-franchised businesses only 23% survive.

Actors

There are basically two actors in franchising contracts.

1. The franchisor: lends his brand or his commercial name and transmits his «Know How»

2. The franchisee: who pays a percentage of their sales (royalties) monthly to the Franchisor and initially pays a fee for the right to carry out a commercial activity using the name and system of Franchisor

Advantage

For the franchisor:

The franchisee bears the investment costs

The franchisor finds in this associated trade formula a great capacity for expansion of his business with a not very high capital contribution. Others people money.

Expansion occurs with outside staff

The expansion of the business through the opening of branches will require an increase in the company's workforce, not always motivated, with the consequent increase in personnel costs.

Creating a strong brand image

There will be a multiplier effect that will strengthen the franchisor's brand presence in the market.

Such direct management control will not be necessary

The greater motivation on the part of the franchisee compared to that which it would have as an employee will incentivize it to achieve the success and results of its own establishment. His interest in the success of the company is greater as he has invested his capital and his work in it.

Ease of accessing foreign markets

The possibilities of expansion exceed the local or even national scope and can be developed in other countries through the master franchise formula.

Better planning of manufacturing and sourcing functions

The development of a franchise network means being able to make large economies of scale in manufacturing, stock purchases, materials, capital goods,…

Profitability of marketing and communication efforts

Taking advantage of the multiple economies of scale that can derive from the coexistence of several establishments that carry out the same activity operating under the same image

For the franchisee:

Guarantee of independence and integration in a commercial network clearly appreciated and identified by the public.. Acquisition of the franchisor's know-how and a priori knowledge of the profitability and possibilities of the business that is intended to be undertaken. Use of the multiple economies of scale that may derive from the coexistence of several establishments that carry out the same activity operating under the same image. (more favorable purchase conditions, profitability of marketing and communication efforts…) Frequently the franchisor will provide financial aid to the franchisee to undertake the necessary initial investments. Assistance to the franchisee in conducting market research, locating the most suitable location, training of personnel, use of advertising and promotional media,merchandising and decoration of the premises, technical and management aspects, accounting and informatics. Since the franchisor will continue with its research and experimentation of new techniques and products / services, the franchisee will be able to benefit without risk from those tests that are successful. franchisee may exploit the franchisor's know-how under pre-established geographical conditions since it will have a zone of territorial exclusivity for the exploitation of the franchisor's know-how.The franchisee may exploit the franchisor's know-how under pre-established geographical conditions since it will have a territorial exclusive area for the exploitation of the franchisor's know-how.The franchisee may exploit the franchisor's know-how under pre-established geographical conditions since it will have a territorial exclusive area for the exploitation of the franchisor's know-how.