The great boom and boom of franchises came after World War II, a combination of social, economic, political, technological and legal factors that created the climate for this expansion.
The return of thousands of ambitious men with basic knowledge, with little experience in the creation and management of companies, but with a lot of desire to establish their own businesses also contributed. The optimistic spirit of the moment and the desire to leave behind the difficult days of the Great Depression and the war, gave rise to a pattern of consumerism that led to the generalized purchase of all kinds of goods, including automobiles. As the number of cars increased, the need for a greater infrastructure of roads and parking lots became evident; This prompted the creation of shopping centers with ample parking space and a new appearance and functionality. These new shopping centers created new pressures and fierce competition with stores,hotels, restaurants and traditional or family businesses located in the centers of towns and cities.
The introduction of business format franchises was the most important event in the world of product and service marketing in the second half of the 20th century. The decade of the nineties was undoubtedly consolidated, like the revolution in the business world. Another important aspect in the growth of this concept was the success with which franchisors were able to communicate their experiences and skills to franchisees through a package or formula that is easy to assimilate and put into practice by people who, in most cases They did not have a similar degree of knowledge and education in the matter. That is why today the franchises that we know best were the ones that "opened the gap."
Early business-format franchise companies included Dunkin 'Donuts, Kentucky Fried Chicken, Midas Muffler, Holiday Inn, and McDonald's. The latter is certainly the first company to exploit this innovative concept and that is why it is worth analyzing your case in more detail.
Franchises have proven to be a powerful marketing tool, using a fast and secure marketing methodology through the union of two parties for the development of the same business; the franchisee and the franchisor, who make a perfect marriage by having common interests and decide to put all the effort to achieve the success of their commercial operation, today franchises are a global phenomenon that has been driven by bold entrepreneurs with needs to expand the market for their companies. With the process of internationalization of the economy, we are experiencing structural reforms to the foreign investment regime. Few countries like Colombia have an advantageous position to access world markets. Internationally, Colombian labor is valued for its training and low cost,Colombian's perception of new business opportunities is positive. However, despite these conditions, franchises have had an incipient development in Colombia. In a developing country like Colombia, it is necessary to turn to the beneficial experiences of other countries in economic matters, and adapt them to the particular needs of our environment.
The franchise is an effective means for the successful expansion of markets worldwide and the creation of new companies by entrepreneurial merchants. The franchise is a well-structured business system in all its productive, managerial and administrative aspects, which contribute, to the franchisor and the franchisee, is the transfer of "know-how", which is expressed in support manuals, which for the franchisee Being a small businessman, managing your business involves you with modern business concepts and techniques, thus contributing to a qualitative improvement of management in these types of companies. The Franchise is a multiplier of successful businesses through new entrepreneurs, to the point that Colombia has led the promotion of entrepreneurship at the Latin American level.The franchise system shows us a new model of coexistence among the diversity of companies. In general, the Franchising company is a medium or large company, which gives its rights to small franchised entrepreneurs, to exploit its brand and its business system.
Due to its integrity, the Franchise is called to play a very important role in the development of the business economy, since the elements of transfer, technology, market strategies, advertising, standardization of processes, the coexistence of companies from different sizes, the opening towards international markets is presented. The Franchise modality constitutes an effective alternative for the generation of employment, presents greater stability and compliance with labor obligations and better levels of remuneration.
In recent years, franchise businesses have reached great development thanks to the globalization of economic life and openness. According to estimates from the United States Department of Commerce, at the end of the 20th century, 50% of retail sales were handled within the franchise system. For those who have dreamed of being business owners, the franchise has become an interesting option.
The franchise, concession or license:
It is a contractual agreement (a business between two parties) whereby a parent company, the franchisor, grants a small company to an individual, the franchisor, the right to exploit or do business and the trademark of a commercial activity, in specific conditions fees or royalties. The franchisor has the right to the name or a trademark and sells the right to a franchisee to use it.
A franchise right is a one-time advance payment that dealers make directly to whoever grants them the franchise to be part of the concession system. The payment to the franchisor reimburses the costs of locating, qualifying and training the new dealers.
The international franchise association IFA defines it as a means of marketing products and services. It is a contractual relationship between the franchisor and the franchisee, in which the former offers and is obliged to maintain a continuous interest in the latter's business in matters such as the "Know-how" and training in this operation, the franchisee uses a commercial name in common agreement with a format or pattern established and controlled by the franchisor. This implies that the franchisee invests his own resources in his own business.
The regulation of the European communities defines the franchise as the contract by virtue of which a company, the franchisor, assigns to the other, the franchisee, in exchange for a direct or indirect financial consideration, the right to exploit a franchise to market certain types of products and / or services and that includes certain benefits:
• The use of a common name or label and a uniform presentation of premises and / or means of transport.
• Communication of “Know-how”.
• The provision of commercial or technical assistance during the term of the agreement.
The United States Department of Commerce defines franchising as a form of license by which the owner or holder (franchisor) of a product, service or method obtains its distribution through affiliated resellers (franchisees).
The franchise as a business:
The franchise is a development strategy that allows expanding markets and fostering the growth of successful companies, in this way entrepreneurs stimulate business activity, create jobs, share risks. It is a system of technology and knowledge transfer for the development of an economic activity, by transferring the know-how from some entrepreneurs to others.
Franchises have no borders. There has been a large deployment in
Brazil, Mexico, Chile, Colombia and Argentina. For those who have dreamed of being business owners, the franchise has become an interesting option. Franchises have experienced enormous growth, being the first country in number of these United States of America, Australia, Japan, France, Brazil, Italy, Spain, Mexico, Argentina, Portugal.
Almost any type of business that can be franchised depends on the franchising company's ability to pass on technology, brand and service to a third party. Currently there are more than 120 different types of businesses available under the type of franchises, the main activities being the following:
• Construction and maintenance
• Cleaning and maintenance
• Fast foods
• Super and minimarkets
• Car rental
• Hotels and motels
• Clothing
• Training
• Travel agencies
• Automotive services
• Human resources
• Computer sales
• Restaurants
• Transport
• Furniture
• Education
• Real estate
• Bookstores
• Sporting goods
• Pharmacies
• Laundries
• Gift shops
• Printers
• Photographs
• Video rentals
• Academies
• Communications
• Jewelry
• Jewelry and accessories
• Training
• Culture
• Service stations
Characteristics of a good franchise
• A good franchise must be a proven and transferable success.
• It markets high quality products.
• Leaves the franchisee located and established in a good place.
• Provides immediate transfer and training in marketing techniques.
• Tests with pilot companies.
• Establishes a continuous relationship, with a view to improving the conditions of the franchise.
• Teaches how to know how to do marketing, advertising, promotional activities, research and development.
• It expresses the immediate and continuous payments that the franchisee must make.
• Involves the franchisee in the process of defining the future directions of the franchise.
• Provides a process of renewal, renegotiation and circulation of the contract, as well as the possibility of redemption for the franchisor.
Advantages for the franchisor
• Have a source of capital.
• Avoid high fixed expenses.
• Cooperate with independent distributors.
• Cooperate with well-integrated local business names.
• Create a source of income.
• Make a rapid increase in sales.
• Benefit from economies of scale.
Advantages for the franchisee
• You benefit from the experience, guarantee and recognized brand
• Having a company with little capital.
• Reduce the risk involved in starting a commercial activity.
• Benefit from better purchasing power.
• Receive training and assistance.
• Have access to the best locations.
• Receive help with the management of Marketing and advertising
• Have well-conceived premises and decoration.
• Benefit from the development of new products.
• Be able to create your own business.
• It benefits from the franchisor's research and development process
• It obtains better purchase prices due to the total volume of purchases
• You can obtain financing more easily and in better conditions.
Disadvantages of franchises
• Fees that the franchisor charges for the use of the name and other expenses that can be high. Both at the beginning and periodically
• You do not have independence since you have to follow the franchisor's patterns.
• You cannot use your own ideas since everything is standardized.
• Due to size, a franchisor can be slow to accept a new idea.
• It is difficult and expensive to cancel a concession agreement.
• The franchisor has less control over the dealer.
• At the end of the contract, if the dealer has been very successful, the firm loses profits and may become the competing dealer.
Recommendations for franchises
• Select recognized and accepted brands
• Talk to other franchisees
• Find out if the franchisor is in litigation
• Evaluate the franchisor's plans and programs
• Keep a record of conversations and agreements
• Promises and conditions must be in writing.
The franchise agreement
The conclusion of a franchise contract as the instant and automatic solution to an economic or operational challenge is wrong. Although franchising is one of the safest ways of doing business today, it is important, as Marcus Rizzo suggests in his work to do your research before investing, to do a careful analysis of the repercussions of entering into a contract of this type. The "with whom" is just one of the criteria that the franchisor and the future franchisee must take into account; the "where", "when" and, in the specific franchisee case, the "why" to enter into a franchise agreement are questions that cannot and should not be ignored.
The "construction" of a legal relationship that the parties agree upon prior to the signing of the franchise agreement, where there must be a series of assumptions and conditions that, in the case of being ignored or violated, put the success of the franchisee business at risk and, consequently, that of the franchise itself, the realization of the link between franchisor and franchisee comprises, an agreement of wills, where each of the parties undertakes to comply with a series of contractual conditions, but is not limited to finding, know and understand the counterpart, but also diagnoses the advantages and disadvantages of entering into the contract.
We must clarify that the legal nexus that is established between the franchisor and its franchisee is not the same that is formed between the partners of a commercial company and yet, it is interesting to recognize how, from an objective point of view, both the franchise and the company allow one or more natural or legal persons to meet their potentialities to obtain the same objective or purpose; the successful operation of a business. It is understood that, for the purposes of this analogy, the contributions of the franchisor and the franchisee are as different as they are also complementary, on the one hand the brand or commercial name and the Know-how provided by the franchisor, and, on the other, the investment and the work that the franchisee contributes.
In the franchise arena, "clear rules make good friends." An imprecise, incomplete or simply deficient contract may be the first reason for the deterioration of the relationship between franchisor and franchisee, and, consequently, for its failure. In the preparation and adoption of a franchise contract model, the franchisor must know how to evaluate everything that he will be willing to commit to before his franchisees and include everything that he will be determined to demand of the latter in order to meet two fundamental objectives to obtain; the fair remuneration for the license of its brand and the transfer of its technology and the adequate protection and improvement of its "system", which includes its brands and the Know-how, which constitute the backbone of the franchise.It must contain all the essential aspects or points that allow adequate protection of the parties. It is recommended to make a detailed analysis of each and every one of the clauses that will make up the final document, the level of protection of brands, trademarks, corporate image and industrial secrets of the Franchisor must be verified.
In the body of the contract, among others, aspects such as:
Preliminary considerations of the contract, the object and license of the franchise system, term and validity of the contract, the obligations of the franchisor, the consideration or payment of royalties, business operations franchisee, brands, manuals, confidential information, advertising, accounting and file preservation system, insurance, transmissions and levies, breach and termination of the contract, obligations in case of term or expiration, non-competition, taxes and permits, independence of the contracting parties, force majeure factors, modifications to the contract, applicable laws, and contract registration.
The business, it is necessary for the Franchisor to make a comprehensive analysis of the business object of the franchise to make sure that its financial performance and its operation are viable; it is vital to know the following aspects:
Investment amount, includes the payment of the entry fee and other contributions if any:
• The return, in terms of time, of the investment rescue.
• Existing financial sources.
• Level of indebtedness
• Supply of products and supplies
• The existence of adequate personnel for the business.
The market, the products or services must have great acceptance in the market. When it comes to foreign franchises, it is necessary to verify the products to determine if they meet the characteristics required by the local consumer, if not, it is necessary to determine if the franchisor is able to adapt its product or service to the special characteristics of the market in the market's area of influence. If so, the franchise system would have a good outlook since there is an expanding market for the franchised product or service.
Once the previous topics have been analyzed, the decision is made to select and buy a specific franchise, and therefore respond to the conditions that the Franchisor has imposed. In most “Brand” franchises, the franchise selection process is very rigorous since the applicant's personal, financial, family and work aspects are examined.
Bibliography
BROON. HN - LONGENECKER Justin. SMALL BUSINESS ADMINISTRATION. Fourth edition. Editorial CECSA, Mexico 1986.
CABAL Jaime Alberto, FRANCHISING THE NEW BUSINESS OPTION. In Business Class Magazine, July 1994.
CHERTO Marcelo. FRANCHISES: Marketing Revolution business series Luso Sao Paulo Brazil 1987.
DESACOL. MEMORIES OF THE INTERNATIONAL SEMINAR AND BUSINESS CONFERENCES “Franchises in Colombia, your new business. Santa Fe de Bogotá February 1993.
General direction to foreign trade, how to develop more Franchises, Page 23.
The future of franchises: In Looking 25 years ahead to the year 2010, Washington, DC EU p.76.
GARAY, Luis J. Andean Group and Protectionism Neoliberalism and Underdevelopment. A critical analysis of the Economic Opening. 1st Edition ancora Editores. p 168
RIZZO, Marcus. Franchises the Revolution of the 90 p. 31 Franchises, The Revolution of the 90s. P. fifteen.
