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Seminarski rad Predmet: Engleski jezik II Tema: Franchising

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Franchising
+e!inition: % continuing relationship in ,hich a !ranchisor provides a licensed privilege to the !ranchisee to do -usiness and o!!ers assistance in organizing. training. merchandising. marketing and managing in return !or a monetar/ consideration0 Franchising is a !orm o! -usiness -/ ,hich the o,ner 1!ranchisor2 o! a product. service or method o-tains distri-ution through a!!iliated dealers 1!ranchisees2 If buying an existing business doesn't sound right for you but starting from scratch sounds a bit intimidating, you could be suited for franchise ownership. Just what is a franchise--and how do you know if you're cut out to be a franchisee? Essentially, a franchisee pays an initial fee and ongoing royalties to a franchisor in return, the franchisee gains the use of a trademark, ongoing support from the franchisor, and the right to use the franchisor's system of doing business and sell its products or ser!ices. In addition to a well-known brand name, buying a franchise offers many other ad!antages that aren't a!ailable to the entrepreneur starting a business from scratch. "erhaps the most significant is that you get a pro!en system of operation and training in how to use it. #ew franchisees can a!oid a lot of the mistakes startup entrepreneurs typically make because the franchisor has already perfected daily operations through trial and error. $eputable franchisors conduct market research before selling a new outlet, so you'll feel greater confidence that there's a demand for the product or ser!ice. %he franchisor also pro!ides you a clear picture of the competition and how to differentiate yourself from them. &inally, franchisees en'oy the benefit of strength in numbers. (ou'll gain from economics of scale in buying materials, supplies and ser!ices, such as ad!ertising, as well as in negotiating for locations and lease terms. )y comparison, independent operators ha!e to negotiate on their own, usually getting less fa!orable terms. *ome suppliers won't deal with new businesses or will re'ect your business because your account isn't big enough. +nce you'!e decided a franchise is the right route for you, how do you choose the right one? ,ith so many franchise systems to choose from, the options can be di--ying. *tart by in!estigating !arious industries that interest you to find those with growth potential. #arrow the choices to a few industries you're most interested in, then analy-e your geographic area to see if there's a market for that type of business. If so, contact all the franchise companies in those fields and ask them for information on their franchise opportunity. .ny reputable company will be happy to send you information at no cost. +f course, you shouldn't rely solely on these promotional materials to make your decision. (ou also need to do your own detecti!e work. *tart by !isiting your library or going online to look up all the maga-ine and newspaper articles you can find about the company you're considering. Is the company depicted fa!orably? /oes it seem to be well managed and growing?

+nce you'!e decided on a certain franchise through your preliminary research, you need to find out if this opportunity is as good as it sounds. (our next step is to analy-e it thoroughly to determine whether it's really worth buying. 0uch of the information you'll need to gather in order to analy-e a franchise will be ac1uired through the following2 Inter!iews with the franchisor Inter!iews with existing franchisees Examination of the franchise's 3niform &ranchise +ffering 4ircular 53&+46 Examination of the franchise agreement Examination of the franchise's audited financial statements .n earnings-claim statement or sample unit income 5profit-and-loss6 statement %rade-area sur!eys 7ist of current franchisees #ewspaper or maga-ine articles about the franchise . list of the franchisor's current assets and liabilities %hrough this research, you want to find out the following2 If the franchisor--as well as the current franchisees--are profitable 8ow well-organi-ed the franchise is If it has national adaptability ,hether it has good public acceptance ,hat its uni1ue selling proposition is 8ow good the financial controls of the business are If the franchise is credible ,hat kind of exposure the franchise has recei!ed and the public's reaction to it If the cash re1uirements are reasonable ,hat the integrity and commitment of the franchisor are If the franchisor has a monitoring system ,hich goods are proprietary and must be purchased from the franchisor ,hat the success ratio is in the industry /on't be shy about asking for the re1uired materials from the franchisor. .fter all, they'll be checking you out 'ust as completely. If they aren't, that should sound a warning bell. .nother warning sign is if the franchisor asks you to sign a disclaimer stating you ha!en't relied on any representations not contained in the written agreement. *uch a re1uirement could indicate the franchisor doesn't want to be held responsible for claims made by its sales representati!e. ,ikipedia &ranchising is the practice of using another firm's successful business model. %he word 'franchise' is of .nglo-&rench deri!ation - from franc - meaning free, and is used both as a noun and as a 5transiti!e6 !erb. &or the franchisor, the franchise is an alternati!e to building 'chain stores' to distribute goods that a!oids the in!estments and liability of a chain. %he franchisor's
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success depends on the success of the franchisees. %he franchisee is said to ha!e a greater incenti!e than a direct employee because he or she has a direct stake in the business. Essentially, and in terms of distribution, the franchisor is a supplier who allows an operator, or a franchisee, to use the supplier's trademark and distribute the supplier's goods. In return, the operator pays the supplier a fee. %hirty three countries, including the 3nited *tates, and .ustralia, ha!e laws that explicitly regulate franchising, with the ma'ority of all other countries ha!ing laws which ha!e a direct or indirect impact on franchising. 0id-si-ed franchises like restaurants, gasoline stations and trucking stations in!ol!e substantial in!estment and re1uire all the attention of a businessperson. %here are also large franchises like hotels, spas and hospitals, which are discussed further under technological alliances. %wo important payments are made to a franchisor2 5a6 a royalty for the trademark and 5b6 reimbursement for the training and ad!isory ser!ices gi!en to the franchisee. %hese two fees may be combined in a single 'management' fee. . fee for 9disclosure9 is separate and is always a 9front-end fee9. . franchise usually lasts for a fixed time period 5broken down into shorter periods, which each re1uire renewal6, and ser!es a specific territory or geographical area surrounding its location. +ne franchisee may manage se!eral such locations. .greements typically last from fi!e to thirty years, with premature cancellations or terminations of most contracts bearing serious conse1uences for franchisees. . franchise is merely a temporary business in!estment in!ol!ing renting or leasing an opportunity, not the purchase of a business for the purpose of ownership. It is classified as a wasting asset due to the finite term of the license. &ranchise fees are on a!erage :.;< with an additional a!erage marketing fee of =< . franchise can be exclusi!e, non-exclusi!e or 'sole and exclusi!e'. .lthough franchisor re!enues and profit may be listed in a franchise disclosure document 5&//6, no laws re1uire an estimate of franchisee profitability, which depends on how intensi!ely the franchisee 'works' the franchise. %herefore, franchisor fees are typically based on 'gross re!enue from sales' and not on profits reali-ed. *ee remuneration. >arious tangibles and intangibles such as national or international ad!ertising, training and other support ser!ices are commonly made a!ailable by the franchisor. &ranchise brokers help franchisors find appropriate franchisees. %here are also main 'master franchisors' who obtain the rights to sub-franchise in a territory. .ccording to the International &ranchise .ssociation approximately ?< of all businesses in the 3nited *tates are franchisee-worked. It should be recogni-ed that franchising is one of the only means a!ailable to access !enture in!estment capital without the need to gi!e up control of the operation of the chain and build a distribution system for ser!icing it. .fter the brand and formula are carefully designed and
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properly executed, franchisors are able to sell franchises and expand rapidly across countries and continents using the capital and resources of their franchisees while reducing their own risk. It's important to know that there is risk for the people that are buying the franchises, too. %here are a lot of myths surrounding the success and failure rates of franchise businesses. +ne of the more popular myths states that franchise businesses ha!e lower risk than independent business startups. .nother one suggests that it's almost impossible to fail. )oth are untrue, and it's important for today's franchise-seekers to be aware of that fact. &ranchisor rules imposed by the franchising authority are usually !ery strict in the 3* and most other countries need to study them carefully to protect small or start-up franchisee in their own countries. )esides the trademark, there are proprietary ser!ice marks which may be copyrighted, and corresponding regulations. )-ligations o! the parties Each party to a franchise has se!eral interests to protect. %he franchisor is in!ol!ed in securing protection for the trademark, controlling the business concept and securing know-how. %he franchisee is obligated to carry out the ser!ices for which the trademark has been made prominent or famous. %here is a great deal of standardi-ation re1uired. %he place of ser!ice has to bear the franchisor's signs, logos and trademark in a prominent place. %he uniforms worn by the staff of the franchisee ha!e to be of a particular design and color. %he ser!ice has to be in accordance with the pattern followed by the franchisor in the successful franchise operations. %hus, franchisees are not in full control of the business, as they would be in retailing. . ser!ice can be successful if e1uipment and supplies are purchased at a fair price from the franchisor or sources recommended by the franchisor. . coffee brew, for example, can be readily identified by the trademark if its raw materials come from a particular supplier. If the franchisor re1uires purchase from his stores, it may come under anti-trust legislation or e1ui!alent laws of other countries. *o too the purchase things like uniforms of personnel and signs, as well as the franchise sites, if they are owned or controlled by the franchisor. %he franchisee must carefully negotiate the license and must de!elop a marketing or business plan with the franchisor. %he fees must be fully disclosed and there should not be any hidden fees. %he start-up costs and working capital must be known before the license is granted. %here must be assurance that additional licensees will not crowd the 9territory9 if the franchise is worked according to plan. %he franchisee must be seen as an independent merchant. It must be protected by the franchisor from any trademark infringement by third parties. . franchise attorney is re1uired to assist the franchisee during negotiations. +ften the training period - the costs of which are in great part co!ered by the initial fee - is too short in cases where it is necessary to operate complicated e1uipment, and the franchisee has to learn on their own from instruction manuals. %he training period must be ade1uate, but in lowcost franchises it may be considered expensi!e. 0any franchisors ha!e set up corporate
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uni!ersities to train staff online. %his is in addition to pro!iding literature, sales documents and email access. .lso, franchise agreements carry no guarantees or warranties and the franchisee has little or no recourse to legal inter!ention in the e!ent of a dispute. &ranchise contracts tend to be unilateral and fa!or of the franchisor, who is generally protected from lawsuits from their franchisees because of the non-negotiable contracts that franchisees are re1uired to acknowledge, in effect, that they are buying the franchise knowing that there is risk, and that they ha!e not been promised success or profits by the franchisor. 4ontracts are renewable at the sole option of the franchisor. 0ost franchisors re1uire franchisees to sign agreements that mandate where and under what law any dispute would be litigated.

3egulations
%ustralia In .ustralia, franchising is regulated by the &ranchising 4ode of 4onduct, a mandatory code of conduct concluded under the %rade "ractices .ct @A;?. %his code re1uires franchisors to produce a disclosure document which must be gi!en to a prospecti!e franchisee at least @? days before the franchise agreement is entered into. %he code also regulates the content of franchise agreements, for example in relation to marketing funds, a cooling-off period, termination, and the resolution of disputes by mediation. %he federal go!ernment is currently considering recommended changes to the 4ode of 4onduct. %hese are contained in the report, +pportunity not +pportunism2 Impro!ing conduct in .ustralian &ranchising, tabled by a parliamentary in1uiry into franchising on ? /ecember =BBC. *ome experts ha!e warned that any pressure to increase the regulation of the franchising sector could make it a less attracti!e means of doing business. *e, 4ealand #ew Dealand is ser!ed by around ?=E franchise systems operating ?FB brands, gi!ing it the highest proportion of franchises per capita in the world. /espite 5or because of6 the recession, the total number of franchised units increased by F.E< from =BBA to =B@B. %here is no separate law co!ering franchises, so they are co!ered by normal commercial law. %his functions !ery well in #ew Dealand and includes law as it applies to contracts, restricti!e trade practices, intellectual property and the law of misleading or decepti!e conduct. %he &ranchise .ssociation of #ew Dealand introduced a self-regulatory code of practice for its members in @AA:. %his contains many pro!isions similar to those of the .ustralian &ranchising 4ode of "ractice legislation, although only around a third of all franchises are members of the association and therefore bound by the code.

. case of fraud in =BB; perpetrated by a former master franchisee of the country's largest franchise system led to a re!iew of the need for franchise law by the 0inistry of Economic /e!elopment. %he #ew Dealand Go!ernment decided there was no case for franchise-specific legislation at that time. %his decision was criticised by the opposition, which had initiated the re!iew when in power, and the re!iew process was 1uestioned by a leading academic. %he &ranchise .ssociation originally supported the positi!e regulation of the franchise sector but its e!entual submission to the re!iew was in fa!our of the status 1uo H self-regulation. 5razil In =BBC, there were about @,B@E franchises with more than :=,FBB outlets, making it one of the largest countries in the world in terms of number of units. .round @@ percent of this total were foreign-based franchisors. %he )ra-ilian &ranchise 7aw 57aw #o. CAFF of /ecember @F, @AA?6 defines the franchise as a system in which the franchisor licenses the franchisee, for a payment, the right to use a trademark or patent along with the right to distribute products or ser!ices on an exclusi!e or semi-exclusi!e basis. %he pro!ision of a 9&ranchise +ffer 4ircular9, or disclosure document, is mandatory before execution of agreement and is !alid for all of the )ra-ilian territory. &ailure to disclose !oids the agreement, which leads to refunds and serious payments for damages. %he &ranchise 7aw does not distinguish between )ra-ilian and foreign franchisors. %he #ational Institute of Industrial "roperty 5I#"I6 is the registering authority. Indispensable documents are a *tatement of /eli!ery 5of disclosure documentation6 and a 4ertification of $ecording 5I#"I6. %he latter is necessary for payments. .ll sums may not be con!ertible into foreign currency. 4ertification may also mean compliance with )ra-il's antitrust legislation. "arties to international franchising may decide to adopt the English language for the document, as long as the )ra-ilian party knows English fluently and expressly acknowledges that fact, to a!oid translation. %he registration accomplishes three things2 I It make the agreement effecti!e against third parties I It permits the remittance of payments I It 1ualifies the franchisee for tax deductions. (hina 4hina has the most franchises in the world but the scale of their operations is relati!ely small. Each system in 4hina has an a!erage of ?E outlets, compared to more than F?B in the 3nited *tates. %ogether, there are =:BB brands in some =BB,BBB retail markets. J&4 was the most significant foreign entry in @AC; and is widespread 0any franchises are in fact 'oint-!entures, as
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at their forming the franchise law was not explicit. &or example, 0c/onald's is a 'oint !enture. "i--a 8ut, %GI&, ,al-mart, *tarbucks followed a little later. )ut total franchising is only E< of retail trade, which seeks foreign franchise growth. %he year =BBF saw the birth of an updated franchise law, 90easures for the .dministration of 4ommercial &ranchise9. "re!ious legislation 5@AA;6 made no specific inclusion of foreign in!estors. %oday the franchise law is much clearer by !irtue of the =BB; law, K=AL a re!ision of the =BBF law. %he laws are applicable if there are transactions in!ol!ing a trademark combined with payments with many obligations on the franchisor. %he law comprises ?= articles and eight chapters.

India %he franchising of goods and ser!ices foreign to India is in its infancy. %he first International Exhibition was only held in =BBA. India is, howe!er, one of the biggest franchising markets because of its large middle-class of EBB million who are not reticent about spending and because the population is entrepreneurial in character. In a highly di!ersified society, 0c/onald's is a success story despite its fare's differing from that of the rest of the world. *o far, franchise agreements are co!ered under two standard commercial laws2 the 4ontract .ct @C;= and the *pecific $elief .ct @A:E, which pro!ide for both specific enforcement of co!enants in a contract and remedies in the form of damages for breach of contract.

6nited 7ingdom In the 3nited Jingdom there are no franchise-specific laws franchises are sub'ect to the same laws that go!ern other businesses. &or example, franchise agreements are produced under regular contract law and do not ha!e to conform to any further legislation or guidelines. %here is some self-regulation through the )ritish &ranchise .ssociation 5)&.6 and the 3J &ranchise +rganisation. 8owe!er, there are many franchise businesses which do not become members, and many businesses that refer to themsel!es as franchisors do not conform to these rules. %here are se!eral people and organisations in the industry calling for the creation of a framework to help reduce the number of 9cowboy9 franchises and help the industry clean up its image. +n == 0ay =BB;, hearings were held in the 3J "arliament concerning citi-en-initiated petitions for special regulation of franchising by the go!ernment of the 3J due to losses incurred by citi-ens who had in!ested in franchises. %he 0inister of Industry, 0argaret 8odge, conducted hearings but resisted any go!ernment regulation of franchising with the ad!ice that go!ernment regulation of franchising might lull the public into a false sense of security. %he 0inister of Industry indicated that if due diligence were performed by the in!estors and the banks, the
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current laws go!erning business contracts in the 3J offered sufficient protection for the public and the banks.

LITERATURE:
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