Philippines has seen a huge growth in franchising in the past few years.
The time period between 2008 and 2009, when most of the businessmen are apprehensive of taking any steps in the financial crisis scenario, most of the business experts are advising the entrepreneurs to give preference to franchising.
Franchising is an instant way of being with a business. Additionally, the past decade has seen a huge growth in the number of businesses that are seeking to franchise their business. And, this growth was even there when the global economy was going down. And, the economy of Philippines has also received a huge impetus due to franchising, turning out to be among the drivers of its economic growth.
A few important statistics and information that are worth reporting for the country are:
• The country has presently 1,000 brands that are franchised.
• It has 5 major franchise segments – retail, fast food, cafes, hospitality, bakeshops and food carts and wellness.
• Franchised businesses contribute 45% of the revenue that generates from retail outlets located inside shopping malls and centers.
• The GDP contribution of franchising in Philippines is 5% that comes to about $6.6 billion.
• There are around a million individuals working in franchised businesses in the country.
What exactly is the secret that has made franchising so appealing for entrepreneurs that they are going for this option instead of beginning from scratch? And, what advantages does it offer? And, at the same time, does it have any disadvantages?
Advantages of Franchising:
1. The business chosen for franchising has already proven to be successful. Before the business is offered for franchising, the owners of the business have built its base and it is successful. Through franchising, they are expanding their business, and it is not the path where a small business is being built into a big business.
2. In addition to the brand identity, the name recall has already been established and recognized. Additionally, the franchisor has the responsibility to carry out all the promotion of the product and the name, which eventually benefits the franchisee.
3. The rights to market the product in your territory is given to you as the franchisee. One of the simplest examples is that of Starbucks Philippines. Even though it has been franchised, the franchise is owned by a single firm in the entire country.
4. As a franchisee you will have the benefit of enjoying the support of the franchisor, and this is followed as per the agreement. The franchise fee from franchisee is made in lieu for the support, training, idea sharing and even manpower provided by the franchisee.
5. All the programs and systems have already been established. Everything is already programmed according to an established and successful plan – procurement to cooking, sales to service, production of financial reports and just everything in between. All that is needed for a franchisee is to follow the system.
6. The franchisee gets the opportunity to leverage on the trusted name and the purchasing power of the franchisor when supplies need to be procured from the suppliers.
Disadvantages of Franchising:
1. There is a danger of facing some type of fraud. Failing to research the franchisor background or going in for the dreams of instant profits have a chance of ending up with nothing in your hand.
2. The cost of starting may be much higher as compared to starting your own business. In addition to paying the starting cost of the franchisee acquisition, it may also be required to pay a percentage of the sales, and also have to contribute to the advertising and marketing funds.
3. As a franchisee, your hands may be tied to do something on your own. There may be no control over the products that need to be sold, on the system and the location and the appearance of the establishment from where you have to operate your business. The franchise agreement binds you and requires to your do nothing beyond it, which can raise problems and even penalties at times.
4. Any adverse affect on the franchisor in terms of poor quality products or undelivered products would have a direct affect on your business. And, in the worst scenario, if the franchisor’s business breaks down, then your business will also break-down.
5. Larger legal considerations are involved. Since the franchise agreement is quite long, you would need to call in some legal advice in order to be acquainted with all of them. It would be ideal to hire a lawyer of your own in order to review the franchise agreement.
Franchising may be the ideal way to enter into a business of your choice, but it is never going to be a cake-walk. The advantages and disadvantages of it need to be considered well. And, the most crucial aspect is to check whether you are genuinely interested in the type of franchising or not. Is it possible for you to take orders from the franchisor regarding how to run the business or do you want to take your own decisions? It is possible for you to handle the sales goals and reporting needs? It is possible for you to manage the costs of purchasing the franchise and do well with the business? It entirely depends upon your choice.