Opportunity in Franchising

More and more Filipinos are diving into the world of business, either starting their own concepts or acquiring the opportunity in franchising. And franchising is one that has registered continuous growth, remained strong in providing livelihood and jobs despite the economic crisis. Studies show that the franchising industry contributes greatly to the country’s overall economy and has truly gained prominence as a preferred investment option for entrepreneurs, both aspiring and established.

Franchising, as best defined by the International Franchising Association, is a contractual relationship between the franchisor and the franchisee, wherein the franchisor is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format or procedure owned by or controlled by the franchisor, and in which the franchisee has made or will make a substantial capital investment in his business from his own resources. It clearly states that franchising is an interdependent relationship between the franchisor and franchisee wherein both have responsibilities and rights.

To simply put it,  franchising is a lease of an opportunity wherein the franchisor is the lessor of the trademark, products/services, systems, and know-how; while the franchisee is the lessee and thus needs to compensate the franchisor for using the opportunity. Just like any other lease contract, the franchising relationship is also time-bound, depending on the nature of business and as required of the franchisor.

In order for this relationship to be successful, both parties need to exert effort to achieve their respective objectives. This business relationship is entered into by both franchisor and franchisee through the franchise agreement. Both parties must be clear about what one has that the other party needs. Without a doubt, each party must be able to establish their strengths and what they’ve got to contribute to the relationship.

In any relationship, it is important to know what are we getting into, and set right our expectations. A few factors and pointers should be considered, and best to consider are the following pointers:

For the franchisor:

1. Establish that you have a successful and tested business model.


2. You must know where best to market the franchise and locate the store. Is there enough space for a new franchise? A new store?


3. Effective franchise recruitment is key. You must be able to find the right franchisee with respect to his skills, passion, resources, and values.

For the franchisee:

1. Ensure that the right franchise operating system, products, and services are in place.


2. Check who is behind the franchise company (owners, leadership, management). If there is a fit with its vision, mission, values, philosophy, and culture. Interview incumbent franchisees why they are (not) expanding and check employee turnover.


3. Is the franchise company innovating as fast as its competitors? How is it dealing with change, the economic crunch, or rising costs of operation?


4. Are the field personnel empowered to lead and capable of motivating the franchisees?


5. How open is the communication channel? Check history and nature, if any, on legal cases or strained relations with a franchisee.