Just think about McDonald’s, Subway, Wendy’s or Krispy Kreme. They are some of the world’s most valuable franchises for the food industry. In simple definition, franchising is a practice where a firm allows other parties to use its successful business model and brand; in return receiving a monthly fee or royalty from its franchisees. Franchise programs usually last for a specified period of time and operates in a location mutually agreed upon. Such an exercise enables your brand to go further at a faster rate and it is a profitable endeavour as highlighted by the International Franchise Association:
2014: Franchise Business Economic Outlook. International Franchise Association
Over in Asia, franchising has steadily gained ground over the years and many brands that were previously unknown in this par t are entering this continent based on ratings as such:
NOTES FOR A POTENTIAL FRANCHISOR
Start your business, tailor a program, sell it and collect a monthly royalty. Sounds like an easy way to maximise your return-of-investment? Chairman of the Malaysian Franchise Association, Datuk Haji Md Latip Bin Sarrugi said such was the perception particularly of franchising’s early days in Malaysia. The premise was not well-defined and was often marketed to make quick money – franchisors lack to equip the franchisee with a complete program and best management practices; resulting in the latter being at the losing end. To protect both parties, some countries have put in place its own Franchise Act which means that you would probably need to make adjustments to your program for different countries.
You can decide to market your program as a ‘master franchisee’ or ‘direct franchisee’. The former will pay you, the franchisor an initial fee to obtain the rights to develop the specified location (territory) and will retain most or all of the initial and royalty fee paid over time by its individual franchisees. Meanwhile, a direct franchisee is limited to operate the business in the location agreed upon. While each approach is not better than the other, many franchisors tend to opt for ‘master franchisee‘ as it might provide better growth with lesser initial capital risk. However, if your franchise system is not sustainable, a great master franchisee is unlikely to bring it up to successful grounds. On the flip side, a weak master franchisee can bring down your business model hence we can see that successful franchising is an equal amount of system and people factor. As franchise programs vary for each business, the committee of Malaysia Franchise Association (MFA) shared some general pointers with regards to taking the first step:
AN OPPORTUNE BUSINESS ROUTE
Franchising was recognised as an efficient way to do business since centuries ago although its methods initially differed. Many land owners in Middle Age Europe would grant rights to people in its community for a certain sum of money; allowing them to carry out business on his ground. Capitalising, or rather, reinventing the practice of franchising was Isaac M. Singer, the famous sewing machine manufacturer who charged licensing fees to people who would own rights to sell his machines in other locations. The idea took off and franchising was dominant after World War II and continues today, leading to the formation of associations purposed to assist aspiring franchisors and franchisees towards successful business partnerships. If you desire to bring in your brand to Asia, here
1. Jeff Elgin. What is a Master Franchisee? http://www.entrepreneur.com/article/72380
2. http://www.franchoice.com/franchise-information-guide/what-is-franchise/history-of-franchising
are some organisations that you can reach out to.
