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PRAGUE
DIPLOMA THESIS
2010
Darya Karpushina
ii
Declaration:
I hereby declare that I am the sole author of the thesis entitled International Franchising as
a Method for Business Expansion. I duly marked out all quotations. The used literature and
sources are stated in the attached list of references.
In Prague on .....................
Darya Karpushina
iii
Acknowledgement
I hereby wish to express my appreciation and gratitude to the instructor of my thesis
Ing. Jaroslav Halk, MBA, Ph.D. for his academic support, useful advices and helpful
comments to the topic
International Franchising as a Method for Business Expansion.
Special thanks go to my parents for providing continuous source of enthusiasm towards
learning.
iv
Content
Introduction ........................................................................................................................ 2
Conclusion ......................................................................................................................... 66
Bibliography...................................................................................................................... 69
List of Tables.................................................................................................................... 73
Annexes ............................................................................................................................. 74
Introduction
The choice of the Thesis topic related to phenomenon of International Franchising,
which is becoming one of the most perspective and fast-developing form of business
conducting. Todays entrepreneur has a plenty of possibilities how to run its business on
national level, but it goes with a plenty of difficulties to operate internationally. A lot of
companies struggle for their brands recognition, for the market share, and such competition
becomes even harder on a worldwide scale due to the protectionist policy of some countries.
The strongest players, that is in minority, take deals effectively in spite of specific tariff and
non-tariff barriers imposed. But the majority suffers the losses. The problem typically lies in
wrong perception of a business they are facing with, and, if it is franchising we are speaking
about, in inadequate evaluation of the opportunities and risks of running a franchise.
The aim of this Master Thesis is the diversified research of the selected theoretical and
practical aspects of international franchising. I tend to believe that the comprehensive analysis
will help the potential entrepreneurs to create a broader view of what does franchising means
in international business format, what are the typical benefits and risks for the intended
partners, which industries can be advised as the most fortunate options to franchise in. All
these issues should project likely outcomes and trends in the future, which are the basis for
making an intelligent decision about investing in a franchise.
The main hypothesis of this Thesis would be the statement that there are numerous
franchising areas of implementation that exist, and its influence, therefore, has the separate
meaning as well. We could determine specifically the many-sided influences through the
analysis of the business potential opportunities and risks while franchise. The key message
will be stressed on the role of the international franchising as one of the principal driver of the
business globalization now-a-days. There is a wide-spread presumption on franchising as only
2
My effort in this Diploma Thesis is concentrated also on the franchising impact on the
business environment. And this impact becomes even more crucial in times of economic
troubles. The research should display the most evident franchising trends. And, if the
contribution of an international franchising concept will be proved mainly as a negative
tendency, it is quite reasonable then to focus on the possible ways how to avoid these negative
consequences.
As for the literature and other sources of the topic presented, there is a broad list to
choose. First of all, there are some classical authors, such as Daniels, J. and Radebaugh, L.
International business : environments and operations, Mendelsohn M.: The guide to
franchising, Ramberg J. :Guide to Export-Import Basics, Purvin R.: The franchise fraud.
How to protect yourself before and after you invest, and many others that has been used as a
theoretical ground. Moreover, particular franchise associations have a specialized magazines,
periodicals and web-pages with numbers of publications and reports which contributed this
Diploma as well.
Finally, the present Master Thesis shall prove the relevance or irrelevance of the
hypothesis statement. The research conclusions will come from the collecting data and
information sources both theoretical and practical oriented.
evera M.: Position of starting, small and medium-sized enterprises on the Czech market, in Czech Franchise
Association, (2008), p.74.
2
Mendelsohn M.: The guide to franchising, Oxford: Pergamon Press, (1979), p. 1.
3
Daszkowski D.: The history of franchising, in About.com Guide,
http://franchises.about.com/od/franchisebasics/a/history.htm.
4
See Daszkowski D.
1.1
Definitions
The simplest way to understand what a franchise is to imagine the most famous brands:
McDonalds, Holiday Inn, IKEA. Many people from all across the world have dreams of
owning and operating such a successful business models. In business practice, however, the
lack of uniform rules covering franchise agreements is a strong obstacle which negotiating
counterparties faced with. There is presently no legal definition of franchising, which is
defined differently by various franchising associations in individual countries7, that is why it
is necessary at first to achieve the basic theoretical understanding.
To avoid confusion from the very beginning, let is consider franchising concept as a
business format franchise - the name by which it is commonly known. That means the
utilization not merely of goods identified by a trade mark or an invention8, but developing of
the total business concept (so called blue print) of a successful way to conduct a business in
all its aspects.
1.2
regulating franchising in most of Europe; let is take an example of the Czech Republic, where
is still an absence of consistent judicature relating to the franchising area. 17 Some other
European countries, such as Germany, have definite legal practice in this field as the courts
have already faced with the settlement of the franchising disputes.18 But, in general, European
laws do not contain any obvious treatments that would somehow prohibit the franchising as
such or imply the restrictions on the concept implementation. The lack of special franchising
legislation could be substituted for the relevant legal regulations, such as the Commercial
Code, anti-trust law (e.g. the Act on Protection of Economic Competition). These normative
acts regulate the contractual relationship and other franchisor-franchisee relations such as, for
instance, deals between individual franchisees (Kusak B., Zimova M., 2008).
17
Kusak B., Zimova M.: Legal aspects of franchising in Czech Republic, in Czech Franchise Association, (2008), p.78.
For example, under German judicature, a franchisee is entitled to indemnification to the same extant as a business
representativehe has to be actually incorporated into the business system and its relationship with the franchisor must not
be merely a relationship between a seller and a purchaser. See Kusak B., Zimova M., p.78.
19
Mendelsohn M.: The guide to franchising, Oxford: Pergamon Press, (1979), p. 78.
18
20
Mendelsohn M.: The guide to franchising, Oxford: Pergamon Press, (1979), p. 81.
Kusak B., Zimova M.: Legal aspects of franchising in Czech Republic, in Czech Franchise Association, (2008), p.77.
22
See Mendelsohn M., p. 82.
23
Kusak B., Zimova M.: Legal aspects of franchising in Czech Republic, in Czech Franchise Association, (2008), p.78.
21
10
24
Debolt Don J., Shay Matthew R.: Franchise Rule Comment, in International Franchise Association webportal,
http://www.franchise.org/industrysecondary.aspx?id=31150.
25
Ramberg J. :Guide to Export-Import Basics, (2008), p. 145-146.
26
Mendelsohn M.: The guide to franchising, Oxford: Pergamon Press, (1979), p. 83.
11
assignment/death of franchisee;
termination provisions.
After the detailed overview of what should make up the structure of the franchise
27
12
Kusak B., Zimova M.: Legal aspects of franchising in Czech Republic, in Czech Franchise Association, (2008), p.80.
13
1.3
14
30
15
34
See Daud N.
Ramberg J. :Guide to Export-Import Basics, (2008), p. 144.
36
See Ramberg J., p.144.
37
Daniels John D., Radebaugh Lee H.: International business. Environments and operations, Prentice Hall, 9th edition
(2001), p. 493.
35
16
38
39
17
40
Barber C : Five reasons why now is the best time to buy a franchise, in Ezine Articles, http://ezinearticles.com/?5Reasons-Why-Now-is-the-Best-Time-to-Buy-a-Franchise&id=3096337.
41
Schooley D.: Franchise Opportunities - Fears That Drown Dreams, http://ezinearticles.com/?Franchise-Opportunities--Fears-That-Drowm-Dreams---Installment-1&id=3467469.
42
Swanson B.: Franchising - Why Make the Big Decision?, in Ezine Articles, http://ezinearticles.com/?Franchising---WhyMake-the-Big-Decision?&id=3441751.
18
2.1
ownership far outweigh the associated risks. So what makes franchising so appealing, and is it
the right decision to invest into franchise?44
The principal advantages of running business trough franchise will be examined in this
section from different points of interests:
from contractual parties points of view - Franchisor and Franchisee;
from macroeconomic policy;
from consumers position.
Let is have a first look at some of the more obvious benefits for the direct participants
going into a franchise agreement. Franchising works mainly as a concept of business
expansion through opening additional branches by partnering with other investors. This
concept involves a symbiotic relationship between the contractual parties, which is beneficial
for both the franchiser and the franchisee. The franchisor gives basic know-how, supply
chain, brand name, and ongoing support for the franchisee. And it really makes sense for the
franchisor, who is signing up new contractors, collecting substantial fees from the potential
franchise buyers and, therefore, provides himself with a solid and predictable income. By
opting for a franchise, the franchisee could save the costs associated with the advertising of
the business; for the franchisor, the most important considerations are the expansion of his
business, extra profit and brand recognition.
The potential of franchising is obvious for everyone: it has a unique possibility for
rapid capital development and business expansion for franchisors, and, at the same time, the
potential to achieve reduced risk in business ownership for the franchisees. The relationship
43
Chapman J.A.: Five Franchise Myths - What You Must Know Before Starting a Franchise,
http://ezinearticles.com/?Five-Franchise-Myths---What-You-Must-Know-Before-Starting-a-Franchise&id=3566781.
44
Dormal D.: Four reasons why franchising is your best option, submitted 2009-11-20,
http://www.article-bank.com/Art/28248/24/4-Reasons-Why-Franchising-Is-Your-Best-Option.htm.
19
Purvin R.L.: The franchise fraud. How to protect yourself before and after you invest , (1994), p.44.
Winslow L.: Franchising and Ongoing Support Considered, in Ezine Articles, http://ezinearticles.com/?Franchising-andOngoing-Support-Considered&id=3306802.
47
Hawkins G.F.: Is Small Business Franchising the Way Forward For Scotland?, http://ezinearticles.com/?Is-SmallBusiness-Franchising-the-Way-Forward-For-Scotland?&id=3446858.
48
Holohan B.: How to franchise your business, in Summary prepared for the Irish Franchise Association,
www.holohanlaw.com.
49
Nagy A.: Three Reasons a Franchise Business May Be Right For You, in Enzine Articles, http://ezinearticles.com/?TreeReasons-a-Franchise-Business-May-Be-Right-For-You&id=2527882.
46
20
21
site selection;
general business management, which is getting the business open and running
it smoothly.
54
Swanson B.: Examining the Realities of Franchise Ownership, in Enzine Articles, http://ezinearticles.com/?Examiningthe-Realities-of-Franchise-Ownership&id=3436638.
55
Bach C.: Ten reasons to purchase a franchise, in Entrepreneurs StartUps, (2009),
http://www.entrepreneur.com/magazine/ entrepreneursstartupsmagazine/2009/october/203504.html.
56
Mendelsohn M.: The guide to franchising, Oxford: Pergamon Press, (1979), p. 19.
57
See Mendelsohn M., p. 18.
22
58
Swanson B.: Franchise appeal - four reasons why franchising works, in Enzine Articles,
http://ezinearticles.com/?Franchise-Appel---Four-Reasons-Why-Franchising-Works&id=3301714.
59
See Swanson B.: Franchise appeal - four reasons why franchising works.
60
Devine J.: Advantages of franchises, http://ezinearticles.com/?Advantages-of-Franchises&id=3215866.
61
See Mendelsohn M., p. 19.
23
24
2.2
Coffee, all successful brand names we are familiar with, are some of the most popular and
well known franchises examples. But what about the other thousands, not so popular, cases?
Unfortunately, not all franchises can be successful and they do come with risks often higher,
especially in regards to capital invested. Franchisees success is far from guaranteed:
entrepreneurs choosing the franchising way to open a small business have different
complaints because they are ultimately bound to a long term deal with their franchiser.64 No
business relationship is without conflicts. Franchisee-franchisors disputes mainly arise from
allegedly noncompliant, improper, or inaccurate disclosures made by the franchisor before a
franchise agreement is executed... from real or perceived encroachment or failure of the
franchisor to support a franchisee... and from termination of a franchise by the franchisor.65
64
Haiber R.: Franchise Owners' Biggest Complaints With Their Franchisers, http://ezinearticles.com/?Franchise-OwnersBiggest-Complaints-With-Their-Franchisers&id=3487057.
65
Einbinder & Dunn, LLP webportal ,Common franchise disputes, http://www.ed-lawfirm.com/franchise-disputes.php.
25
It is time then to move to the main heroes of any franchise story, franchisor and
franchisee, and follow the drawbacks they are mainly faced with. The most typical and crucial
reasons for the franchisors failure can be composed from the triangle: concept, capital,
management. Let is consider each of them.
No concept is beyond failure. Franchising always starts with the concept. As far as the
competition among franchisors is huge, each of them wants to be the first on the market and,
therefore, has to offer something unique for the consumers. In such a situation, the franchisor
should, at least, keep the confidence that a properly trained and supported franchisee will
achieve such a rate of return that is corresponding to the risk. It should be taken into account,
66
International Franchise Organization: Lending Shortfall Predicted to Slow Job Creation in 2010, in Frachising world,
(2009), http://www.franchise.org/franchise-news-detail.aspx?id=49356.
26
67
Siebert M.: Why Do Franchisors Fail? Keeping your concept, capital and management in check will keep your new
franchise from going bankrupt, (August 26, 2008),
http://www.entreprenuer.com/franchises/franchisingyourbusinesscolumnistmarksiebert/article196676.html.
68
Winslow L.: Anti-Franchise Sentiment Often Misguided, in Enzine Articles, http://ezinearticles.com/?Anti-FranchiseSentiment-Often-Misquided&id=3345570.
69
See Siebert M.: Why Do Franchisors Fail? Keeping your concept, capital and management in check will keep your new
franchise from going bankrupt.
70
Siebert M.: The Quality-Control Myth. Use motivated and committed management to maintain the value of your franchise
system, (June 18, 2009),
http://www.entreprenuer.com/franchises/franchisingyourbusinesscolumnistmarksiebert/article202330.html.
27
Lack of autonomy and imposition of control are ones of the biggest drawbacks as the
franchisee will never have ultimate control over the business, but, instead, need to comply
with to their rules, regulations and requirements stated by the larger franchise company. In
this situation the franchisee may not be provided with the total freedom as an entrepreneur
may: variables such as wages, hours of operation, suppliers are restricted to the freedoms the
company system allows.73 The liability to stay within franchise guidelines is going to limit
greatly the franchisees flexibility in the day-to-day business operations. It is all about the
71
28
High start-up costs, required to buy and then run the franchise, represent, probably,
the most troublesome point for the franchisee. Franchise price includes often a high upfront
fee for the right to use just the Franchisor's trademark and name, and also royalties that must
be paid out of franchisees gross income for the entire time of running a franchise (as the
percentage of the gross revenue; the nation average is around 7 per cent, though the
74
29
have
right
to
draft
funds
from
franchisees
bank
account.80
So, to put it mildly, buying a franchise is not cheap. Investing in a brand-name franchise is
going to set the investor back somewhere in the hundreds of thousands of dollars: investing in
a potentially lucrative business quite a massive sum of money in something with such an
uncertain future. Even royalties for use of an ordinary trademark and ongoing fees can be still
a significant sum of money, which is sometimes nonrefundable, especially in the critical first
year of developing a new business. But, as the royalty fees are paid as a percentage of
revenue, it is in the best motivation for the franchisor to make its franchisees as profitable as
possible.
Anticipating competition by the franchisor - one of the most common complaints
from the franchise owners. It is quite naturally for small businesses to compete with each
others. But it becomes risky for the franchisee, if the franchisor is sharing the territory with
multiple chains inadmissibly close to franchisees ones and, thus, represents the real
competition.81 For instance, ice cream franchise might sell its products to a supermarket,
78
30
83
exclusive franchise territories, the market mix, demographic segment, the population density
and the competition should be taken into consideration.
In the Franchise Disclosure Documents the phrase in your protected franchise territory
or something similar, can be usually found along with a stipulation of the granted franchise
for X amount of dollars. In reality, the exclusive franchise territories sometimes are limited
by the door of the outlets. It can cut franchisees sales when the franchisor starts selling
products with the same brand name, let is say, in a shopping centre with a grocery store that
sells the same products next door. Such a franchisors behaviour should be regarded as
violating the franchise agreement.84 Unfortunately, cannibalizing tends to be a common
practice in modern franchising, resulting in numerous litigations. But similar, any independent
entrepreneur can set up a business that competes with the franchise outlet across the street.
And, after all, no franchisor can protect his franchisees from such competitors, otherwise this
would be considered as predatory competition, that is in violation of antitrust laws.
82
31
Finally, the franchisee can bear the risk of domino (coattail) effects. It happens quite
commonly in franchising, especially with some smaller franchises. Domino effect
automatically leads to the same consequences for the whole franchise network. So, if a
number of some outlets fail, the effect can break the rest of franchises as well.86
It seems, from the very first view, that all the franchisee need to do is follow the franchisors guidelines to avoid the trial-and-error mistakes, faced by most inexperienced business
people, so to overcome all the operational and marketing drawbacks. And while many
believes that the franchise business tends to be stable and profitable, it must be always
considered, that there are still lots of fraudulent franchise companies which are not
professionals at all. However, even dealing with the honest franchisors, an investor can not
be completely insured against all the franchising risks.
It is a wrong assumption that the purchase of a franchise and payment of all necessary fees
will guarantee a full protection to the franchisee. The Franchise agreement is designed mainly
to protect the franchisor. Therefore, you, as a franchisee, must be aware of all rights and
85
Purvin R.L.: The franchise fraud. How to protect yourself before and after you invest , (1994), p.9.
Vower D.: The advantages and disadvantages of owning a franchise, http://ezinearticles.com/? The-Advantages-andDisadvantages-of-Owning-a-Franchise&id=3902838.
86
32
87
See Purvin R.L.: The franchise fraud. How to protect yourself before and after you invest , (1994), p.7.
88
For instance, in New York an earnings claim is any information that a franchisor seeks to impart to a franchisee that
states, suggests, or implies what sales, income, or profits a franchisee can derive from the operation of a franchised business.
See Einbinder & Dunn, LLP webportal ,Common franchise disputes.
89
See Einbinder & Dunn, LLP webportal.
33
As for the franchisors earnings claims, he might seek judicial intervention if:
franchisee does not disclose his true gross income in order to minimize the franchise
fees amount based on a percentage from the sales, etc.
Quality claims express another, the wider, category of contractual complaints, mainly
associated with operational and supporting activity, as well as duration and termination issues.
So, the franchisor, for example, might sue franchisees who do not follow the system
standards. Moreover, franchisor could complain against a terminated franchisee that continues
to use a franchisors trademarks or brand name. It is about unfair competition or even
trademark infringement, which leads to the consumers confusion as well as damages the
reputation of the franchise company. To avoid this, franchisor should enforce his intellectual
property rights by the court decision.
Franchisees quality claims involve usually the franchisors failure to complete the
promised training or support, encroachment90, and, finally, unexpected competition, which
was particularly explained above.
To crown it all, let is move to the last, but not the least, from the legal point, contractual
statement - arbitrary franchise termination or non-renewal. When the franchise agreement
expires and it does need to be renewed, usually this situation is governed by state law.
Generally, franchise length covers the period of about 10-20 years, and the risk, that franchise
agreement will not be renewed, always exists. If franchisee fails to pay the required fees, or
can not meet the standards of operation, the franchisor is eligible to cancel the agreement.
Relationship statutes forbid termination or non-renewal of a franchise except for good
cause (sometimes termed reasonable cause or just cause), often defined as the failure by
the franchisee to comply with any lawful provision of the subject franchise agreement after
being given the opportunity to cure that failure.91 Nonetheless, state laws typically determine
a minimum advance notification of franchise termination or non-renewal, which allows a
franchisee to correct defaults on time and thereby avoid termination.
Many of the advantages and disadvantages have been touched upon in the previous two
subchapters. And the actual list is not exhaustive. My intention here was simply to highlight
90
Encroachment is the term for the practice of a franchisors selling franchises to other franchisees too close to the units of
an existing franchisee. See Einbinder & Dunn, LLP webportal.
91
See Einbinder & Dunn, LLP webportal ,Common franchise disputes.
34
2.3
But, meanwhile, handling a franchise, especially in todays challenging economy, does not
grant automatically the ticket to success. So, the current data from the International Franchise
Association shows, that of the 105 companies that started selling franchises in 2008, more
than 40 had not reported the sale of their first unit by the end of 2009. 94
Frankly speaking, it is a quite discourage task to purchase a franchise, because the buyer
should consider then numerous issues, such as industry perspectives, brand awareness,
competitors, location, finance, etc. Personal experience, skills and lifestyle must be
considered as well. There is also lots of legal paperwork to study to verify that the ongoing
business is in compliance with federal and state laws regulating the franchise industry.
92
Swanson B.: The franchise advantages and disadvantages, in Enzine Articles, http://ezinearticles.com/?Franchise-101--The-Franchise-Advantages-and-Disadvantages&id=3436634.
93
See Purvin R.L., p.7.
94
Tice C.: Franchise Your Business in 7 Steps. A guide for becoming a successful new franchisor, (February 12, 2010),
http://www.entrepreneur.com/franchises/franchisezone/howto/article204998.html.
35
95
36
While a new franchise businesses may have multiple strengths, try to focus just on the
key factors that you believe will make your franchise a success. The most important here is
the market research within the business competition, so imagine the franchises actual
strengths in the context of the wider market sector proper to your franchise.96
Look carefully then at the weaknesses a particular franchise may have. There is no
business that is completely perfect. But, considering the weaknesses, you can manage any
trouble situations the proposed franchise could face with.
Analyzing the core opportunities of a certain franchised business could bring the huge
dividends in the future as you will have a clear guideline to the market your franchise is going
to enter. Market research will display if the perceived opportunities are real or not.
No business is ensured from threats, which can take various forms: business, political,
social, legal risks, etc. Probably, you should pay attention mainly to the business threats,
especially during the initial stages of business planning.
Any well-formed franchise selection starts with the personal audit. Making the general
research at first, the potential investor may use whatever tools (Internet, magazines, etc.) to
find about the industry he is interested in to franchise. The selected industry has to meet the
franchisees personal needs. There are approximately 85 different industries using franchising
96
37
Seid M.H.: Franchise or business opportunity? Making your choice, (posted 2008), Franchise update network,
http://www.franchising.com/articles/48/
98
Sinsara K.: Being smart about franchising, in Enzine Articles (2009),
http://www.ezine-articles.co.uk/Art/150703/9/Being-Smart-About-Franchising.html
99
See Seid M.H.: Franchise or business opportunity? Making your choice.
100
See Sinsara K.: Being smart about franchising.
38
It could be, possibly, seemed that the obvious franchisees choice has to be done in
favour of well-established company with a large chain of franchisees. But do not forget that
the older systems are less flexible; so, the new opportunities to enter the market with
innovations may not be possible for such systems, as it is possible for newly-established
franchises.
Keep in mind also that most franchise agreements are typically concluded for 5-10 years.
During this period the other market entrants and competitors will appear. So, ask yourself in
10 years, if this will be still the kind of business where people do need a product?
101
39
104
Siebert M.: Why Do Franchisors Fail? Keeping your concept, capital and management in check will keep your new
franchise from going bankrupt, (2008),
http://www.entrepreneur.com/franchises/franchisingyourbusinesscolumnistmarksiebert/article196676.html.
40
105
41
3.1
General Statistics
The right selection the foreign partner is essential for international franchising. It is
very important decision to join forces with a right company or individual as establishing the
ground for the brand expansion and for a sustainable franchise business relationship in any
particular international market. It could be very promising, but challenging task to expand.
That is why before starting an expansion process, a strategic plan of what industries are going
to be franchised must be created. A person concerned should consult, probably, with
international franchise experts and lawyers, or seek an advice of the best-known franchising
organizations, such as International Franchise Association which is offering various options to
promote (trade missions, international expos, etc.).
The International Franchise Association (IFA), founded in 1960, is the worlds oldest and
largest organization representing franchised small-businesses in almost 80 diverse industries.
As being a worlds premier association, it protects, reinforces and promotes franchising as a
responsible method of doing business.108 Its Code of Ethics works as a framework for the
implementation of best practices in the relationships of IFA members - more than 1,300
franchise systems, 10,000 franchisees and more than 500 firms that supply goods and services
to the industry.109
The IFA promotes mostly the interests of the U.S. franchise industry, which is
contributing considerably to the economic situation worldwide. To show this impact, the IFA
Educational Foundation, an informative and researching centre of the association, released the
second
annual
Franchise
Business
Economic
Outlook
2010,
prepared
by
108
42
Automotive
Commercial and Residential Services
Quick Service Restaurants
Table/Full Service Restaurants
Retail Food
Lodging
Real Estate
Retail Products and Services
Business Services
Personal Services
For each of these business lines, the projections include forecasts for 2010 and estimates over
2007-2009 period for such franchise indicators as establishments, employment and output.
111
PricewaterhouseCoopers: "2010 Franchise Business Economic Outlook", (December 21, 2009), p.1,
http://www.franchise.org/uploadedFiles/Franchise_Industry/Resources/Education_Foundation/2010%20Franchise%20Busi
ness%20Outlook%20Report_Final%202009.12.21.pdf.
112
See PricewaterhouseCoopers: "2010 Franchise Business Economic Outlook", (December 21, 2009), p.1.
Inforum, established in 1967, is an economic education and research organization that specializes in the development and
use of Interindustry-Macroeconomic (IM) models that combine input-output structure with econometric equations in a
dynamic and detailed framework., see http://www.franchise.org.
113
43
Generally, as PwC reports, franchising activities are about to expand gradually in the
current year. To be more precise, the moderate growth in the number of establishments,
employment, and output for business format franchises is forecasted in 2010, that is opposing
to recession-induced drop experienced in 2009. After improving by more than 40 per cent
between 2001 and 2008, the number of franchise establishments has declined by 0.1 per cent
over the period 2008-2009 (see Table 1 below). PwC estimates that the amount of business
format franchise establishments grew to 883,984 units in 2008 before declining to 883,292
units in 2009. And, following this 0.1 per cent decline in 2009, PwC assesses then the
expanding of the number of business format franchises from 883,292 in 2009 to 901,093 in
2010 (that is the increase of 2.0 per cent or 17,800 units). It is quite expected situation in a
current macroeconomic environment where the economic recovery is slowly going on. As for
the employment factor of franchise businesses, it is estimated to have peaked in 2008 at 9.9
million. In 2009, however, employment rate experienced a significant fall (4.1 per cent), that
meant a reduction of 409,000 job places. In 2010, PwC forecasts that franchise employment
will grow modestly (0.4 per cent), increasing the total number of jobs by 36,000; nevertheless,
employment rate is going to remain below the 2008 level. The Table shows also an economic
output indicator generated by business format franchises. It grew by 5.9 per cent in 2008
before an estimated decline of 0.7 per cent to $844.7 billion in 2009.
Currently, PwC forecasts franchising output will grow by 2.8 per cent ($23.6 billion) in 2010.
114
FRANdata, founded in 1989, is the U.S. research and information services firm specializing in franchising industry data:
database of the companies that franchise, the brands they manage, and the franchisees who invest in those brands. The
information is derived from the Franchise Disclosure Documents (FDDs),
http://www.franchise.org/uploadedFiles/Franchise_Industry/Resources/Education_Foundation/2010%20Franchise%20Busi
ness%20Outlook%20Report_Final%202009.12.21.pdf.
115
PricewaterhouseCoopers LLP, Economic Impact of Franchised Businesses (February 24, 2004) and Economic Impact of
Franchised Businesses, Volume II: Results for 2005 (January 29, 2008).
44
Establishments (units)
Employment (Thousands)
Output (Billions of dollars)
2007
847,244
9,859
$802.9
Forecast
2008
2009
883,984 883,2929
9,931
9,522
$850.4
$844.7
2010
901,093
9,558
$868.3
2008-2009
-0.1%
-4.1%
-0.7%
2009-2010
2.0%
0.4%
2.8%
Source: PricewaterhouseCoopers.
In spite of the U.S. economy started to overcome the crisis, franchised small businesses
still continue to compete strongly because of the low consumer confidence, high
unemployment rates and tight credit markets. We are pleased that the 2010 outlook for
franchise businesses is projected to be more positive than 2009, but access to credit remains a
major hurdle to increase jobs and economic output at the levels we have seen during past
recoveries, said International Franchise Association President and CEO Matthew Shay. An
expected $3.4 billion shortfall in lending to franchise businesses in 2010 will result in 134,000
jobs not created and $13.9 billion in economic output lost. 117 It should be underlined that the
economic recovery will have different effects on growth in the number of establishments,
employment, and output within different business sectors (see Table 2).
Table 2: Franchise Business Economic Outlook by Business Line, 2010118
Establishments
Business Lines
Automotive
Commercial and Residential
Services
Quick
Service Restaurants
Table/Full Service Restaurants
116
Percent
change
Amount over
prior
year
38,340
57,007
192,827
48,609
1.8%
0.3%
3.1%
2.1%
Employment
Output
(Thousands)
(Billions of
dollars)
Percent
change
Amount over
prior
year
Percent
change
Amount over
prior
year
182
230
3,343
1,066
0.4%
-0.9%
0.8%
0.4%
$36.4
$38.2
$203.6
$64.0
2.2%
1.5%
3.2%
2.3%
See PricewaterhouseCoopers: "2010 Franchise Business Economic Outlook", (December 21, 2009), p. 2.
117
IndUS Business Journal: IFA report suggests recovery is on way in 2010, (issue date: March, 2010),
http://www.indusbusinessjournal.com/ME2/dirmod.asp?sid=4CEC54B78BA54A11B360971278D9B043&nm=Archive&type
=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=4E068781F6
E64FDE9F911B8E33994A25.
118
See PricewaterhouseCoopers: "2010 Franchise Business Economic Outlook", (December 21, 2009), p. E-2.
45
70,722
31,827
41,630
88,312
231,669
100,151
901,093
2.4%
-0.8%
3.0%
2.3%
1.7%
1.8%
2.0%
853
627
160
577
1,420
1,101
9,558
0.7%
-2.4%
1.3%
0.6%
0.1%
0.7%
0.4%
$67.5
$62.7
$22.8
$50.5
$189.6
$132.8
$868.3
2.3%
1.8%
1.4%
2.5%
2.6%
4.4%
2.8%
2007
2008
2009
35,695
38,074
37,646
2010 2008-2009
20092010
38,340
-1.1%
1.8%
60,270
61,950
56,836
57,007
-8.3%
0.3%
177,498
183,135
187,068
192,827
2.1%
3.1%
45,836
47,013
47,592
48,609
1.2%
2.1%
Retail Food
65,377
70,011
69,093
70,722
-1.3%
2.4%
Lodging
31,003
33,133
32,076
31,827
-3.2%
-0.8%
Real Estate
40,577
39,933
40,426
41,630
1.2%
3.0%
82,105
87,133
86,315
88,312
-0.9%
2.3%
Business Services
219,636
228,761
227,813
231,669
-0.4%
1.7%
Personal Services
89,247
847,244
94,840
883,984
98,427
883,292
100,151
901,093
3.8%
-0.1%
1.8%
2.0%
Total
Source: PricewaterhouseCoopers.
119
See PricewaterhouseCoopers: "2010 Franchise Business Economic Outlook", (December 21, 2009), p. 3.
46
2007
192
313
3,397
1,102
888
668
164
602
1,479
1,055
9,859
2008
193
296
3,382
1,090
904
699
164
611
1,495
1,097
9,931
Forecast
Annual percent
change
2009
2010 2008-2009
181
232
3,316
1,061
847
643
158
573
1,419
1,093
9,522
182
230
3,343
1,066
853
627
160
577
1,420
1,101
9,558
-6.3%
-21.6%
-2.0%
-2.7%
-6.3%
-8.1%
-3.9%
-6.1%
-5.1%
-0.4%
-4.1%
2009-2010
0.4%
-0.9%
0.8%
0.4%
0.7%
-2.4%
1.3%
0.6%
0.1%
0.7%
0.4%
Source: PricewaterhouseCoopers.
See PricewaterhouseCoopers: "2010 Franchise Business Economic Outlook", (December 21, 2009), p. 4.
47
Forecast
Annual percent
change
Business Lines
Automotive
Commercial and Residential
Services
Quick
Service Restaurants
Table/Full Service Restaurants
Retail Food
Lodging
Real Estate
Retail Products and Services
Business Services
Personal Services
Total
2007
$33.3
$41.5
$181.7
$58.9
$61.7
$61.4
$23.5
$46.4
$175.7
$118.7
$802.9
2008
$35.8
$42.6
$191.7
$61.8
$66.2
$65.7
$23.1
$49.4
$187.3
$126.9
$850.4
2009
$35.7
$37.6
$197.3
$62.6
$66.0
$61.6
$22.5
$49.3
$184.9
$127.2
$844.7
Source: PricewaterhouseCoopers.
To conclude this subchapter, let is consider one more statistics. The Franchise Business
Economic Outlook reports overall forecast aligns with the results of a new Franchise
Business Leader Survey conducted by the IFA in November 2009. Franchise business
leaders are more optimistic about the U.S economy performance in 2010, than they were a
year ago: more than half (51.3 per cent) of survey respondents say the U.S. economy will be
better in 2010, compared to only one quarter (24.6 per cent) of respondents from 2008.122
121
122
See PricewaterhouseCoopers: "2010 Franchise Business Economic Outlook", (December 21, 2009), p. 4.
See IndUS Business Journal: IFA report suggests recovery is on way in 2010, (issue date: March, 2010).
48
3.2
Franchise Ratings
To franchise internationally, the potential franchisor or franchisee must be aware of
various franchises worldwide, and the list of national or regional franchise companies is not
enough then. But does it really possible to study every franchise opportunity by the individual
compiling and verifying information on thousands franchises all over the world? And how
much time should it take?
It was mentioned previously, that the basic information about the company and its
franchise opportunities is grounded on each franchising companys web pages. To have a
fairly comprehensive overview on franchising in the world or even in specific continent, the
narrow-specified franchise portals could be reasonably explored.
One of such particular portal, presented as a dedicated resource with a wide list of
businesses and franchise opportunities for sale, is Franchise Direct. It seems to be number one
franchise directory in the world. Let is consider how this franchise directory can be useful.
Franchise Direct is ranking annually the best franchises in the globe context. And the most
significant merit of the portal is, certainly, the creation of the Top 100 Global Franchises as a
research tool in franchise systems benchmarking (see Annex 5). In order to produce the Top
Global Franchises list, plenty of companies on the same objective values, regardless of their
size or country of origin, have been analyzed. The only requirement for the company to be
appropriate for ranking is that each franchise must be actively franchising.124
123
See IndUS Business Journal: IFA report suggests recovery is on way in 2010, (issue date: March, 2010).
Franchise Direct portal: Research methodology,
http://www.franchisedirect.com/top100globalfranchises/methodology/158/768/.
124
49
environmental policy and local and national projects engaged in by the franchises;
social responsibility.
So, the best internationally performed franchises create this exclusive Top list. In this way,
the Top 100 Global Franchises is likely to be a blueprint for experienced franchisors that are
looking further to expand beyond internal borders. The franchises precise description of the
first 10 companies, in accordance with the factors mentioned, is enclosed in Annex 8.
Because of Franchise Direct provides the Top 100 ranking with companies worldwide,
non-U.S. franchises are also presented there, though the majority is still of American origin. A
list of the non-US Franchises in the Top 100 rating can be found in the Annex 9.
For instance, Top 100 Global Franchises 2009 contained 15 non-U.S. companies. In 2010,
two new non-U.S. companies have been added: Yogen Frz, a Canadian frozen yogurt retail
franchise (has ranked number 15), and TeaGschwendner, popular German tea retailer which is
currently belonging to the leading global specialty retail tea chains.126
An expansion rate into foreign markets represents a crucial indicator for ranking. As it
was mentioned above, market expansion is one of the factors influencing the successful
franchise performance. To expand internationally, the franchisor has to run business
successfully, which is well-established in the domestic market. Franchise companies must
also generate enough cash flows to support their business operations internationally from their
125
50
To continue with expansion issues, it should be also noted, that recently the franchising
opportunities of developed countries tend to be somehow diminished. Therefore, international
franchisors are starting to seek development opportunities in emerging markets, containing
almost eighty percent of the world's population. China and India, as the largest emerging
market places, are considered to be among the most attractive locations for expansion. As the
U.S. Department of Commerce estimated, over 75 per cent of the expected growth in the
world's trade over the next two decades will come from developing countries, particularly big
emerging markets, which account for over half the world's population, but only 25 per cent of
its gross domestic product.129 While evaluating the economic potential in emerging markets,
the most common economic factors such as the GDP per capita, the population level and the
growth rate of the economy should be taken into consideration. Moreover, it is quite
complicated task to enter emerging markets due to strong rules and regulations concerning the
business ownership there and the operational process in general. And, probably, the best way
to overcome such barriers is to franchise business operation in these marketplaces. It is not by
chance then, that franchising is the ideal route for many US and UK companies who want to
test the water without expending large sums of capital. This gives them a chance to dip their
toes in the water without risking large sums of capital.130
127
51
Let is consider, for example, Yum! Brands, Inc. - the world's largest restaurant company
with more than 37,000 restaurants in over 110 countries and more than million associates. It is
not surprising then that Yum! is ranked as number 239 on the Fortune 500 List, with almost
$11 billion revenue in 2009.134 The Yum! system includes five successful brands, all of which
are ranked among Franchise Directs Top 100 Global Franchises (see Annex 5): KFC, Pizza
Hut and Taco Bell are placed within the Top 10, while Long John Silvers and A&W
Restaurants take 20 and 23 places respectively. The Yum! operates within three divisions: the
U.S. division, International (Yum! Restaurants International) and China division (includes
China, Thailand and KFC Taiwan). Comparing to others, China is the first-priority market for
new company restaurant development worldwide. In 2009, operating profit for the China
division of Yum! brand was $602 million and the company is running there about 3,000
restaurants.135
So, it goes without any doubts, that in the near future the emerging markets are forecasted
to compete with the western powers in terms of buying power and economic strength. As a
result, the companies, franchised in the developing world, will appear in global ratings even
more often. By this reason, with the fast growing economies and developing franchising
perspectives emerging markets have, they can not be ignored by international franchise
companies.
131
International Franchise Association: "Insider", Volume 14, Issue no. 25, (Dec 7,2009).
Franchising & Licensing Association (Singapore), franchiselicenseasia.com.
133
Franchise Direct portal: Spotlight Emerging markets,
http://www.franchisedirect.com/top100globalfranchises/spotlight/158/875/.
134
Yum Companys portal: About Yum!Brands, http://www.yum.com/company/ourbrands.asp.
135
See Franchise Direct portal: Spotlight Emerging markets.
132
52
3.3
Automotive Franchises
Main category
Automotive
Category
Appearance Services, Brake Repair, Car Washes,
Miscellaneous Auto Products, Miscellaneous Auto Services,
Mobile Auto Services, Oil-Change Services, Rentals &
Sales, Repair Services, Transmission Repair, Tune-Up
Services, Vinyl Repair, Windshield Repair
136
53
Over the period 2006-2009, the sales volume in this industry has dropped nearly at 40 per
cent, that was caused by the continuing usage of old cars. People have no enough money and
so they keep using their cars longer and more often use repair services.
Moreover, only in the USA automotive sector employs about 2.6 per cent of all
employees, that is some 3.7 million jobs in numbers. Continuing with the analysis of the US
market there are about 130.000 companies focused mainly on auto services and car repairs.
The most prominent examples of such franchises are Express Oil Change, Rent a Wreck and
Midas Muffler, Maaco and AAMCO Transmissions.139
Because of fragmentation, auto industry does not typically contain any businesses with
dominant position: numbers say that about 50 large companies serve nearly 10 per cent of the
market share.140 In fact, the automotive sector includes more individual franchise companies
than any other franchising segment except food.
What are the main threats for franchising in automotive area? First of all, it is quite usual
for gas stations or supermarkets to compete with auto services franchises by offering to clients
the products or services being traditional for automotive industry. The other factors which
influence the profitability of auto market are location, marketing, and brand recognition. For
instance, by the extending of a repair shops locations, the franchisor can increase the profit.
Because of the franchises in automotive sector vary greatly, the fees keep large differences
as well. An average franchise fee for a single unit franchise is about $25.000. And the higher
the franchise fee, the higher the level of franchisors support or possible financial returns from
a quality business model. The size of territory within a given franchise system may also affect
the franchise fee amount.141 Annex 13 represents an overview of the estimated initial
investment necessary to open a single auto franchise unit. It also includes the ongoing sales
royalties that are payable to the franchisor. All the data is taken from the Uniform Franchise
Offering Circulars (UFOC) or Franchise Disclosure Documents (FDD) of these franchisors.
138
54
It should be also noted, that typically the franchise period in automotive industry lasts 5-10
years. Renewal fee is charged by many franchisors in case of the franchise licenses
prolongation. This fee ranges between $2,500 -$5,000 or 10-50 per cent of the initial license
fee. If the franchisee decides to sell the franchise, he must pay a transfer fee ($5,500 in
average) in order to compensate money invested in the training and developing a new
franchisee.142
Main category
Business Services
Category
Accounting & Tax Services, Advertising Services, Business
Brokerage, Business Financial Services, Business Support
Centers, Business Training, Consulting Services, Management
Training Programs, Miscellaneous Business Services, Shipping
Services, Signs, Staffing Services
55
Commercial Cleaning Franchises provide businesses with cleaning services for their
commercial facilities - different buildings, retail establishments, schools etc.
Business Consulting Franchises support other business growth, cut irrelevant costs
and generally improve the performance of the company, enhancing therefore franchise
brand recognition.
Recruitment Franchises match companies with the best potential candidates for
temporary and permanent staff, create a large client base.
143
Franchise Direct portal: Trends and facts about B2B franchises, http://www.franchisedirect.co.uk/b2bfranchises/172.
Franchise Direct portal: Great ways to own a B2B franchise,
http://www.franchisedirect.co.uk/b2bfranchises/tipsforowningabusinesstobusinessfranchise/172/111.
144
56
Safety & Security Franchises can provide the right package for any commercial
facility in order to let business owners keep calmness.
Print & Sign Franchises provides the corporations with signage that can best represent
its business, especially in case of retail locations.
Courier Franchises are designed to meet companies mailing needs by providing fast
delivery.
Nonetheless, there are also plenty of other variants for B2B franchises that are
available, but these are the most profitable and suitable forms of B2B franchising for sale.
Food Franchises
Trends and Facts.
The number of food franchises is proportional to the number of meals types. The investments
here vary from extremely high amount for full-service restaurants to quite law costs for
vending machines. There are numerous kinds of food franchises that specialize in pizza,
coffee, candy, ice cream, sandwiches, barbeque, burgers, smoothies, etc. But what is really
associated in our minds with food sector is restaurant business.
Main category
Category
Subcategory
Food
Food/Quick Service
Food
Food/Full-Service
Restaurants
Food
Food/Retail Food
Sales
57
145
146
147
R&I is trade publication and web site owned by Reed Business Information serving the information needs of foodservice
professionals at chains, independent restaurants, hotels and institutions, see Reed Business Information: About Us,
http://www.reedbusinessinformation.com/index.asp?layout=inside&articleId=CA317441.
148
58
Full Service Restaurants. The term full service restaurant is defined in business
dictionary as the place that is offering the fine dining with a wide selection of foods and
beverages, and table service. It may also have attached coffee shop, specialized (for instance,
ethnic) and fast food restaurants.151 Such places represent anything from a casual familystyle fast-food to an elegant restaurant, where food is served directly to the customers table.
The possibility for a takeout, delivery or present live entertainment can also be provided by
full-service establishments.
The full-service sector contains such categories as Barbecue, Burger, Family, Mexican,
Italian, Seafood restaurants, as well as Steakhouses and Pubs. The famous web-portal
Entrepreneur has ranked the 80 Top restaurants in this category, and the list of first 10 Top
can be found in Annex 14.
The market volume for this industry is represented by almost 250,000 restaurants
including franchised establishments: national and local restaurant chains, fast food outlets,
sandwich stores, other franchised businesses chains and independent operators are competing
with each other. Moreover, according to the Consumer Expenditure Survey152, released by the
Bureau of Labor Statistics of the U.S. Department of Labor, an average annual expenditures
per consumer on food purchased away from the home was $2,698 in 2009.
As it was projected by aforementioned National Restaurant Associations in 2009
Restaurant Industry forecast, the total sales in this category reached the amount of $182.9
billion in 2009, up 1 per cent from previous year. Because of drop in consumer confidence
during recession period, 2009 was a challenging time for full-service franchising sector: total
revenue amount is similar to the 2008 gain of 1.1 per cent, but remains below the average
annual increase of 4.8 per cent gained over the period 2002-2007.153
149
59
Generally speaking, fast food industry is very fragmented, similar to the automotive sector
which was described before. The Annex 16 will provide the reader with the estimated initial
investment outlook which is necessary to open one of 22 fast food franchises which are listed.
154
60
Table 6:
Top Food Trends
Eating Behaviors Expected to Grow More Important
During the Next Decade
Organic
41%
20%
18%
16%
16%
16%
15%
14%
Source: The NPD Group, A Look into The Future of Eating, National Eating Trends
The key to such a statistics, probably, is the number of home leisure activities that has been
increased. And that is the reason of the growth in the take-out franchise sector, especially in
158
Franchise Direct portal: Food take out and delivery franchise industry report,
http://www.franchisedirect.com/foodfranchises/takeoutanddeliveryfranchiseindustrystudy/14/263.
159
NPD Groups report: "Better for You" Foods to Grow Significantly Over the Next Decade (2009),
http://www.npd.com/press/releases/press_090707a.html.
160
NPD Group: "About NPD", http://npd.com/corpServlet?nextpage=profile_s.html.
61
Let is move to an example of a take-out industrys rising success. One of the leading
delivery and take-out franchises is Dominos Pizza, Inc., an international pizza delivery
corporation headquartered in Michigan, United States.162 It serves their clients throughout the
world with a network of 9.000 franchised and company-owned stores. The huge generated
revenue of $1.32 billion in 2009 (that is 76.6 per cent versus the year 2008) is likely caused
by international store expansion, the growth of sectors popularity, high operating margins. 163
For franchises specifically focused on offering the take-out or delivery services (Dominos
example), an accelerating consumer demand creates a favourable business climate for a longterm period. The numbers clearly shows that take-out and delivery industry tends to be a
prosperous for the franchised restaurant market, which is expected to grow constantly in 2010.
To complete the food franchises category, let is take a brief review of the Food Retail
sector. Food retail business includes different types of store outlets such as candy shops,
bakeries, organic and health food stores, etc. This special market is quite dynamic and highly
competitive, despite the retail performance decline over previous years. For instance, in the
USA, it includes nearly 20,000 businesses, accounting for revenue of $20 billion
annually.164
The Food Marketing Institute in its State of Food Retailing 2009 report demonstrates the
significant extension of the retail-food chain all over the world. Responding to the consumer
demand and strong competition, retail-food stores reduce the food costs, and diversify the
product assortment. These new measures are reflected in strong sales increases, with overall
hourly sales for retail stores increasing to $145.51 in 2008. This shows a remarkable increase
from $138.90 in 2007 and $133.31 in 2006.165
161
62
166
63
168
The Vending Times magazine attempts to cover the entire vending industry, addressing the business, legal, legislative
and regulatory concerns of companies providing industrial, institutional and public vending, refreshment, feeding and
recreational services; Vending Times: "About Vending Times",
http://www.vendingtimes.com/ME2/dirsect.asp?sid=F096C4D0B94F4982B253C12BCA5B4C15&nm=About+VT.
169
See Franchise Direct portal: Vending franchise opportunities.
170
The Vending Revolution: Franchise Opportunities Defying the Credit Crunch, http://www.vendingrevolution.com/.
171
Franchise Direct portal: Vending franchise and business opportunities in the UK ,
http://www.franchisedirect.co.uk/vendingfranchises/209.
172
ArtRM.com: Japanese vending machines, http://www.artrm.com/retail/vending-machine.
64
To resume the last Chapter, I would like to point out the following. Franchising
remains a time-tested concept of business conduct in more than 80 industries available. And
this number is continually growing. The four industrial categories which were examined
above - automotive, business services, food and vending operations - represent the most
popular types of franchised business today. In fact, they have been not so much affected by
the recent events in a world economy, and sometimes even proved the tendency to grow
during the recession. But, of course, the economic impact is equally important for the
franchise business as well as for non-franchised operations. The case is the level of risk
avoidance for each individual sector, so it is better to franchise in the recession-resistant
segments.
Today the franchising services face with a great demand, because the consumers are
franchised focused. The brand identification together with successful business concept and
proven marketing and distribution system - all this has an influence on the franchise owners
benefits. In short, franchising is a strategic alliance between the business owner and the set
of support and operational guidance provided by an established corporate office.174
Every potential investor has the possibility to achieve a considerable return on his
franchising investment. And if the person is financially able to franchise some business, all
that he needs is to evaluate numerous industry categories available, choose the right segment,
and take a final decision regarding an individual franchise company. Certainly, an invaluable
contribution here is given by the companies with their publicly introduced experience in
international franchising.
173
See The Vending Revolution: Franchise Opportunities Defying the Credit Crunch.
Instant Tax service: Diversify your investments: Franchise!, (May, 2009),
http://www.instanttaxservice.com/blog/2009/05/.
174
65
Conclusion
The present Master Thesis describes the concept of international franchising from both
business and legal standpoints. The research was focused on detailed description of related
issues in the three major pillars: franchise contract, franchising perspective through its
strengths and weaknesses, and, finally, the franchise overview with the analysis of the specific
industries.
Following the Thesis structure, I believe that the theoretical part provides the useful
information to start with. I intentionally shortened the overview of numerous definitions of
franchising which can be sometimes seemed confusing. Instead, I tried to create the general
definition summarizing the classical ones to take it easier for understanding. It was not by
chance also that the franchise agreement was touched so deeply. The crucial importance of
this document is recognized on the level of the international organizations. For instance,
International Institute for the Unification of Private Law (UNIDROIT) defines the Franchise
contract as the vehicle most commonly adopted for international expansion, considering
such items as the nature of the relationship between the master franchise agreement and the
sub-franchise agreements; problems associated with the three-tier structure of the relationship
between franchisor, sub-franchisor and sub-franchisees, particularly in relation to termination;
the settlement of disputes; applicable law and jurisdiction; and disclosure.175
Thanks to the theoretical framework provided in the first charter, the practical meaning of
the franchising was evaluated in the following parts of the thesis. So, the second chapter
represents franchising in action, where both the positive and negative examples of the
franchising diversified influence were included respectively. The possible franchise threats
and weaknesses were examined not only from the franchisor-franchisees perspective, but
from the consumers point and within the current economic situation.
The final chapter resumes the whole work with the concrete statistical data and ranking
concerning the franchised companies and the particular franchised industries worldwide. As
soon as the company is aimed at the international expansion, it is important to evaluate firstly
the attractiveness of the market in general, then to specify the relevant industry to franchise in,
and, at last, to identify the particular franchise company to deal with.
175
UNIDROIT: Model franchise disclosure law, (September, 2002), Explanatory report , p.13,
http://www.unidroit.org/english/modellaws/2002franchise/2002modellaw-e.pdf.
66
176
Cantrell J. : Facts About Franchise Ownership - Is Franchise Ownership For You?, http://ezinearticles.com/?FactsAbout-Franchise-Ownership---Is-Franchise-Ownership-For-You?&id=3004613.
177
See UNIDROIT: Model franchise disclosure law, (September, 2002), Explanatory report , p.10.
67
To crown it all, it should be pointed out that franchising itself is not automatically the
key to success. In business, as in life, there are never any guarantees. Starting new business is
always risky and tough process. If the company or individual entrepreneur has the real
potential to run the business, internationally or locally, franchising is probably the great
option to get started. Anyway, no matter what decision an investor go with, he should just
remember: whatever to put into business is what will be got back out of it.
And, finally, I would like to emphasize that the topic of this Thesis is an extremely
complex matter of business. While working on it, i personally realized how strong is the
correlation between the economic and legal environment, from the one hand, and the business
opportunities, from the other. Moreover, it is my great hope that this Diploma Thesis might be
used as specific manual for those who is on the way to make a decision to franchise.
68
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List of Tables
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