Franchising: The art of replicating success

While going into business entails risks, replicating a venture that has passed the test of time may help level the playing field.

 

Over the past two decades, the franchising industry has grown to 1,500 concepts from 550, according to the Philippine Franchise Association (PFA).

 

"People are interested in getting franchises because of the success rate," PFA Vice Chairperson Ma. Alegria Sibal-Limjoco told GMA News Online. 

 

Usually, nine out of 10 franchises survive compared to only 25 percent that succeed in traditional businesses, according to the industry association that counts Max's Restaurant, The Generics Pharmacy and Potato Corner as members.

 

"Franchising is all about replicating success. It refers to the method of practicing and using someone else's perfected business concept," Limjoco said. 

 

Plan

 

Almost all businesses – from the biggest restaurants to the smallest beauty salon – can be franchised. The only exception would be a failing venture, "because you will replicate failure," Limjoco noted. 

 

Franchising may involve the mere acquisition of rights to sell a product without following a business plan outlined by the manufacturer, examples of which are car dealerships and service stations. 

 

But 90 percent of franchises worldwide follow the business format, in which the franchisers provide a comprehensive management and operating plan that includes site selection, staff training, product supply and marketing.

 

"You don't have to reinvent, because it's already tested. If you are willing to follow the operations manual, it will be faster for you to grow," Limjoco said.

 

Jeanette Luz, a 30-year-old single mother, is looking at franchising a food cart business for additional income. Earning around P20,000 a month as call center agent, she said the biggest challenge would be raising enough capital. 

 

"I cannot afford to see my would-be business to fail so I would like to franchise a business that people know and would really patronize. The problem is, I think it would be more expensive and beyond my means," Jeanette Luz said.

 

Capital 

 

The cost of investment could range from hundreds of thousands to millions of pesos. 

 

Franchising a food cart, for instance, could require an initial capital of P150,000 to P500,000 while opening an a fast food chain outlet could cost P25 million, Christine Casanova, sales and marketing consultant at Francorp Inc., told GMA News Online in another interview. 

 

Prospective franchisees could find partners and divide the capital costs among themselves or raise 20 percent of the amount and loan the remaining 80 percent with banks that offer low interest rates at present, Limjoco said. 

 

But putting up a franchise business entails more than having enough capital. Most franchisers would want to see whether a prospective franchisee could manage well and preserve the reputation of the brand.

 

"It must be win, win, win! The franchiser must make money, the franchisee must also make money and customers must be satisfied," Limjoco said.

Outlook 

 

The regained confidence of businesses in the Aquino-led government and the trading prospects with the economic integration of the Association of Southeast Asian Nations (ASEAN) have supposedly placed the franchise industry in a "double sweet spot." 

 

"Let me tell you the good news with franchising, we have it," Limjoco said when asked whether the local franchise business could compete with other Southeast Asian countries. 

 

The government is pushing for the increased participation of micro, small and medium enterprises in global trade. Such businesses are known as the backbone of the ASEAN Community.

 

But high energy cost, increasing rental rates, lack of infrastructure and business solutions, worsening traffic, port congestion and high taxation continue to pose threats to the growth of the franchising industry.

 

In the end, the success of a franchise is really a confluence of a good business model, efficient management practices and favorable government policies. – VS, GMA News