Often when someone creates a company he or she has a brilliant idea and an ambitious business plan behind it. When the company becomes successful ordinary people gets hired. But is it really impossible for an ordinary human without brilliant and unique ideas to create a business? In fact it isn’t, and the magic word is Franchising.

Even if you might think so, it has nothing to do with France. Franchising is an international entry strategy which is the granting of the right to become a parent company (the franchiser) to another, independent entity (the franchisee) to do business in a prescribed manner.

The right can take the form of selling the franchiser’s products; using its name, production, and marketing techniques; or using its general business approach. Usually franchising involves a combination of many of those elements.

The major forms of franchising are manufacturer-retailer systems, such as car dealerships, manufacturer-wholesaler systems, such as soft drink companies, and service firm-retailer systems such as lodging services and fast-food outlets.

Local adjustments

Typically, to be successful in international franchising, the firm must be able to offer unique products or unique selling propositions. If such uniqueness can be offered, growth can be rapid and sustained. With the uniqueness, a franchise must offer a high degree of standardization. In most cases, standardization does not require 100% uniformity, but rather, international recognizability. Concurrent with this recignizability, the franchiser can and should adapt to local circumstances. Food franchisers, for example, will vary the products and product lines offered depending on local market conditions and tastes. This is why you can end up having raw fish on your Japanese pizza!

Advantages

The reasons for international expansion of franchise systems are market potential, financial gain, and saturated domestic market. From a franchisee’s perspective, the franchise is beneficial because it reduces risk by implementing a proven concept. From a governmental perspective, there are also major benefits. The source country does not see a replacement of exports or an export of jobs. The recipient country sees franchising as requiring little outflow of foreign exchange, since the bulk of the profits generated remains within the country.

Disadvantages

Selection and training of franchisees represents the problem area. Many franchise systems have run into difficulty by expanding too quickly and granting franchises to unqualified entities. Although the local franchisee knows the market best, the franchiser still needs to understand the market for product adaptation and operational purposes. The franchiser, in order to remain viable in the long term, needs to coordinate the efforts of individual franchisees - for example; to share ideas and engage in joint undertakings, such as cooperative advertising.

Franchising facts

It doesn’t seem to bad, does it? And to increase your interest, here’s some facts from the international Franchising business!

International franchising has grown strongly in the past decade. In 1998, more than 400 US franchisers maintained more than 20,000 franchises in more than 100 countries. These operations generated a net royalty flow of more than $425 million and generated exports of $6 billion.

Franchising by non-US firms has grown even more spectacularly. While only 13% of U.S. franchisers have international operations, 30% of French franchisers and 29% of Austrian franchisers are active abroad. Overall, there are more than 750,000 franchise operations worldwide. Maybe you’re about to become the next one?