Franchising Model to stimulate Business and Economic Development in Developing Countries

1
Franchising Model to stimulate Business and
Economic Development in Developing Countries

• Som Karamchetty, PHD, PE
• Sole Member, SomeTechnologies LLC
• Columbia, MD 21044, USA
• somk_at_comcast.net
• November 2003- November 2004

2
Executive Briefing
3
Motivation for this Presentation

• Private enterprise in developing countries
  financially weak
• Public Sector Undertakings (PSU) Inefficient,
  ineffective
• PSU managers
• No ownership stakes
• No goal orientation
• Franchising business
• Hierarchical owners
• Encourages win-win partnerships
• Turns principal workers into owners
• Allows participants to apply their respective
  strengths in a cooperative venture
• Participants reap benefits proportional to the
  effort and funds they invest

This presentation describes the concepts and
shows the benefits of the model for rural
enterprises.
4
Unique Situation in Developing Countries
Governments in developing countries initiate
large businesses, usually called public sector
undertaking (PSU)
Examples

• Agricultural farms
• Seed farms
• Animal farms
• Dairy farms
• Edible oil mills
• Water projects
• Sewerage infrastructures

• Horticulture
• Sericulture
• Aquaculture
• Cold storages
• Food processing plants
• Textiles and clothing
• Handicrafts

These can be good candidates for the Franchising
model.
5
Basics of Franchising

• Franchisees
• Receive licenses for method of operation
• Runs the business in a specific location
• Operation subject to an agreement
• Capitalizing on
• Business format
• Trade name
• Support system

• Franchisor
• Develops a business model
• Owns a method of operation
• Licenses method to franchisees
• Receives royalties
• Provides support
• Continues development

Examples McDonald's and Dunkin Donuts
Franchising is a cooperative venture
6
Roles in Proposed Public Sector Franchise Model

• Government
• Legislation and regulations to promote
  franchising
• Develops generic franchising infrastructure
• Identifies Franchise model opportunities
• Arranges finances (loans, subsidies, and grants)

• Franchisors High Level Management (Owner, CXO)
• Develops specific franchise Businesses
• Arranges business method, capital, technology,
  manufacturing
• Develops marketing, sales, supplies, and
  logistics

• Franchisees Local owner Manager
• Receives licenses for franchises
• Secures capital for local units
• Receive franchising method, business knowledge,
  training, and skills
• Undertake production and serve customers
• Run local businesses
• Pay royalties

7
Incentives for Stakeholders in a Public Sector
Franchise Model

• Government
• Economic development
• Production of desired goods and services
• Creation of jobs
• Good return on investment of tax payer advanced
  funds

• Franchisors
• Ownership stakes
• Strong involvement
• Profits (lucrative returns commensurate with
  business success)

• Franchisees
• Ownership stakes in local franchises
• Incentive to work hard and smartly
• Gains of business knowledge, training, and
  skills
• Profits (economic returns directly related to
  success of franchise)

• Consumers
• Responsive and local business operators
• Quality products and services

8
Generic Model of a Public Sector Assisted
Franchise
Business Plan
Finance
Franchisee
Government
Franchisor
Franchisee
Know how
Franchisee
9
Example of a Public Sector Franchise Candidate
Textiles and Garments

• Government
• Finance
• Textile research
• Textile fashions

• Franchisor
• Business Model
• Manufacturing model
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Design
• Production
• Packaging
• Sales
• Shipping

10
Why Franchising is a Solution

• Because in the Franchising model
• Participants are owners of their franchises
• Owners gain when their business succeeds
• Owners fail if they neglect their business
• Owners are responsive to customers
• Owners do not have a life time guarantee (or even
  a short time assurance) of jobs
• Franchising model is a cooperative enterprise
  that utilizes complementary skills

Franchising creates thousands of small businesses
tied into an efficient mega business. National
economy develops as rural businesses flourish.
11
Detailed Briefing
12
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

13
Situation and Problem Description

• Developing countries are in dire need of economic
  development
• Their governments launch massive programs to
  create jobs and to increase production
• But, government management of development
  programs is ripe with problems
• Top level management are employees no
  ownership stake
• Local management are employees no ownership
  stake
• Profit motive or business success is only
  secondary or tertiary goal of employees
• Monitoring and control of operations are remote,
  diffuse, and lax
• Objectives of enterprise and individual operators
  (workers) are orthogonal
• Success of enterprise and individual operators
  (workers) are not seen as congruent
• Enterprises incur huge losses and are encumbered
  with inefficiency and waste
• Managers do not discharge their obligations and
  fail to meet their goals

14
Unique Situation in Developing Countries
Governments in developing countries initiate
large businesses, usually called public sector
undertaking (PSU) Examples

• Agricultural farms
• Seed farms
• Animal farms
• Dairy farms
• Edible oil mills
• Water projects
• Sewerage infrastructure

• Horticulture
• Sericulture
• Aquaculture
• Cold storage
• Food processing plants
• Textile and clothing
• Handicrafts

15
Stakeholder Attitudes in Government Undertakings

• Political leaders see government undertakings
• As sops for continued success in elections to
  public office
• As opportunities to benefit relatives, friends,
  and followers
• As opportunities to benefit own constituents

• Management of government undertakings see them as
  
• Comfortable and well paying high level jobs
• Opportunities to benefit relatives, friends, and
  acquaintances
• Opportunities to gain influence in society

• Workers in government undertakings see them as
• Reasonably paying jobs for little or no effort
• Opportunities to gain pensions and health benefits

16
Who Pays the Costs of Government Undertakings?

• Taxpayers and consumers pay the costs of
  inefficient government undertakings
• Tax payers have little recourse
• Consumers have no choice, in the absence of free
  and open markets
• Consumers pay high costs and tolerate poor
  quality products and services

17
Approach to Solution

• Franchising business model offers a solution
• Because in the Franchising model, participants
  are owners of their franchises
• Owners gain when their business succeeds
• Owners fail if they neglect their business
• Owners are responsive to customers
• Owners do not have a life time guarantee (or even
  a short time assurance) of jobs
• Franchising model is a cooperative enterprise
  that utilizes complementary skills

Franchising is defined and its benefits explained
in this presentation
18
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

19
History of Franchising

• Franchising is a very specific business format
  or strategy for distributing goods and services
  to satisfy customer needs and market demands.
• Franchising has been around in one form or
  another since the middle ages when local lords
  would grant the rights to certain individuals to
  hold markets, build roads, or hunt their land.
• Over several hundred years it has evolved from a
  simple right or privilege into the highly
  successful and sophisticated business format
  franchise model of today.

The word franchise is an old French term meaning
privilege or freedom.
Source http//www.azfranchises.com/whatisfranchis
ing.htm
20
Basics of Franchising

• Franchising consists of
• a business model
• a franchisor and
• several franchisees
• an agreement

• Franchisor
• develops the business model for a specific
  business
• owns it
• licenses it to several franchisees
• Provides products, tools, advertising, training

Franchisee licenses and runs the business in a
specific location or area Its operation is
governed by the terms of the franchise
agreement For many, this is the chief benefit of
franchising -- they are able to capitalize on
business format, trade name, and support system
provided by the franchisor.
Franchising allows people to go into business for
themselves, not by themselves
Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
21
Dominant Type of Franchising

• The dominant and most successful franchising
  concept is business format franchising.
• In this type of franchising, the franchisor
  effects a total transfer of a way of doing
  business besides allowing the franchisee to use
  the name and sell the products or services of the
  Franchisor.
• This includes the transfer of marketing,
  operating, technical, training, and management
  methods and expertise developed and perfected by
  the franchisor.
• Any and all relevant information that may
  contribute to the success of the franchisee is
  transferred.
• In most cases the franchisor will also provide
  ongoing training and support throughout the life
  of the franchise agreement.

Examples McDonald's and Dunkin Donuts
Source http//www.azfranchises.com/whatisfranchis
ing.htm
22
Definition of Franchising

• In a nut shell, franchising, more specifically
  business format franchising, is a strategic
  partnership or relationship that is governed by a
  contract or franchise agreement for a defined
  period of time.
• When a franchisee purchases a franchise he/she
  is investing in a proven and refined system that
  has
• a brand name,
• a successful operating system, and
• a history of quality service and success.

Source http//www.azfranchises.com/whatisfranchis
ing.htm
23
Goal of Franchising

• The common goal for the franchisor and the
  franchisee is to dominate a particular market and
  keep customers coming back for more.
• All members (franchisees) of a particular
  franchise system share the responsibility of
  maintaining
• high standards of quality
• consistency
• convenience, and
• other factors that contribute to the success of
  building
• a dominant brand,
• loyal customers, and
• repeat business for everyone

Source http//www.azfranchises.com/whatisfranchis
ing.htm
24
Track Record of Franchising

• There are over 3,000 franchised businesses,
• covering nearly every conceivable industry, from
  well-known national brands like
• McDonald's
• Holiday Inn
• Mailboxes
• to smaller, local opportunities

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
25
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

26
What franchising laws do I need to be aware of?

• You're committed - Your franchise agreement is a
  binding contract, and can be quite restrictive.
• You're locked in to certain business practices,
  fees, and even the look of your business.
• If you don't agree, you may have no recourse
  except to adhere to these guidelines.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
27
What should I look for in Selecting a Franchise?

• Profitability - Make sure that both the
  franchisor and individual franchisees are
  healthy.
• A track record of success - Is this concept
  viable? Has it succeeded elsewhere? Does the
  franchisor have a good credit rating?
• A strong USP (unique selling point) - You'll
  want a business that stands apart from the
  competition, since you don't want to be perceived
  as selling the same old thing.
• Effective financial management and other
  controls - A strong monitoring system will help
  you identify your problems and deal with them
  more effectively.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
28
What should I look for in Selecting a Franchise?

• A good image - It's important that the public
  has a positive image of the franchisor, since
  you're basing your business on its reputation.
  Also, look for a concept that can expand
  nationally so your business can grow locally.
• Integrity and commitment - You actually want the
  franchisor to spend a lot of time checking you
  out, because you want to make sure it has strong
  requirements for all its franchisees, since your
  success is intertwined with its.
• A successful industry - Look for opportunities
  in industries that are growing.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
29
What Fee Should I Expect to Pay for a Franchise?

• There are basically two types of fees you should
  expect to pay for your franchise -- upfront fees
  and ongoing fees.
• The first is the initial upfront fee, which is
  what you pay the franchisor for the rights to
  open your franchise. Essentially, you are
  purchasing the rights to use the franchisor's
  trademarks, business methods, and distribution
  rights. This licensing charge can be significant,
  especially for a well-known, established
  franchise -- it's not unusual for it to be in the
  tens of thousands of dollars. Often, it is also
  based on the value of the territory or trading
  area, so the larger your market, the more you
  could end up paying.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
30
Caution on Other Start up Costs

• Be aware that this upfront fee may be in
  addition to any other start-up costs you will
  have to incur.
• The initial franchise fee may or may not include
  things like training costs start-up promotional
  fees inventory build-outs (some franchisors
  require your space to have specific architectural
  elements) equipment/fixtures (you may be
  required to purchase or lease specific equipment
  and fixtures from the franchisor) and any other
  costs that are necessary to open your business.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
31
Ongoing Fees for a Franchise

• You will also have to pay ongoing fees to
  maintain the rights to your franchise. Most
  franchisors charge a royalty fee, typically a
  percent of your gross sales, not your profits.
  This royalty fee can range from 1 percent to as
  much as 15 percent, although 5 percent is
  typical. Remember, you are paying this royalty on
  gross sales (your total receipts, less sales tax,
  returns, and refunds), so it can potentially take
  a significant bite out of your profits.
• Some franchisors charge a regular fee (payable
  weekly, monthly or quarterly) in lieu of royalty
  payments. This type of fee may also be part of
  the mark-up you are charged for goods or services
  you are required to purchase.
• It is also common for franchises to pay a
  portion of the franchisor's local, regional and
  national advertising and promotional costs. These
  fees are usually put into a cooperative
  advertising fund that ultimately benefits all
  franchises through increased exposure to your
  trade name.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
32
Success of a Franchise

• The ultimate success of the franchisee
  (individual franchise owner) is based on the
  proven success of the franchisor.
• If the franchisor offers a proven product or
  service with a well recognized brand name, a
  history of success with company units and
  existing franchises, is well financed and
  motivated, your chances of success are very high.

Source http//www.azfranchises.com/whatisfranchis
ing.htm
33
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

34
Applications of Franchising (1 of 3)

• Small business center/postal service
• Ice cream and frozen yogurt
• Bakery, deli, and catering
• Dog/pet grooming
• Deli/restaurant
• Business consulting
• Ink cartridge refill
• Auto transmission repairs
• Tanning salon

Source http//www.azfranchises.com/frachiselistal
phabetical.htm
35
Applications of Franchising (2 of 3)

• Hair salon
• Retail beauty products services including
  salon and day spa
• Mobile blinds and window coverings
• Picture and art framing
• Home improvement handyman repairs
• Promotional products
• Coffee house

Source http//www.azfranchises.com/frachiselistal
phabetical.htm
36
Applications of Franchising (3 of 3)

• Upscale pizza pasta restaurant
• Haircuts for men and boys
• Real estate investing
• Wireless/ mobile communications
• Residential home cleaning
• Dry cleaning
• Casual quick serve restaurant
• Home based business that provides safety for
  floors, tiles, and tubs
• Residential homeowner services
• Pita sandwiches

Source http//www.azfranchises.com/frachiselistal
phabetical.htm
37
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

38
Master Franchising

• Imagine coming up with the idea of a new
  franchise concept that explodes in your area with
  dozens of new units opening up. Imagine having
  control of this concept and receiving royalties
  and franchise fees on a consistent basis. Imagine
  having an idea like McDonalds and having people
  line up at your door to buy into your
  opportunity. Imagine having access to the best
  business experts to help guide you in your new
  venture to build your organization to last. This
  opportunity is extremely rare, yet there are such
  businesses available if you know where to look.
  This unusual but highly successful opportunity is
  called Master franchising. With master
  franchising you get all the benefits mentioned
  above but without the expense of having to
  develop the concept from scratch. You get control
  of the successful franchise system in a specific
  geographic area, a proven track record that
  works, the brand name and even a partner in the
  form of a corporate office and other master
  franchisees to give you the valuable support,
  latest innovations, and business expertise when
  you need it.

http//www.azfranchises.com/masterfranchises.htm
39
Income in Master Franchising

• As a master or regional franchisee your ways of
  generating income are expanded over that of a
  normal franchise. With a normal franchise, you
  are generally offering the product or service
  directly to the end use customer such as in a
  retail store. With a master franchise, you can
  generate income through your own stores if you
  wish with a significantly reduced royalty and
  franchise fee.
• Additionally,
• Franchise fees When you sell a franchise, you
  receive a franchise fee. Most franchise fees are
  between 20,000 to 30,000 and in a typical
  master franchise program, you keep most of the
  fee!

http//www.azfranchises.com/masterfranchises.htm
40
More Income in Master Franchising

• Ongoing royalties This is the ultimate income
  source. Once you help set up the franchise, you
  receive royalty income or annuity type income for
  the rest of the life of that franchise. Imagine
  receiving 2 to 5 of your franchisees volume
  every month for many years.
• Products or additional services Often products
  or additional services needed by the franchisees
  are sold in the franchisees outlet can bring
  excellent additional income.
• Real estate If real estate is involved with the
  franchisees location, often the master can
  become involved in development of sites and
  receive other types of real estate related
  income. This type of income is usually optional
  for the master franchisee.

http//www.azfranchises.com/masterfranchises.htm
41
Master Franchising Responsibilities

• Your main job will be to act as a business
  consultant to your franchisees and help them
  succeed in their own business. You will be
  associated with the elite brand name of the
  franchise as the main developer of an area even
  though it will be your franchisees investing
  their money. You dont need to know anything
  about the industry. Youll receive initial
  training and then ongoing training from the
  corporate office.

http//www.azfranchises.com/masterfranchises.htm
42
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

43
Benefits of Franchising (1 of 3)

• Chief benefits of Franchising over starting from
  scratch are
• Reduced risk
• Franchises traditionally have a much lower
  failure rate than other start-up businesses. The
  reason? You're buying a business concept where
  most of the kinks have already been worked out by
  someone else.
• You get a complete package
• The guesswork usually associated with starting a
  business is taken care of. Your total package can
  include trademarks, easy access to an established
  product a proven marketing method equipment
  inventory etc.
• Strength in numbers
• When youve become a franchisee, you have the
  buying power of the entire network, which can
  help you get product and compete with larger
  national and global chains.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
44
Benefits of Franchising (2 of 3)
Test Business processes - Many franchisors
provide their franchisees with various proven
systems including financial and accounting
systems ongoing training and support research
and development sales and marketing assistance
planning and forecasting inventory management
etc. They'll show you the techniques that have
made the business successful and help you utilize
them in developing your own business. Financial
assistance Some companies will help you finance
your initial franchise, letting you get by with
as little up front cash as possible. Site
selection assistance They also may help with
site selection, making sure that your business is
located in an area where it can thrive.
Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
45
Benefits of Franchising (3 of 3)

• Advertising and promotion - Not only will you
  benefit from any national or regional
  advertisement and promotional campaigns from the
  franchisor, but they may also help out in other
  areas -- from providing camera-ready copy for
  your own advertising efforts to developing
  in-store point-of-sale materials designed to
  drive customers through your business.
• It would cost you a great deal to develop these
  materials on your own.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
46
Benefits Related to Expansion

• Rapid expansion of distribution
  systemFranchising enables a company to establish
  a large number of business outlets in a
  relatively short time period. The capital and
  much of the work to locate and acquire sites and
  develop outlets is supplied by the franchisee. In
  most situations, a franchisor does not have the
  asset base or business experience to raise the
  amount of capital that will be furnished by its
  franchisees to expand the franchise network. Such
  a company might be able to raise additional
  capital periodically for expansion (as long as
  the great majority of its outlets were
  profitable), but its growth rate would be
  severely constrained. It is the unique
  opportunity offered by franchising, for an
  individual to own a business that is part of a
  network of similar businesses, that motivates
  such individuals to offer substantial amounts of
  capital for the expansion of a franchise network.
  If good locations for outlets are not abundant
  and are being sought by competitors, rapid
  expansion of a network enhances its chances of
  acquiring good locations and thereby acquiring
  market share at a faster rate. Rapid expansion
  builds consumer recognition and understanding of
  the product or service sold by the franchise
  network and creates recognition and value of the
  network trademark and consumer expectation of
  uniform quality at network outlets.

Source http//www.franchise.org/resourcectr/partI
I.asp
47
Benefits Related to Capital

• Franchisees share risk of expansion of the
  franchisor's networkFranchisees furnish most of
  the capital required to expand the franchisor's
  network. The franchisee furnishes equity and
  borrowed capital to pay for real estate,
  leasehold improvements, equipment, fixtures,
  furnishings, inventory and working capital
  required to establish the franchisee's outlet. In
  addition, the franchisee pays the franchisor a
  fee for the grant of the franchise that is
  usually set at a level that will cover most or
  all of the franchisor's cost of franchisee
  selection, training and pre-opening assistance.
  The franchisor's cost of expansion is usually
  limited to the overhead costs associated with
  franchisee recruitment, training and pre-opening
  assistance that are not covered by initial
  franchise fees.
• Continuing fees paid by franchisees support
  advertising and marketing programs (which enhance
  recognition and goodwill of the franchisor's
  trademark), product and service development and
  expansion of the franchisor's network.
• A franchising company is less vulnerable to
  cyclical fluctuations and outlet failures.
  Changes in fee revenue due to the fluctuation of
  sales of franchised outlets will be significantly
  less than fluctuations of profits at
  franchisor-owned outlets. A failing franchisee
  has a lesser financial impact than a failing
  company-owned outlet.

http//www.franchise.org/resourcectr/partII.asp
48
Benefits of High Rate of Return

• A franchising company can realize a higher
  return on its invested capitalBecause the
  investment in the development of outlets is
  typically made by franchisees, a franchisor is
  able to operate with few fixed assets other than
  the outlets that it owns. Therefore, though its
  revenue from franchised outlets (composed of fees
  and product sales to franchisees) is
  substantially lower than it would be from owned
  outlets, a higher percentage of the revenue is
  profit and that profit is generated with a much
  lower capital investment.

http//www.franchise.org/resourcectr/partII.asp
49
Benefits Related to Economies of Scale

• Franchised networks can realize economies
  achieved by company-owned outlet through joint
  procurement. Franchisors frequently develop
  supply programs for equipment, fixtures,
  furnishings, signs, supplies, insurance,
  marketing and advertising services and public
  relations services required by their franchisees.
  Such programs can furnish to a franchise network
  the advantages of combined purchasing power
  enjoyed by a network of company-owned outlets.
• Reacquisition of franchised businesses A
  successful regional or national franchisor,
  particularly if its capital stock is publicly
  traded, is in a position to buy back
  franchisee-owned businesses to expand the number
  of franchisor-owned and operated businesses in
  the network. Most large franchise networks
  consist of both franchisor and franchisee-operated
  businesses. In some cases, the franchisee will
  become a senior manager of the franchisor
  following the acquisition of his businesses.

http//www.franchise.org/resourcectr/partII.asp
50
Psychological Benefits

• Psychological Benefits
• In addition to the significant benefits related
  to franchisee capital investment and motivated
  management, franchising offers psychological
  benefits to the entrepreneur that creates and
  builds a franchise network. Psychological
  benefits are the satisfaction that some persons
  derive from teaching and assisting others to
  successfully establish and operate a business
  that the network founder conceived and developed.
  Not everyone will consider such benefits to be
  important. Some will scoff at the idea, saying
  that franchisees are, at best, difficult to help
  and control, and that franchising has an
  aggravation factor that is a negative feature.
  There are many examples of both experiences.
• Though some founders of a franchise network
  might not characterize their relationships with
  franchisees to have been generally positive, the
  founders of most franchise businesses that have
  successfully grown into regional and national
  networks would agree that there is great
  satisfaction in working with people building
  successful businesses who are also helping the
  franchisor become a successful company. A person
  who does not believe that he or she would derive
  such satisfaction should probably not consider
  franchising as a method of business expansion.

http//www.franchise.org/resourcectr/partII.asp
51
Disadvantages of Franchising

• Lack of control - The essence of a franchise --
  buying and operating a proven concept -- can make
  it seem like you're more of a manager than a
  boss.
• This may be difficult for some people,
  especially those that are more entrepreneurial.
  This type of person may find it hard to conform
  to someone else's system.Cost - It can take a
  good deal of cash to open and operate a
  franchise. Upfront costs can be significant, and
  you may find that ongoing royalty fees will have
  a major impact on your cash flow.You're not
  alone - Just as a franchisor's reputation can
  benefit your individual business, the
  franchisor's problems are also your problems. So
  if the parent company comes upon hard times, your
  individual franchise may also suffer because of
  how closely you're tied in.

Source http//www10.americanexpress.com/sif/cda/p
age/0,1641,5285,00.asp
52
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

53
Proposed Public Sector Franchise Model
Now, in the next set of charts, I will explain a
(my) proposed government initiated franchising
model. Since it is keenly interested in economic
development and job creation in a developing
country, a government encourages the formation
of franchisors and franchising businesses. Such
encouragement may come in the form of models,
loans and grants to franchisors and
franchisees. Government laboratories and
extension centers may assist franchises with
technology transfer and ongoing product
development expertise. In light of its regulatory
responsibilities, government should develop laws
and regulations so that franchising businesses
operate within a well established legal
framework.
54
Roles in a Public Sector Franchise Model

• Government
• Passes necessary legislation and regulations to
  promote franchising
• Undertakes the development of generic
  franchising infrastructure
• Identifies specific product and service
  (business) needs and areas
• Arranges finances (loans, subsidies, and grants)

• Franchisors High Level Management
• Develop specific franchises as franchisors
• Arrange capital, technology, manufacturing, and
  business method
• Develop marketing, sales, supplies, and
  logistics

• Franchisees Local Management
• Seek franchises
• Arrange capital for local units
• Receive franchising method
• Receive business knowledge, training, and
  skills
• Undertake production and serve customers
• Run local businesses

55
Incentives for Stakeholders in a Public Sector
Franchise Model

• Government
• Economic development
• Production of desired goods and services
• Creation of jobs
• Good return on investment of tax payer advanced
  funds

• Franchisors High Level Management
• Ownership stakes
• Lucrative returns commensurate with business
  success
• Strong involvement

• Franchisees Local Management
• Ownership stakes in local franchises
• Incentive to work hard and smartly
• Gains of business knowledge, training, and
  skills
• Economic returns directly related to success of
  franchise

• Consumers
• Responsive and local business operators
• Quality products and services

56
Generic Model of a Public Sector Assisted
Franchise
Business Plan
Finance
Franchisee
Government
Franchisor
Franchisee
Know how
Franchisee
57
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

58
Public Sector Franchise Candidates
Textiles and Garments

• Government
• Finance
• Textile research
• Textile fashions

• Franchisor
• Business Model
• Manufacturing model
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Design
• Production
• Packaging
• Sales
• Shipping

59
Public Sector Franchise Candidates
Silk Garments

• Government
• Finance
• Sericulture research
• Silk fashions

• Franchisor
• Business Model
• Manufacturing model
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Design
• Production
• Packaging
• Sales
• Shipping

60
Public Sector Franchise Candidates
Milk Products

• Government
• Finance
• Dairy research
• Food technology

• Franchisor
• Business Model
• Production model
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Animal care
• Feed supply
• Production
• Sales
• Shipping

61
Public Sector Franchise Candidates
Leather Products

• Government
• Finance
• Leather research
• Fashions

• Franchisor
• Business Model
• Manufacturing model
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Design
• Production
• Packaging
• Sales
• Shipping

62
Public Sector Franchise Candidates
Oil Gas Drilling

• Government
• Finance
• Geological research
• Production know how

• Franchisor
• Business Model
• Manufacturing model
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Plant installation
• Production
• Collection
• Transportation
• Sales
• Shipping

63
Public Sector Franchise Candidates
Fast Food Outlets

• Government
• Finance
• Design know how

• Franchisor
• Business Model
• Manufacturing model
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Equipment installation
• Preparation
• Service
• Sales
• Delivery

64
Public Sector Franchise Candidates
Electronic Appliances

• Government
• Finance
• Design know how
• Product know how

• Franchisor
• Business Model
• Design model
• Manufacturing model
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Plant installation
• Production
• Service
• Sales
• Shipping
• Delivery

65
Public Sector Franchise Candidates
IT Services

• Government
• Finance
• Service know how
• Product know how

• Franchisor
• Business Model
• Service model
• Delivery model
• Quality
• Security
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Equipment installation
• Production
• Service
• Security
• Sales
• Delivery

66
Public Sector Franchise Candidates
BPO Services

• Government
• Finance
• Service know how
• Product know how

• Franchisor
• Business Model
• Service model
• Delivery model
• Quality
• Security
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Equipment installation
• Production
• Service
• Security
• Sales
• Delivery

67
Public Sector Franchise Candidates
Educational Services

• Government
• Finance
• Service know how
• Product know how

• Franchisor
• Business Model
• Service model
• Delivery model
• Quality
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Equipment installation
• Production
• Service
• Sales
• Delivery

68
Public Sector Franchise Candidates
Sports, Athletics, and Games Franchises

• Government
• Finance
• Service know how
• Product know how

• Franchisor
• Business Model
• Service model
• Delivery model
• Quality
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Equipment installation
• Production
• Service
• Sales
• Delivery

69
Public Sector Franchise Candidates
Literary Franchises

• Government
• Finance
• Service know how
• Product know how

• Franchisor
• Business Model
• Service model
• Delivery model
• Quality
• Values
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Equipment installation
• Production
• Service
• Values
• Sales
• Delivery

70
Public Sector Franchise Candidates
Fine Arts Franchises

• Government
• Finance
• Service know how
• Product know how

• Franchisor
• Business Model
• Service model
• Delivery model
• Quality
• Training
• Maintenance
• Supplies
• Marketing
• Selling
• Exports

• Franchisees
• Local business
• Equipment installation
• Production
• Service
• Sales
• Delivery

71
Outline

• Situation and Problem
• Definition of and Roles in Franchising
• Franchising details
• Traditional Applications
• Master Franchising
• Benefits of Franchising
• Proposed Public Sector Franchise model
• Benefits to Franchisor
• Franchising Initiatives for Government
  Sponsorship
• Conclusions Recommendations

72
Conclusions and Recommendations
Franchise development is a great alternative to
the current practice of developing public
sector undertakings and utilizing government
employees to perform business functions. Franchis
ors, with initial government assistance and
guidance, can become a great economic force of
the future for developing countries. Franchisees
can produce and deliver a great variety of
products services to consumers in their
countries.
Recommended that governments study and develop
franchise models to improve and grow their
economies.
Franchises will make the government, franchisors,
franchisees, and consumers, all winners.