Franchising

"Here's an arrangement where the franchiser designates a territory, not just an outlet, for which a franchisee can use the trademark and the business system."

We are all familiar with single-unit franchising, which is the route normally taken by franchises to franchise their business. A single-unit franchise agreement is drawn up for a single location, such that the franchisee can use the franchiser's trademark and business system only in the location specified in the franchise agreement. If the franchisee wishes to open a second or more locations, separate single-unit franchise agreements for them will have to be drawn up.

Territorial franchising is different from single-unit franchising. As the term indicates, a territorial franchise is not for just a single location but for a particular territory. Another term for territorial franchising that's used internationally is "master franchising," is more commonly used in the Philippines. Under this arrangement, the franchiser specifies the territory for which the particular franchisee can use the trademark and the business system. A territory, of course, can be a province, a city, or a group of islands like Visayas or Mindanao.

WHAT'S REQUIRED OF THE FRANCHISER

Processing for territorial franchises normally takes longer than that for a unit franchise. In this case, the franchiser will not only consider the capability of the territorial franchise applicant to manage one branch but also his or her capability to manage multiple branches. And from the usual determination of management capability, the franchiser will also need to look at the competence of the prospective territorial franchisee to build a middle management team that will run the franchised branches within the territory.

The franchiser then has to put up additional monitoring and control systems for the franchised branches within a territorial franchise, since reaching these territories could take hours and the branches would not be within the usual daily route of the franchiser's service officers. This could mean having to put up state-of-the-art communications technology to effectively monitor the operations of those branches.

For instance, one franchiser had to install remote cameras to check on how customer service is provided and on how the branch is maintained and manned daily. Another franchiser found it necessary to have the branches in a particular franchise territory hooked by POS (point-of-sale system) to its headquarters. This was to enable it to constantly monitor product movement and provide proper inventory forecasting assistance to those branches.

Due to the distance factor, field visits by the franchiser to the branches of a territorial franchise cannot be done as frequently as those to single-unit franchises. For this reason, a territorial franchisee needs to be given additional training on how to effectively provide operational assistance to its various branches.

WHAT'S REQUIRED OF THE FRANCHISEE

Based on the intrinsic differences between single-unit and territorial franchises, it is obvious that territorial franchising will require much more in dedicated resources: people, finances, and, most important, the franchisee's time.

Usually, the franchiser and the franchisee would agree on a development schedule may result in the termination of the territorial franchise agreement.

Knowledge of the local market and the franchise network are, of course, also requirements even for unit franchisees, but the extent and scope of this market and network knowledge is much greater in the case of an entire territorial franchise. Indeed, the territorial franchisee will not only have to study the market characteristics and potential of the entire territory for his territorial franchise application but also those for every branch that he or she intends to put up within the franchised territory. In short, the franchisee has to do the market study on two levels, not just on one.

Master franchising is generally similar to territorial franchising, but the scope of the former is much wider. While territorial franchising covers only a specific territory in a particular country, master franchising usually involves or covers an entire country.

MASTER FRANCHISING BY HOMEGROWN FRANCHISERS

We will now dwell on master franchising from the point of view of a homegrown franchiser expanding internationally through the master franchising route.

The highest goal that a homegrown franchiser can aspire for is, of course, to go global. This is because going global can add such great and immeasurable value to the brand as well as prestige to the franchiser. More than that, being able to go global is clear proof that Filipino companies can indeed compete in the global community of franchisers.

Master franchising is, in fact, the route that has been taken by most of the successful international franchisers, with which the Philippines has been awash for so many years now. It would therefore be advisable for our homegrown franchisers to learn from these successful international franchisers and use the very same mechanisms they are using to expand internationally.

HOW MASTER FRANCHISING CAN BE DONE

The very first question that needs to be answered by a homegrown company aiming to go into international master franchising is this: How do we go about doing it?

This may sound facetious, but the very first step required of a company wanting to go into international franchising is to decide that it really wants to do so. Due to the complexities involved in master franchising, it will not do for companies to be half-hearted in pursuing it.

THE NEED FOR FULL COMMITMENT

The next step is to prepare to plan for international expansion, one that specifically identifies your goal, how you want to achieve that goal, your action plan, the resources and people required to implement the plan, the responsibilities of the people who will be involved in the undertaking, and the timeline for achieving your goal.

A very important step that needs to be undertaken is to clearly identify the core product or service you would like to franchise internationally, and to clearly state the value proposition that you would like to bring to the international market. This value proposition should be invariable in whatever country you are going with your international franchise, for it is the very "soul" of your franchise model.

In master franchising, moreover, so many ramifications need to be considered from country to country, since each of them will have a different culture and will be a different type of market. Very early in your planning stage, therefore, you need to determine what cannot be changed and what can be adapted to the market in each of your target countries.

Next, the franchiser will have to determine the most important aspects of pre-operating and continuing support and assistant that need to be provided to the master franchisees in a particular target country. On this basis, the franchiser can then establish the initial master franchise fees, the franchise fees for each branch, and the marketing support fees. Even if the franchiser has had experience in determining these fees locally, doing them for the international market will generally be more complicated as there are so many other inputs and costs to consider, like travel to the target country.

A critical requirement for master franchising, of course, is registering your trademark with the country you are targeting. This is usually not a very complicated thing to do because the laws on intellectual property in many companies are international in character, with practically the same or similar procedures for registering a trademark. The important thing, however, is not to overlook the registration of your trademark in each of the countries where you intend to open a master franchise.

The international master franchising process will normally be a much longer and laborious process than that for a purely local franchise, but successfully establishing your franchise in one or more countries other than your own definitely will be well worth the effort.