Back in the 1980s, the presence of international brands was not common. By the mid – 1990s, the most famous fast food chain in the world arrived, and since then the path has been widened for new players from different sectors under the franchise scheme, creating profitable ventures with a proven recipe for success.
In a short time, this business option was no longer exclusive of international brands, as Colombian enterprises also adopted the model, which meant that they were able to achieve sustained growth. Its impact can be seen on the attraction of domestic and foreign investment, the creation of new jobs and the generation of capital.
A franchise is the result of a marriage between a franchisor who acquires partners committed with the expansion and the franchisee, who obtain a proven formula. This proposal arises as an alternative to the variety of successful enterprises that see their growth chance curtailed by the implicit financial and administrative costs that accrue from the opening of new business units.
At the legal level, there are several definitions of the franchise contract, but all of them agree in that it is a contract that seeks the reproduction of a successful business through the licensing of some intellectual property rights – typically a brand -, the transmission of know – how and the application of uniform commercial and administrative methods.
According to their specific objective, the franchises may be of different classes: industrial, when the franchisor grants to the franchisee a license of patent and a know – how to manufacture a product; of distribution, the most common, in which the franchisor grants to the franchisee the use of a brand, a know – how and a commercialization method; or of services, where what is granted is the right to market the services, to use a brand and some business secrets.
Depending of the geographic region for which they are granted, the franchises may be single, when they refer to the operation of a unit within a network of franchises; regional, when several units located in a geographically defined area are granted, or master, when the franchisor grants to the franchisee territorial exclusivity to open all the units by itself and to grant sub – franchises.
For a business to be able to become a franchise, certain essential characteristics must be present. The first one of them is to have a brand, a defined concept with differentiating elements, that is repeatable and transmissible. Besides, it must have a potential market and be commercial and financially attractive.
From the franchisor’s viewpoint, the advantages of a franchise are, first and foremost, the low investment in the expansion of the business, the consequent strengthening of the brand, and the greater operational efficiency. The franchisee, on its part, reduces, in a significant manner, the risks and the learning curve implicit in the opening of a business, on top of receiving permanent advice.
The franchise also involves risks that must be considered. For the franchisor the higher risk is the inadequate selection of the franchisee, who may misuse the brand, be reluctant to follow the methods and manuals, or not comply with the timely payment of royalties. For the franchisee, the greatest risk is to choose an inadequate franchise, whether due to its geographic location or because of its personal tastes, as well as the frustration resulting from the obligation to adhere to the predefined business model.
There are different strategies that reduce these risks, ranging from making a profile of the franchisee to the efficient manuals, but the main principles to guarantee the success of a franchise are the communication and trust between franchisor and franchisee, which are developed through the constant presence and technical assistance of the franchisor and the constructive feedback of the franchisee.
Author: Helena Camargo