JAMES E.

CASTRO
MBA 1
REPORT ON FRANCHISING
INTRODUCTION:
Franchising is the most successful business sstem in the !orl". #t can be grou$e"
into t!o% namel: Foo" an" &on'Foo". #t starte" in the 1(
th
centur !hen there !as a
contract bet!een Singer Se!ing Co. an" its "ealers. #t boome" in the )*+s an" ,*+s !ith
fast foo" chains an" later on continue" to gro! in the (*+s. The mentalit roote" in
colonial times an" "e-elo$ment in $ost'!ar era has instille" a "ee$'seate" $reference for
foreign foo".ser-ices% notabl American. /es$ite the economic "o!nturn% franchising
remaine" one of the fastest gro!ing segments of the 0hili$$ine business econom.
Franchising re$lace" in"e$en"ent businesses in in"ustries as "i-erse as fast foo"%
ban1ing% an" #nternet ser-ices. The A"-ent of RA 9178% a la! !herein the 0hil.
2o-ernment has set a $olic to $romote the establishment of BMBE+s b $ro-i"ing
-arious incenti-es an" benefits to entre$reneurs3 sho!s the go-ernment+s a"-ocac for
entre$reneurshi$ for Fili$inos es$eciall since most of our human resources !oul" either
4ust go abroa" or be un"erem$loe" or unem$loe". Franchising in an" of itself "oes not
en" obstacles that other!ise com$etent an" ca$able minorit entre$reneurs face but there
are a gro!ing number of ban1s an" -enture ca$ital firms such as the /e$artment of Tra"e
an" #n"ustr that are starting to earmar1 fun"s for minorit an" !omen !ho are
intereste" in o!ning a franchise. 5ocal entre$reneurs usuall start their business from
small stalls.1ios1s.booths an" if successful% can e6$an" to bouti7ues% rente" s$aces% an"
sho$s% o!ne" structures or e-en buil"ings an" e-entuall s$rea"ing out to other areas or
regions.

THE SYSTEM OF FRANCHISING:
Franchising is a s$ecial t$e of licensing arrangement for the "istributor of
ser-ices an" $ro"ucts. The Franchisor allo!s another entit'the Franchisee' to use their
business sstem3 tra"emar1s% an" cor$orate i"entit for a certain $erio" of time. #t is
base" on an inter"e$en"ent relationshi$ bet!een t!o $arties. The Franchisor is the
original creator or conce$t ma1er of the !hole business. 8e is the $art in the franchise
contract !ho s$ecifies metho"s to be follo!e" an" terms to be met b the other $art
9franchisee:. Shoul" the franchisor "eci"e to acce$t offers for franchising or see1 co'
o!ners then this is !here the i"ea of franchising comes in. The co'o!ner.s is calle"
franchisee.s. in franchising the franchisee offers to $ut u$ a store or business entit of the
e6act same 1in" to that of the original business but he becomes its o!ner. The Franchisee
is an entre$reneur !hose $o!er is limite" b a contractual relationshi$ !ith a franchising
organi;ation. The franchisor onl gets an initial in-estment at the start of the contract
9"e$en"ing on ho! long a $erio": from the franchisee an" the rest of the income goes to
the franchisee. The franchisor can also monitor com$liance to their stan"ar"s% an" gi-e
ai" or assistance to the franchisee. This ma inclu"e the $ro-ision of uniforms% free
e7ui$ment% free seminars% an" training manuals. The franchisor can also collect roalties
"e$en"ing on !hat has been agree" u$on in their contract. The Franchise Agreement is a
contract% !hich inclu"es the conce$ts base" u$on a re-ie! of the com$an+s business an"
an recent "e-elo$ment in the Franchise 5a!. Sstems an" forms are $ro-i"e". 0rior to
$re$aration of "ocuments% the $rinci$als of the com$an shoul" a"o$t a $olic base" on
the ff:
Financial controls for the franchise
Franchise fees base" on mar1etabilit of franchise at -arious in-estment
le-els !hile consi"ering the Return on #n-estment for both Franchisor an"
Franchisee
Amount at $ercentage of Roalt Fees% establishe" b su$$ort nee"s of
franchisees% ongoing su$$ort $rograms an" in"ustr $ractices%
maintenance of cor$orate cash flo! an" of franchisee+s a"-ertising fees%
local an" national.
PROS AND CONS
' #nterestingl% the franchise success rate in the 0hili$$ines ha" been $oste" at (*<%
outstan"ing tra"itional retailing% ha-ing a success rate of onl =><.
' Buing a franchise can be attracti-e for a -ariet of reasons3 the greatest o-erall
a"-antage b far !as its $rofitabilit.
' The Franchisor offers the ff: assistance:
A"-ertising an" Training 0rograms% an" o$erating su$$ort sstems to attract an"
retain franchisees
?or1 !ith local communit "e-elo$ment cor$orations% !hich $ro-i"e technical
an" other su$$ort to hel$ them enter the franchise sstem. 9S@B?AA:(*<
Franchise fee% an" =*< e7ui$ment leasing:
Regular on'site -isit b merchan"ising an" o$erations manager
Assistance in all as$ects of o$erations
Assistance in mar1eting an" a"-ertising cam$aign
Boo11ee$ing an" au"it assistance
Store "esign an" construction
Fi6tures an" Signages
#nitial in-entor
Assistance in the a$$lication for business $ermits an" licenses
Soft O$ening 9"r run: before actual store o$ening
2ran" O$ening mar1eting an" a"-ertising cam$aign
Com$rehensi-e Training 0rograms
Su$$ort 0ersonnel to assist in the store set'u$ an" throughout o$ening of store
location.
' The franchisor has lesser obligations !ith a franchisee as com$are" to a branch
' The franchisor has the $o!er to "eci"e !hether or not to acce$t the franchisee
' @nem$loment rate is lessene"
' The econom !ill be better
' #f the franchise e6$an"s to a huge magnitu"e then there is higher income for the
franchisor because most materials being $rocure" !ill come from its o!n
commissar.
'
' Access to ca$ital remains the critical 1e to o$ening the "oor of franchise
o!nershi$. Some franchisees sol" for as little as 01>*% *** but the a-erage
franchise costs about 0 1%***%*** in total start'u$ cost.
' The success of the franchisor is not a guarantee for the success of the franchisee
' A high 7ualification is not a guarantee of acce$tance to be a franchisee
' #t is not a one'shot "eal nor a get'rich'7uic1 scheme
' #t entails $atience% $erse-erance% an" "e"ication
' Can be traumatic if it fails
POINTS TO PONDER:
E-en if ou are not the t$ical ris1 ta1ing entre$reneur% ou ma be suite" to
running a franchiseB C Sona Thor$e Brath!aite% "irector of the /i-ersit An"
Emerging Mar1ets !ith the #nternational Franchise Association % ?ashington /C.
Source: Franchisin !" CAMAT# G$ S%U MS&A '(('
In)r*+,c)i*n )* En)r-.r-n-,rshi. !" Ass*cia)i*n */ Fi0i.in* Franchis-rs Inc1