What is Franchising?

Franchising is the most successful business system in the world. Yet the vast majority of people, including many who are involved in this segment of free enterprise, don’t have a true understanding of what franchising really is. Whenever you hear the word “franchise” you think of fast food restaurants like “Jollibee” or “McDonald’s”, but there is more to franchising than the two giants. Franchising is simply a special type of licensing arrangement for the distribution of services and products.

Franchisors allow another entity – the Franchisee – to use their business system, trademarks and corporate identity for a certain period of time. It is based on an interdependent relationship between the two parties. Both must work as a team and accept responsibility and accountability for the success of the system and business. In other words, it’s like a marriage – it should last forever or at least 5-10 years.

Franchising in the Philippines
Franchising in the Philippines

The job of the Franchisor is not to make a Franchisee successful, as the Franchisee must take an active role in marketing the brand and working the operating system. Being part of the system does not guarantee for personal success. The Franchisee has to work hard as well, enduring long hours and sacrifice sometimes. Franchisors must provide the best operating system possible and assist Franchisees in getting efficient, effective and profitable by providing support services throughout the relationship.

Business format franchises offer the Franchisee not only a logo and trademark, but also a complete system of doing business. The word “system” is the key concept to franchising. A Franchisee receives assistance with site selection of the business, personnel training, business set-up, advertising and product supply. For that, the Franchisee pays at the start of his franchise an up-front payment called the “franchise fee”, and on-going “royalty” which enables the Franchisor to provide more research and development, training, and support for the entire business. In a few words, the Franchisee purchases someone else’s expertise, experience and method of doing business and does not have to go through the “labor pain” of a new start-up company.

Post Author: Rudolf Kotik (9 Posts)

Rudolf Kotik is a long term resident of the Philippines (since the 1980's) and is the founder of RK Franchise Consultancy Inc, who developed more than 350 Filipino Companies into Franchise Systems. Tel. (02) 912.2946, 912.2973, (032) 273.3827, 238.3933 email: [email protected]; websites: www.rkfranchise.com, www.franchise.ph

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  1. John Miele says

    Rudolf: Welcome to LiP as a fellow writer. I look forward to reading your articles! When I lived in LA, I knew the corporate attornet for BK who negotiated all of the licensing agreements with the movie studios fot the kids meals. That’s the type of stuff that makes franchising so worthwhile. Congrats on finding a successful business model here, and hoping you can help many more Filipino businesses become better known and more successful.

  2. says

    Welcome also, Rudolph. And I think you hit the nail on the head for a lickoff article. I’ve often noticed when I recommend going with a ‘name brand’ franchise to people asking me about business in the Philippines, they often return a blank stare. Maybe because they just weren’t familiar with what franchising really is. Good explanation.

  3. says

    John and Dave:
    Thanks for the friendly welcome!
    I enjoy educating people on Franchising and somehow its getting better. When I started more than 10 years ago, the usual answer i got when I said i am into franchising was a question: “What is that?” … at least today i don’t hear that anymore… But franchising in the Philippines is flourishing and definitely the best way how to expand your business or how to invest as safest as possible since the franchise system of a Company is tried and tested by the original owner and therefore less risk than starting all over again by yourself.

    Have a good one!

  4. Martin says

    Hi Rudolf!

    It’s great to see you’re getting involved with LiP. I’m looking forward to hearing more about your different experiences and how you’ve been able to help so many small business owners develop their own businesses into successful franchise businesses.

    Happy New Year, too!

  5. says

    Hi Martin:
    Thanks. We are quite active in Butuan now. After finishing Uncle Sams we are doing now 2 ground zero projects, Aling Cora and V-Ross, or a total of 4 projects there which brings me to your City again on Jan 24 to 27.

    Best regards,

  6. Dave Keiser says

    Great article, one which opens up a lot of questions in my mind.
    First and foremost, what is the benefit to the person purchasing a franchise, discounted stock, etc? In the US, sometimes the “Brand appeal” alone is the reason for purchasing a franchise, but brand appeal is not such a big thing here among smaller businesses. As a business owner, what can and should I expect a tie in with a franchiser to do for me?
    I have a friend/supplier in Manila that I would love to see a better business relationship with, but I am not sure what to propose to him. He sells great laundry products, but shipping costs for smaller quantities here to Mindanao make using his products cost prohibitive. I am hoping some kind of arrangement can be worked out that will be mutually beneficial to both of us, so that his products will be readily available here.

  7. says

    Dear Dave:

    Sorry for the late replay, I agree with your “Brand appeal” its also here on the local market, and we consider 4 type of branding, namely international (e.g.McDonald’s in the Philippines, National like Jollibee, regional (a brand known lets say throughout Mindanao) and local (e.g. a strong brand in a City only)

    It might probably sense in your case to convince the guy to let you produce the soap under a licensing agreement so you wont have a logistic problem. I can help you guys on coming up with one.

    Best regards,

  8. John David Johnson says

    Hi Everyone,

    Me and a local business partner would like to franchise some really good business (coffee shops and fast food) in the Philippines. Particularly very good brands in Metro Manila that hasn’t reached here in Mindanao and even in some areas of the Visayas.

    Unfortunately when we started incorporating the business partnership the SEC did not approve our draft because they say that foreigners can’t go into retail trade since this kind of business is included in the Philippines Foreign Investment Negative List and it’s purely reserved for Filipinos. Now me and my partner is hesitant to invest because I for myself want to secure my holdings as much as I trust my partner I need the security. Is their a way?

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