Franchising: Essence and Experience in Russia

Financial University under the Government of the Russian Federation

International Finance Faculty

 

 

 

 

 

 

 

Tumanov Vitaly Vladimirovich

1 course Group IFF 1-1

 

 

“Franchising: Essence and Experience in Russia”

 

 

Tutor – Slobodyanik Victor Vladimirovich

 

 

 

 

 

 

 

 

 

 

 

 

 

Moscow, 2012

Table of Contents

 

 

 

 

 

 

Introduction…………………………………………………………………..3

 

Chapter 1. Theory of Franchising...………………………………………….6

 

§1 Terminology of Franchising. Understanding of Franchising…………….6

 

§2 Main Models and Features of Franchising……………………………...11

 

Chapter 2. Practice of Franchising. ..……………………………………....16        

 

§1 Foreign Practice of Using Franchising………..………………………...16

 

§2 Experience of Franchising in Russia….………………………………...27

 

Conclusion………………………………………………………………….30

 

List of Literature……………………………………………………………32

 

 

 

 

Introduction.

 

The Conversion to the free market economy supposes the development of different forms of entrepreneurship, and the problem of developing small business is one of the most important ones. It is very hard to organize your own firm in the traditional way, so the search for different new and innovating business models takes place. In the last year, a big number of enterprises, working under the labels of big enterprises that are well-known, was created. It is obvious that the creation and development of the net of branches and offices would have taken much more time, and huge investments of cash, which were decreasing through the last years. Because of these factors, the new business model started to be widely used in Russian Federation. This business model is called “Franchising”.

 

Franchising is nowadays recognized as the most efficient model, that helps to increase the productivity of small business. It helps to unite the pros of the small and big business practice. Enterprises, that work under the franchising model this way become more strong in the market competition.

 

Nowadays, franchising system covers 50 branches of economy on the American market: from the internet to banking, being the tool of distribution of goods and services, using which, the franchisee gets from the franchiser the rights for usage of the brand label and operational system, in exchange for the right of controls by the franchiser, and some payments (royalty).

 

 

 

Any firm, that is classified as a small business is able to create its own brand and register it, but to make it successful, the firm has to put into it huge numbers of resources. A sharp advertising is necessary, as well as participation on the exibitions, and other work. Nowadays, small businesses can not afford such investments. It is much more easy for the small business to buy the right for usage of the popular brand, using the franchise. In this case, the enterprise which is then franchiser gives to the franchisee the needed equipment and technology, studies the employee, when the franchisee undertakes to use the brand of this exact enterprise, wherever it is situated.

 

Looking at the worldwide practice and Russian practice, we can say that the main advantage of franchising is the decrease of the risks, so in the developed industrial countries, franchise in mainly used by the physical entities, and small businesses, which are economically active and manage their retail shops by themselves.

 

Franchising is getting more and more popular and wide-used nowadays, but franchising in Russia needs to be studied to create a complex knowledge of this business model. All of these show the actuality of the chosen topic.

 

The aim of this work is to study the theoretical basis of franchising system, and analyse the worldwide and Russian experience of using a franchise. To accomplish this aim, it is necessary to solve the next problems:

 

 

 

 

 

 

 

 

 

  • Go through the theoretical basis of franchising.

 

  • Study different types and models of franchising.

 

  • Determine the main pros and cons of the franchising system.

 

  • Study the worldwide experience of franchising functioning.

 

  • Study problems and perspectives of developing franchising in Russia.

 

 

As the leading scientists, that studied and explored franchising, I would like to note Philipp Kotler and Scott A. Shane as the foreign scientists, and S.A. Sosna and E.N. Vasil’eva as the Russian scientists.

 

The work consists of the titular page; table of contents; introduction; 1 chapter, divided into two paragraphs; 2 chapter divided into 2 paragraphs; conclusion; and list of literature. 

 

In the 1st Chapter the theoretical questions of franchising are studied. The definition and terminology are given, types and models of franchising are studied. 

 

In the 2nd chapter, the experience of franchising in different countries is studied. The experience of UK, Germany, France, USA, Hungary and Czech Republic are studied. Russian experience, and the perspectives for Russia are studied. 

 

In the conclusion the main outputs, taken from the work are given.

 

Chapter I.

Theory of Franchising.

 

 

§1.Terminology of franchising. Understanding of Franchising.

 

The word “franchising” was generated from French “fran-chise”, which means “a benefit,  a privilege”. Later on this word started to be used in the English-speaking countries. It is defined as “The practice of using another firms effective business model”. [5]

 

Thirty-three countries, including the United States, China, and Australia have laws that regulate franchising, with the majority of all other countries having laws which have a direct or indirect impact on franchising. [2] 

In Russian Federation, the model of franchising is called “Commercial concession” and has a definition if the Civil Code of Russian Federation: “By the agreement of commercial concession, one of the sides (right-holder) undertakes to the other side (the user) to give the exclusive right to use the brand name, services, secret commercial plans, brand label, etc. in the business with, or without a time limit. ” [1]

 

To say in the simpler worlds, franchising is the experience of using other firms business strategy (basically, it should be a firm with a well-known brand and image), as well as using its label, brand name, commercial information and other specific features, which will help the user to allocate a good position on the market for some payment.

 

Moreover, the right-holder undertakes to give consultations, and advises to his client.

 

 

 

 

Terminology of franchising:

 

Franchise – is a right to possess economical activity under the principal of franchising, given in the agreement. [15]

 

Franchiser – physical, or legal entity, selling the agreement on the basis of the franchise.

 

Franchisee – physical, or legal entity, acting under the agreement of bought franchise.

 

 

The agreement of franchising has two sides: the franchiser and the franchisee.

 

The franchiser, being the right-owner, gives his rights to the franchisee on some circumstances. The franchisee acts on the market with the given reputation of his franchise, and uses the franchises brand image and commercial system.

 

There can only one franchise and many franchisees in the agreement. So the franchisees create some kind of web, which works under one brand. [15]

 

The franchisee works under the circumstances that are worked out in the agreement, working under the name of the successful firm, and giving a part of profit to this firm. It important to add that in that kind of relations, both: franchiser and franchisee are legally independent. [5]

 

The franchiser can start working under the franchising agreement as a way of developing his business if:

 

Ÿ The firm has a strong label, that is easily recognized by a consumer from all the others.

 

Ÿ There is the commercial strategy in the firm. Moreover, the specific logistic and marketing strategies, that are proved to be effective are being used.

 

Ÿ A comparably strong mass demand can be prognosed for a long period of time.

 

 ŸProfit, taken from the future work of franchiser and franchisee should be higher, then the profit from working alone. The profit should cover the franchisees expenses, and give the franchisee and acceptable profit left.

 

 Ÿ The future franchiser is ready to open all his commercial and business-working secrets to the future franchise, and is ready to give him all the helping information, he will need in the future. [4]

 

 

Main features of franchising:

Ÿ The license for the brand is given to the franchisee.

Ÿ Franchisee is educated for developing his business under the commercial strategy of the franchise.

Ÿ Franchisee is independent from the franchiser.

If even one of this features is absent, it is not the franchising, but a license agreement, or business relations with the elements of franchising. [19]

 

 

 

 

 

 

Functions of franchiser and franchisee under the agreement of franchising.

 

Functions of franchiser:

Ÿ Gives help to his partners while they are choosing the area of business placement.

Ÿ Gives recommendations on placement of the trading web, working on the advertising

Ÿ Consults the franchisee on the planning, management, and dealing with the trading operations.

Ÿ Sometimes gives some financial help

Ÿ Finds better suppliers, provides market researches, works on general advertising campaigns.

Ÿ Controls the quality of goods and services in the franchising web to make consumers come back. [19]

 

Functions of the franchisee:

Ÿ Has to complete the duties of selling goods and services, that are dictated by the franchiser.

Ÿ Unifies and standardizes the activity of subdivisions, that are included in the firm; marketing campaigns and given services.

Ÿ Controls his business.

Ÿ Works with clients. [19]

 

 

 

 

 

 

 

 

 

 

Rights of the franchiser and the franchisee under the agreement of franchising:

 

Rights of the franchiser:

Ÿ Expansion of the production and selling the goods and services; getting the additional profit.

Ÿ Expansion of the experience of business development on the basis of the inverse informational connections.

Ÿ Getting the additional profit from giving the rights for using the brand label, brand style, intellectual property.

Ÿ Saving financial resources from the absence of the necessity of creating the subsidiary enterprises, additional spending’s for the technical basis, because the franchisees can have them in their property. [3]

 

Rights of the franchisee:

Ÿ Use of the intellectual property of the franchiser.

Ÿ Open his own franchising enterprise.

Ÿ Get the standardized complex of services, needed for the enterprises placement.

Ÿ permanent technical and consultation help from the franchiser.

Ÿ Economy of resources and time on advertising, training, marketing studies, search and shipment of resources, creating and placing the label, creating the business strategy. [3]

 

 

 

 

 

 

 

 

 

§2.Main models and features of Franchising.

 

Types of Franchising.

 

On the way of working, different types of franchising can be determined:

 

  1. Marketable Franchise – the franchiser sells the goods not to the retail, or wholesale firms, but mainly to the franchisees, which do not sell the same goods of the rivals. Under this circumstances, franchisee buys the right for selling the goods and services with the brand label from the head enterprise.

 

With this model of franchising, the product is delivered to the consumer in the condition, in which it was produced by the franchiser, and the label, under which it was produced becomes the guarantee of the quality. Franchisees often provide the after sale service. In this model of franchising, the franchiser in the producer. The main franchising right is the right for using the label of franchiser.

 

 

 

  1. Production Franchise – the enterprise, is giving equipment, composition, the right to use the brand label and the general advertising basis for the production and distribution of the goods to the franchisee with the necessary condition of quality control.

 

A producer to expand the production of his goods and entering new markets with it uses production franchising. Production in different regions must not be differentiated.

 

  1. Service Franchise – is used by the enterprises of the service sphere to enter the new markets and building a unique web. It is the complex of marketable and production franchise. This model is actively used in beauty services, everyday life services, touristic business, and educational business. Franchisee is given a right to act under the brand of franchiser. Franchiser has a complex of patented rights that are given to the franchisee on the consequences of the agreement.

 

  1. Business Franchising – is the most popular model of franchising. This model, where the franchiser gives the franchisee not only the whole complex of rights, gives him his own methods and ways of commercial activity, but works on the preparation of the work of franchisee: helps him in planning the operations, creating the logistic infrastructure, possessing the juridical status. Along with this, the franchiser gives the license for using the brand image and label, the way of trading, goods, services, and needed equipment. It is mainly used for opening stores for selling the complex of goods and services under the brand name of franchiser.

 

The franchisee fully identifies with the franchiser and becomes a part of corporate system. Under such circumstances, the franchiser can be an enterprise, mining primary products, a producer, a wholesale, or retail firm, or just the owner of the rights that are given to the franchisee under the agreement. In this model, all the firms in the system must work with the unite strategy, style and comply the intrasystem interests. [21] [5]

 

The model of business franchising gives an opportunity not only to expand the business inside the sphere, and close branches, but also to include different courses of business into the system. Good reputation of the firm in this sphere, using this model of franchising, gives many opportunities for expanding the main firm (franchiser), as well as the firms, that will use this reputation to develop their own business (franchisees)

 

 

 

Approaches to franchising.

 

There are many variants of working with franchising. Three of these approaches are used more widely.

 

    1. Regional franchising.

 

Choosing this approach to franchising, franchiser chooses to some market, which could some city, state, or a country with his product. Realizing that he could not have the needed capital and human resource for expanding fast enough, he gets help of the main franchisee. The main franchisee has a right not only to find the new franchisees in his region, but also to train them, and give them the help that is mainly given by the original franchiser. The main franchisee is included into the profit share, and, usually, payments into the advertising reserve. He uses the advances that are mainly used by the franchiser, and pays the licence fees, and fees for advertising right to the franchiser. An agreement between the franchiser and the main franchisee indicates what is expected from both sides, and the time, during that the franchisee does his work. After signing the franchising agreement, the franchisee pays the price of franchising that is controlled by the agreement, and the franchising pays the franchisee fees during the time period of agreement. The value of these fees is indicated by the quantity of new franchisees that have been added to the agreement. Unlike the other approaches, this method is beneficial for the both sides, because the franchisee is the chosen entity, and he has to be supported on all the period of agreement, which is beneficial for the both sides.

 

 

 

    1. Sub-franchising

 

 In the sub-franchising method, the sub franchiser also expands to some new            territory and provides the early training, etc. The difference is that the franchisee works directly with the franchiser on the long-run period of time, and has a very limited contact with the franchiser. He pays the fees to the sub-franchiser, which pays some part of them to the franchiser. Under these circumstances, the sub-franchiser becomes a franchiser in his region, and the franchisee depends on his help.

 

 

    1. Developing franchising.

Franchiser gives exclusive rights of developing some region to the group of investors in the franchising agreement. Investors either develop their own franchisees, or find ones. In the last case, rights of investor, as the owner of the franchise are limited. Taking the exclusive rights for the territory, the entity pays the franchiser fees, and has to open a certain quantity of trading spots in the time period, considered in the agreement.

 

The difference of the developing franchising from the sub-franchising is that the lower franchisees are connected with the franchiser as well as with the sub-franchiser. Under the agreement, the sub-franchiser undertakes to find and train the franchisees, consult, help and control them. The franchiser gives the rights directly to the franchisees, and stays in touch with them as well.

 

In both of these cases, the franchisee gets all the advances that are usually given in franchising: using the brand name, label, business strategy, early training, consultation, etc. The main differences are in the time period of franchising agreement, the contact of franchisee with the management, the entity to whom the franchisee pays the fees. [5] [13] [20]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter 2.

Practice of Franchising.

 

 

§1.Foreign practice of using franchising.

 

After The Second World War, franchising was spreading in Europe differently, depending on the country, customs. Culture, and especially everything that is related to the type of economical and market system, and the level of development of the country. That’s why some countries chose franchising in the service sphere (like UK and Germany), others – in the sphere of distribution (France). [2]

 

On the institutional level, the system of franchising is represented and promoted by European Federation of Franchising (EFF), which is a non-commercial international association, established in 1972. Their main aims are:

 

  1. Development of franchising in Europe.

 

  1. Representation of franchising in international enterprises (European Commission, European Parliament and others)

 

  1. Representation and development of franchising on the worldwide arena.

 

  1. Exchange of information and documentation between the national associations of franchising from the European countries and other continents. [4]

 

 

 

In 1977 British Franchise Association (BFA), which was first to give precise definition of franchise as the control license, given from one entity (Franchiser) to another (franchisee). [5]

 

Nowadays, there are 4,500 franchising systems functioning in Europe, each of them in average has 37 partners, and their total commodity turnover is $150 bil. Even looking at these great numbers, the level of development of franchising in Europe is much lower then in the USA, where the amount of this kind of deals is over $800 bil. [2]

 

The first place in the development of franchising by the quantity of franchisers and franchisees belongs to the United Kingdom. Development of franchising as the part of national economic system started in 50th – 60th. Several factors helped to its development: change in the way of economical progress from producing to giving services, processes of urbanization, increase of wages. These factors helped to create the sphere of services, where the level of convenience and speed of giving the services started to have the same importance as the price and quantity. [6]

 

The fast-food sector has much more developed franchising system, than any other sector. It has the highest rate of spreading of this business scheme. The annual revenue in the franchising sphere is more than £10 bil.

 

In 2004, there were 568 franchisers in UK. In 2008 this number increased to 670. [2]

 

 

 

 

 

 

 

 

Several facts illustrate the situation in the UKs franchising sphere:

 

  • The share of franchising in the sector of retail is approximately equal to 30%

 

  • 90% of all the franchises are profit-gaining

 

  • In 2008, 642 franchisers were registrated, which means that there is a 55% increase, comparing to the other 5 years.

 

  • In 2008, 86% of franchisers and 79% of franchisee were awaiting an increase of their business in the next year [2]

 

 

The next country that has a high level of franchising development is Germany.

 

The total number of franchising systems has reached 598, which are  represented by 28000 franchisees. The annual increase is approximately 7% for franchisers, and 17% for franchisees, which means that the franchising sectors is developing rapidly in Germany.

 

In 2010-2011, a 10-15% increase of franchising sphere is prognosed. Economical life ability of the franchising systems is proved by the next facts: in the last 5 years only 8% of enterprises were not profitable. The commodity turnover in the sphere of franchising is €22,4 mill. [4]

 

The highest rate of increase of franchising enterprises takes place in the sphere of fast-food, sphere of services, hospitality. A stable increase is awaited in all the spheres of franchising, the best perspectives are awaited in the spheres of fast shipments, office services, retail, house services.

 

France has the 3rd place by the quantity of franchise systems in Europe (517 franchisers and 28851 franchisee). At the same time, France is the leader with 40% of European franchising market. Market of franchising in France, nowadays, is developing dynamically. The volume of franchising market in 2008 was valued as $32,5 mill.

 

 

The biggest part of franchise networks is working in the sphere of trade. The next is the sphere of services, hotel and restaurant businesses.

 

Franchising market, unlike the most other retail markets, was developing stable and rapidly.

 

Franchising plays an important role in the economical system of Italy. Even in the situation of economical stagnation, it became one of the few sectors, that was showing positive trends in the dynamics of growth. Annual increase of the franchising sector is 3% a year. In 2008 there were 502 franchisers and 26274 franchisees in Italy. With these numbers, Italy has moved close to such leaders as Germany, Great Britain and France. [6]

 

Liberalisation of the economical systems of central, and south-eastern countries, their wish to be a part of the commercial system, based on the investitions, motivate them to make a choice for franchising and independent business. The absolute leaders in usage of franchise systems are Czech Republic and Hungary. [6]

 

Hungary is the absolute leader of using franchise systems in central and south-eastern countries. In 2008, Hungary had 220 franchisers and 5000 franchisee.

 

 

 

 

In Hungary, this type of economical activety is relatively new, but even so, they have 250 franchisers and 20000 franchisee nowadays. 45000 people work in this sphere, and the sales volume is €2,6 mill., which is 5% of retail. The most part of the subjects of franchising work in the sphere of fast-food, photo-services, tourism, etc. [7]

 

Sucessful franchisers changed their methods on the Hungarian market, using sub-franchisers, giving financial assistance, and lower royalties.

 

In Czech republic, there are 79 franchise systems, and 260 franchisee. Czech Republic is in the start of a profitable franchising development. Food services are the most attractive for franchising. Because of the high profits and relatively fast paybacks, the best for the franchising zones are the zones, where the population has a high purchase ability.

 

In short time, wide-known enterprises accomplished to enter the Czech market. On the other hand, the franchisers from inside appeared, such are ETA (electric goods), Boty Roman Petr(shoes), Dobra Ajovna(tea production), Body Basics (cosmetics), Rapid Service (cleaning services).

 

Franchising in Poland is still a small part of business, nevertheless it firstly appeared here before the Second World War. Nowadays, there are approximately 170 franchisers in Poland: 105 domestic and 65 foreign. Annual turnover is 3,5% GNP. In Poland, the market of franchising is rapidly growing. Until 2002, there was and annual increase, approximately 10-15 networks a year. From 2004 it was 26 new networks a year, 2005 – 27, and 2006 – 39. The Absolutely highest  rate was in 2007 – from 64 to 258 labels, and in 2008 in Poland there were more than 300 franchisers. Franchising is being used more and more widely in the sphere of commercial activity, but low quantity of information and lack of crediting slows this process. [4] [6]

 

Franchising in Poland can count on help of Polish Franchise Association, an association that act with the aim of creating good terms for franchising, dealing with juridical and financial problems.

 

 

 

 

For franchising in Ukraine, 2008 was a good year. Franchising is already being used in 92 sectors, and is continuing to develop. Domestic franchisers occur in the spheres, where there are no foreign franchisers, or they work under other principals. Franchises become more varied every day, new sectors and technologies occur. Price range becomes more wide. Cheap franchises of house services and expencive restaurants and production occur:

 

  • Increase in quantity of franchisers from 301 to 380(+26% a year)

 

  • 84 to 92 sectors of economics (+10% a year)

 

  • Quantity of franchisees increased from 18170 to 33631 (+85% a year)

 

  • Appearance of new segment of network franchising business: finance. Development of banks on the franchise agreement. [18]

 

 

 

Todays level of development of European is characterized by the experts as the level of USA in 50th-60th. Experts say that franchising stimulates USAs national economics and increases the ability for entering and developing on the territories of other countries. From the point of view of national economics interests, it is an ability of “buying a workplace” for the population, and predictableness of business development. From the point of view of going worldwide – it’s the repitation of americain business, turnover of cash back to the country, additional commercial abilities for business and additional political ways of influence for the government. [23]

 

 

In the USA, franchising was firstly used by the company of Singer. Its was based on producing sewing machines (Singer Sewing machine company). Many experts say that exactly him – Isaac Singer – is the founder of nowadays franchising. From 1851 his enterprise made agreements with the firms-distributors for the transmission of the franchise – the earlier variant of nowadays franchising agreement. [9]

 

Until the 1950th, most of the firms, that used the franchising system, used franchising as an effective method of distribution of goods and services These were the examples of the traditional franchising, or the first generation franchising.

 

Rapid growth of the franchising in the USA was stimulated by the law about the brand labels, made in 1946. Businessmen were getting the additional profit from giving others the right to use their brand labels under the different regulations and under the regulations of law gave the owners opportunities to develop their businesses without taking very high costs. [4]

 

American government uses government as one of the likable forms of international activity and supports wilings of franchisers to enter the territories of the other countries. American Ministry of Trade says that from all the methods of entering the foreign markets, franchise is the most popular, cheap and fast. International franchising is considered in the USA as a fast method of getting the foreigh currency with relatively low investitions abroad.

 

 

 

The main consequences of advantage of franchising from the other forms of international development are: lower costs on studies, promotion and development of infrastructure, maintenance and management. The opportunities of global activity increase, new countries for entering appear. The attractiveness of American franchises is mainly defined by the quality of the conseptions, and also the quality of management.

 

 

 

As all the successful franchisers, Singer was a strong businessmen with good business sense. His firm had a great success and sold its production easily. A very important distributional and marketing conception was made. This conception turned into the franchising that is known nowadays.

 

Franchising continued to grow as the industrial revolution in the U.S. was developing and mass production has led to the need to improve distribution systems.

 

Franchising in the automotive industry – is one of the oldest spheres of franchising in the economics. “General Motors” enterprise gave much influence on franchising. Not having enough capital to go to the retail. This firm started selling their vehicles through the system of dealers, that is still used in this industry. Among the first franchisees of “General Motors” there were owners of bicycle shops, which also sold cars. [5]

 

When Henry Ford started mass production of his famous “Model T”, he needed an effective system of distribution to transfer his cars to the consumers. As the “General Motors”, Ford didn’t have enough capital to open a big amount of retail points in a short period of time. So the firm developed a franchise network of dealers everywhere, where it was possible to. As this system was profitable, many producers started to use it, Nowadays, a big percentage of franchise sales refers to the automotive industry.

 

The advantages of the franchise conception were verified after the Second World War in the restaurant and hotel industries. The first serious breakthrough in franchising happened in 50th, when the franchisees of the big restaurants had a great success.

 

In 1955 a classical franchise occurred – “McDonalds”. A network of restaurants of fast-food, selling hamburgers, was established by Ray Croc. He was selling his machines to the cafes and restaurants. When he started to sell his production to “McDonalds”, he was surprised by the quantity of clients. He decided to look at the activity of the company. The thing that surprised him the most was the fact that people were waiting in big queues to order food. Croc started to patent rights for his activity. He used all his capabilities to develop new production and advertising for creating a giant franchise enterprise. By the principal of franchising he could use all the energy and potential of thousands of businessmen to develop his enterprise. [8] [2] [5]

 

At the same time, Harlan Sanders established “Kentucky Fried Chicken”, and in 1959 “International House of Pancakes” started selling breakfasts through the franchising network on the territory of whole country.

 

Rapid growth of franchising in the USA started in the 60th . Great amount of mini-hotels, small shops, restaurants, cafes, beauty shops and nightclubs occurred.

 

In 1970, the volume of sales of enterprises working under the franchising model was equal to more that $100 bil., which exceeded 25% of total amount of retail sales in the USA. In 1975, the volume of franchising sales doubled, and in 1990, the volume made it to the number of $716 bil., which doubles the number of 1980. 80th in the USA are characterized as a period of big reductions of staff in the USAs enterprises. The managers of the medium level are the best candidates to transform into the franchisees – buyers of the franchise. They mainly have a relatively good education, have career ambitions, have the skills for hard work, but are not ready to start their on business from the clear start. Buying a franchise, the ex-manager, gets an opportunity to use great potential of free business with the everyday assistance of the franchiser, that is interested in the success of the franchisee.

 

 

 

 

Nowadays, franchising is the most rapidly growing method of business organization in the market structure. Statistic data of business development in the developed countries show that in the 5 year period, more than 85% of small firms, end their lives. In the same period, less that 12% of firms, using the scheme of franchising, were closed. So, from 10 newly made firms, only 1 ends its existence. International Association of Franchising (IFA) says that every 8 minutes of work time, a new franchisee occurs in the USA. Here are some facts in numbers that show the level of development of franchising in the US. [7]

 

There are more than 2000 franchising systems, in more that 75 types of activity. Quantity of franchise enterprises reaches the point of 767000. One franchiser has 380 franchisees in average. But the biggest part of franchisers have less that 100 franchisees. Near 80% jf franchising systems demand investitions from $50 to $250 thousand. But that doesn’t mean that systems with a low level of investitions don’t develop. Near 20% of systems have the invitational rate below $50 thousand. Royalties, that form the basis of franchisers revenue, are 3% to 6% in average. [10]

 

Franchising is regulated by the two norms in USA: Federal regulation and Government regulation on the level of States. There are differences between the federal instructions and the instructions of states, moreover, the requirements of states are tougher, than the federal ones.

 

USA – is the biggest in world franchising country, that has the most developed special franchise legislation, big court practice. The big experience of the country helped it to allocate pros and cons of franchising.  [4]

 

USA is an undisputable leader and birth giver of franchising system. In the end of 2009, USA had 883292 franchisees, which has given $9,5bil. Of working places, and made $844,7 mil. of production for the national economy. [4] [3]

 

Giant volumes of franchise business in USA, have involved big business layers into USA, where like in no other country the polarization of the positions of franchisers and franchisees are seen. There, the franchisers are strong on the markets, and the franchisees are strongly supported by the society. So, the Congress of the USA usually comes back to discussions about the problems of franchising.

 

In my opinion, the success of American franchising is mainly based on the government protection, very developed brand advertising, stable business-strategy, strong marketing, and the business standards as a whole.

 

 

 

 

 

 

 

 

 

 

 

 

 

§2. Experience of Franchising in Russia.

 

In Russia, the interest in the development of business under the conceptions of franchising is becoming higher and higher. Quantity of organisations, that are developing under the franchise agreement increased from 50 in 2001 to nearly 750 in 2008, which characterizes the demand for this business format in Russia. Only in 2008, the quantity of franchises, compairing with 2007, increased by more, then 40%. [23]

 

Franchising developed in Russia from the start of 90th, when several domestic franchisers occurred(mainly in the fast-food sphere). Some people say, that the year of birth of franchising in Russia is 1993, when “Baskin Robins” sold its first franchise to Russia. [20]

 

The development of franchising in Russia was stable until 2004, when the rapid growth of franchising started, providing the rapid increase in the quantity of franchises. There are 3 main sphere of franchising in Russia: retail (46% share), fast-food (22% share) and services (32% share). [10]

 

 

 

 

 

 

 

 

 

 

 

 

 

The most known franchise brand in Russia are:

 

  • Subway

 

  • KFC

 

  • Росинтер(“Il Патио” and “Планета Суши”)

 

  • Мастерфайбр

 

  • SELA

 

  • Savage

 

  • Big oil enterprises.

 

Many Russian franchisers have their own and franchising products abroad.

 

Russian Association of Franchising (РАФ) was established in 1997. The CEO is Aleksander Mayer. This association is a member of the World Franchise Council – the worldwide franchising council. RAF is helping the members of association to develop their businesses, and lobby their interests in government and other organizations, popularize franchising. It organizes and takes part in different thematic conferensions , publishes books on franchising, has an online catalogue of franchises. More that 40 enterprises are the members of this association. [23]

 

 

 

 

The only legal document, which regulates franchising in Russia, is 54 chapter of Civil Code of Russian Federation. In March 2009, RAF has given its recommendations for changing the 54 chapter of CC, which are made to correct the main problems: terminology, questions of registration of agreements, informational questions, etc.

 

There is only one specialized jounal on franchising in Russia – “Купи брэнд. Франчайзинг в России.”. But many Russian commercial journals publicize articles on franchising (“Коммерсант”, “Секрет Фирмы”,”Управление Компанией”.). In the last years several books on franchising were publicized in Russia. [23]

 

The biggest exhibition on franchising is BuyBrand, which is held for 8 years in Moscow.

 

Experts say, that regional franchising is developed the most in Permskiy kray, Krasnodarskiy kray, and Tatarstan republic.

 

The sphere of consulting on franchising is developed in Russia. The strongest members of this market are: “Магазин готового бизнеса - Deloshop” and “Fransh стратегия роста”. [19]

 

The worldwide tendentions of franchising development are applicable in Russia. It is related to the basic pros of franchising, and the need of association of resources in the globalizing world. It is worth to say that before some moment, the law regulation of the intellectual property, including some kind of regulations for relations like franchising as a whole, didn’t give any chance for Russian franchising to develop.

 

There is some specifical moments in any country. It is related to the social and economical, cultural and psychological, legal, and other factors.

 

 

 

 

Conclusion

 

 

Concluding the results of the study of the information, which showed the practical importance and its efficiency, the outputs can be stated in this way:

 

The study of franchising in total and in Russia concretely was done in this course work. On the basis of the stated information, we can say that the role of franchising in economy of any country is extremely high, because franchising is the most efficient way of distribution, in which the goods and services are distributed on the terriroties inside countries as well as worldwide.

 

From the results of the course work we can see that franchising exists for a long period of time, on is continuing to develop. Nowadays there is the classification of the types of franchise, and the structure of franchising business model.

 

It can be stated that business function efficiently under the franchising system. Exactly this business model gives an opportunity to use the proved to be successful technologies, already successful label. All these opportunities can be given by the enterprises that already have the experience of managing the business, has capital, not only the material, but also the informational one, that is very important if you know how to use it properly.

 

 

 

 

The law and government regulations in Russia were studied also. From the study, made on it, it can be stated that the law regulations on franchising  should be widely developed in our country to get to the level of USA and Europe.

 

Good control and unification of all the franchises to the standards of franchiser will influence the correct was of development of franchising in Russia.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

List of Literature.

 

  1. Гражданский кодекс Российской Федерации.
  2. I.Alon. Service Franchising: A global Perspective
  3. S. Spinelli. Franchising: Pathway to Wealth Creation
  4. F.Hoy, J.Stanworth. Franchising: An International Perspective
  5. M.H.Seid Franchising for Dummies
  6. I.Alon International Franchising in Industrialized Markets: Western and Northern Europe
  7. S.Price The Franchise Paradox: New Directions, Different Strategies
  8. J.F.Love McDonald’s: Behind the Arches
  9. Артеменков И. Стоит начать с франчайзинга
  10. Бондаренко Ю.А. Франчайзинг и перспективы его развития в
  11. Брагинский М.И., Витрянский В.В. Договорное право. Книга Третья
  12. Довгань В.В. Франчайзинг: путь к расширению бизнеса
  13. Ленц Е. Ретейл-франшизы
  14. Масленников В.В. Предпринимательские сети в бизнесе
  15. Мендельсон М. Руководство по франчайзингу
  16. Никифорова И. За чистоту жанра фирмы
  17. Новосельцев О. Оценка коммерческой концессии
  18. Панина М. Фаза активного развития франчайзинга на российском рынке
  19. Практикум по франчайзингу для российских предпринимателей.Под
  20. ред. Силинга С.А.
  21. Рогов В. Франчайзинг - эффективная форма сотрудничества
  22. Суханов Е. Коммерческая концессия
  23. Тотьев К. Коммерческая концессия
  24. Франчайзинг - собственный бизнес под маркой лучшей фирмы
  25. P. Kotler Basics of Marketing
  26. Ф. Котлер Основы Маркетинга
  27. С.А. Сосна, Е.Н. Васильева: Франчайзинг. Коммерческая Концессия.

Franchising: Essence and Experience in Russia 📙 Реферат → 🆔 5054

Franchising: Essence and Experience in Russia 📙 Реферат → 🆔 5054

Franchising: Essence and Experience in Russia