The roots of the economic phenomenon “franchise” come from distant European history, where trading system privileges spread virtually to all leading countries of the old world – England, France, Germany. For example, something like a franchise system was used by many European brewers, giving the tanks of the inns loan in exchange for the right to sell their beer there.
Nowadays franchising is one of the most popular ways to enter the field of fast food (classic example – McDonalds), retail, and many other services. A similar form of business organization allows relatively small companies to quickly launch activities relying on the famous trademark and ready formula for conducting business, not to build a new business and create a brand from scratch in terms of high competition.
Conducted in 2006 by “Franchise Business Review” a large-scale study shows that the majority of franchisees are satisfied with their decision to invest their money in the tested business system: 86% of respondents have “positively assessed the possibilities of franchising.”
Nowadays franchising has taken a strong position worldwide in various business areas (for example in the US there are over 75 types of activities). One of the areas where franchising received the highest prevalence worldwide is in real estate.
This is explained by a number of specific characteristics of this type of market:
- Territorial distribution
- Capacity Market
- Stability of demand
- Large volume of financial flows
The main features of modern large and successful global franchise networks are:
- Meticulous selection of participants and strict monitoring of compliance with internal standards of customer service,
- Preservation of the legal independence of each participant in the system, which allows to keep the effect of the free partnership,
- Use of the possibility of “territorial division of labor” and the removal of internal competition,
- Rapid expansion of the total number of clients attracted by the prestigious brand and quality service
- Dynamic growth of income of all participants in the system
Official statistics from all markets worldwide convincingly confirmed the advantages and sustainability of franchising as a modern form of business organization.
According to the “International Franchise Organization” (IFA), soon franchising will become the predominant method of conducting business in retail and now occupies a strong position in services.
Revenues of franchise businesses in the US and Western Europe are estimated at tens of billions of dollars a year. If you collect these indicators and turn in gross domestic product, it is estimated that it would create the 7th largest economy in the world.
The US franchise companies (more than 1,500 large networks) form around 13% of gross national product. The volume of the European franchising market (of which about 40% belongs to France) is estimated at 35 billion dollars. The German Franchise Association predicts annual franchise growth rates of 10-15% per annum. In the development of any business priority is given to stability and security, so characteristic of franchise businesses.
According to the US Small Business Administration if you take 100 small companies you’ll see that after the first three years only 15 are left, and the others are bankrupt. However, for companies operating on the basis of franchising, the statistics are quite different: from 100 small businesses starting, 86 continue to work after three years. In Germany, the indicators are even better – for the last five years the bankruptcy rate for franchise businesses is only 8%.
