FFE Magazine

FRANCHISING SERIES: Basics of Franchising in the Philippines

Image from Canadian Franchise Opportunities

The franchise industry has been booming in the Philippines, and there are no signs of it slowing down.

 

Many have already jumped on the franchising bandwagon, and have turned out to be successful entrepreneurs. Even overseas Filipinos consider it a good business venture for themselves, or one that they can finance to help relatives back home start their own and be economically independent.

 

Surely, franchising in the Philippines can be a profitable source of income. However just like other businesses, it is no walk in the park. Assess if franchising is the right business for you with these important guidelines.

 

 Franchising

 

When a business becomes successful and the owner or entrepreneur wishes to expand, franchising can be a great way to do so. As a way of conducting business, franchising is an excellent way to get distribution for minimal cost and risk.

 

Most people associate franchises with fast food chains and other food concessionaires, but franchising opportunities are also available for gyms, drugstores, hotels, and other businesses with the potential to possess more than one branch for serving the public.

 

Definition of terms 

 Franchising – the authorized practice of an individual or entity to use a major firm’s trademarks and business methods in exchange for a payment and/or a percentage of their total profits.

 

 Franchise – the entity, service or product, that is being leased or bought

 

 Franchisor – the person or firm that owns the overall rights and trademarks of an existing brand and business model.

 

 Franchisee – the person or company granted by the franchisor to retail or provide services, using their brand or service marks, within the terms set in the franchise agreement. Technically, the franchisees do not really own the business of the franchise. Rather they are renting or leasing the opportunity to conduct the business of the branch that they have set up, and the success or failure of that branch will depend on them.

 

Franchise agreement – a contract stating the parameters of the franchise operations and finance.

 

 

 

Franchise Agreement

 

The Franchise Agreement is one of the most important legal document franchisees should know about, since it is what binds you and your franchisor together. Franchise contracts often include the following details:

 

> Terms of Agreement – The franchise agreement contains a detailed explanation of the type of relationship you are entering into with your franchisor. It will also specify how long the agreement will last.

 

> Renewal – Renewal periods grant the franchisor to decide whether to renew your agreement or not. The renewal does not guarantee the retention of the original terms and conditions of the agreement. Some franchisor’s demand a renewal fee too.

 

> Termination – The franchise agreement stipulates the grounds for termination of the contract.

 

> Fees – The franchise agreement explains the costs, and the date they should be paid.

 

> Territory – The territory determines the geographical boundaries wherein you may operate.

 

> Purchase of Products – To create consistency in the products and services, you may only buy from the list of suppliers accredited by your franchisor.

 

Where and How to Start

 

To know about franchising opportunities you should call, fax, email, or make a personal visit to the franchise company. To avail of franchises, you have to undergo the application process. Typically, this would entail filling up an application form and providing the franchisors a photo or sketch of your proposed franchise location. However, some franchise companies may require more information and documents from you.

 

Most franchise companies have downloadable application forms on their websites.

 

 Franchising climate in the Philippines

 

The Philippines has a very franchise-friendly environment for a prospective entrepreneur.

 

A study revealed that from 2005 to 2007, the franchising sector contributed 5% of the Philippines’ total Gross Domestic Product. Additionally, from 2010 to 2011, the Philippines franchising industry enjoyed 17% growth, and as of 2011, franchising made up around 30% of all the retail sales in the Philippines.

 

Most Filipino business people prefer to franchise because franchising generally has the benefit of an established reputation and public goodwill. Getting a franchise also ensures that one is adopting a business system that, more often than not, has already been proven to work.

 

In the Philippines, there are main brokers and existing businesses that are open to franchising, and a quick online search reveals that franchise expos, seminars, and events are open to the public throughout the year. Nowadays, Overseas Filipino Workers make up a large chunk of franchisees, and many have found this business method to be an ideal way to invest the money they have earned overseas.

 

One great example of a highly successful franchise in the Philippines is Mang Inasal, a rapidly expanding fast food chain specialising in Filipino favourites like chicken inasal (a kind of barbequed chicken), sisig (a local delicacy made of diced pork ears and cheeks), and boneless bangus (milkfish). New branches have been mushrooming throughout major Philippine metropolises like Metro Manila, Metro Cebu, and Davao, and it continues to grow and invite interested, qualified individuals to apply.

 

 Franchising cons

 

- Lack of control. A savvy, creative businessperson may chafe under the restrictions that franchisors generally place on their franchisees. There are many different ways to run a business, but a franchisor, as a matter of Standard Operating Procedure, may insist on a particular way of doing things.

 

- If the franchisor’s business fails, the franchisee will suffer too. Even if a franchisee stays relatively separate from the franchisor, it cannot be denied that the existence of a franchise depends entirely on the existence of the franchisor.

 

- Franchise scams. Since many people want to invest in franchises, scammers see this as an excellent opportunity to get money. Usually scammers set up illegitimate franchising companies, demand early payments, and run away with them.

 

HOW TO KNOW IF THE FRANCHISE IS A SCAM:

 

Ask the franchise agent for vital information, such as who the franchise owner actually is. If the agent refuses to reveal any information, then it is a scam.

 

Check if the initial capital needed to set up the franchise is significantly smaller compared to other franchising companies. Scammers usually lure investors who are quick to pay the small amounts, so they can easily run away from them.

 

See if the franchisor is affiliated with the Philippine Franchise Association, the Association of Filipino Franchiser Inc., or the Filipino International Franchise Association. These franchise associations generally only admit franchises that legally exist.

 

Franchising pros

 

- It is much less risky than putting up a new business entirely from scratch. Not only does a franchise generally require a smaller investment, but the fact that it is usually the product of tried and tested business methods means that the business is less likely to fail due to the owner’s lack of knowledge or expertise.

 

- Consumers generally go back to the brands that they trust. A franchisee of an established brand will enjoy the benefit of having a consumer base, even from the start.

 

- It is a good business method for many first-time business owners. A franchised business generally already possesses an established system for branding and management, which allows a new entrepreneur to concentrate on learning the ropes of running a successful business.

 

- It requires less legal paperwork. The franchisor has the responsibility of creating and controlling the business concept, getting protection for the business trademark, gathering the practical information needed to run the business. As a franchisee, you do not have to worry about anything but the successful running of the branch itself.

 

So, if you have the resources and the desire to start your own business, why not begin to look around for franchising opportunities.

 



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