International experience and Russian practice of franchising
Слатвицкая Д. П., Порожняк Н. Ф. International experience and Russian practice of franchising // Молодой ученый. 2016. №18. С. 284-287. URL https://moluch.ru/archive/122/33543/ (дата обращения: 24.01.2018).
Nowadays any beginner entrepreneur has the ability to build own brand for product or service, register it, but implementation of this goal involves huge costs on the creation and promotion of the brand. In order to get that done you must take part in various exhibitions, extensive advertising campaign and you need the involvement of competent salespeople. Unfortunately many budding entrepreneurs can’t afford it, they also don’t have enough experience in doing their own business. In this case it is very convenient to resort to using of the right to use the reputable trademark in the framework of franchise. A large company — franchisor provides small or medium-sized enterprises the technology and the necessary equipment, promote staff training. In his turn the franchisee undertakes to observe the rules prescribed in the contract and to use the trademark of the company, regardless of its location, within their own country or abroad. Thus the franchise form of business is simple and quite effective.
Franchising — it is such a business organization in which a company (the franchisor) transfers to an independent person or company (franchisee) the right to sell the product and services of the company.
The basic subjects of franchising are two compulsoryparticipants. The first one is the franchisor, a large firm (corporation), which has well-known brand and high image in the consumer market. The firm provides to the other party (the franchisee) compensated right to act on pre-agreed terms and conditions and for a certain period in the market on behalf of the franchisor and under its trademark. There is only one franchisor in the system. The second participant is the franchisee, a small enterprise or an individual entrepreneur (a person or entity), purchasing (for a fee) from the franchisor the exclusive right to conduct commercial activities on his behalf under its trademark. Franchises are usually several in a franchise system.
The franchisor and franchisee are connected with each other a system of treaties, which are based on franchise. This control license issued by one person (the franchisor) to another person (the franchisee), which establishes between the franchisor and the franchisee a specific system of relationships. It allows the franchisee engage in a specific business, using a specific name belonging to the franchisor. The franchisor has the right to exercise control over the quality of the business in exchange for all the relevant financial compensation.
From the very beginning of its development the franchising as a form of business meant achieving the following objectives: the franchisor receives additional revenue due to expansion of production with limited risk, the franchisee, in its turn, becomes part of a proven business system and guarantees income earning.
In the world practice to periodically license payments is used the term «royalty» — periodic payments to the franchisor paid during the term of the franchise agreement (franchise) and established in a fixed amount or a percentage of the income of the franchisee [1, c. 105]. The term «lump sum payment» is used in the case of a single payment. It is the initial one-time payment to the franchisor, the redemption of the right to use its trademark. Thus the fee for the transferred technology and brand franchisor assumes royalties or lump-sum payment.
International franchising involves the creation of a franchise system abroad. The following franchising net are widely known: «McDonald's«, «Holiday innz», «Hilton», «Yves Rocher», «Baskin Robbins», «Sears Roebuck», «Montgomery Ward», «Vendiz», «Subway».
Franchising was originated in the second half of XIX century. Namely founder of a franchise company is McDonald's System in the USA. From 1898 to 1950 such companies as «Singer», «General Motors», «Baskin Robbins» began to include in the franchise system. There was a real boom in the development of the franchise system in the USA in the period from 1950 to the early 90s. By 1998 3 thousand companies-franchisors had united 416878 franchisees in about 45 sectors of the economy. According to estimates US experts in 1990 third of the US retail sales accounted for the franchise system [2, c. 8].
According to the International Franchise Association there are 16.5 thousand franchisors in the world and more than 1.2 million franchisee; the volume of sales nets is 1.5 trillion US dollars, employment — about 12 million people [3, c. 1].
International franchise finds its application in 75 areas of business; 20 % are sold in fast food, 15 % — in retail trade, 13 % — in the personal services sector. The remaining 42 % of franchises are multi-faceted and less popular.
In 2014 the largest number of franchisors were recorded in Asian countries (38 % of the total number of franchisors), in Europe — 35 %, North America — 11 % and Latin America — 9 %. In Europe the largest number of franchisors is typical for countries such as France, Germany, Great Britain, Spain and Italy.
Franchising is a relatively new form of doing business in central and south-eastern countries — Czech Republic, Hungary, Bulgaria, Romania and Croatia. The dominant position is taken by retail trade, auto services, real estate, education, fast food restaurants. According to the analysis of experts, leaders in the application of the franchise system are the Czech Republic and Hungary.
Franchise relations infrastructure began to take shape in the early 90s in the post-Soviet countries such as Russia, Ukraine, Belarus, Kazakhstan, Tajikistan and others. This was the major reason that the problems and ways of development of franchising are quite similar in these countries. For example, the first stage of formation of franchise relations is characterized by the expansion of foreign franchisors, mainly from the United States. With the growth of entrepreneurs' awareness of the principles of operation of the franchise system domestic franchise gradually began to appear. The main share of franchises are demanded in the countries of the former Soviet Union refers to sphere of public catering, retail and other service industries. It is worth mentioning that domestic franchisors presented usually in capitals: Moscow, Kiev, Minsk and Astana. This is due to the fact that these cities have the highest investment activity. Thus at an early stage of development all relatively new business technology are distributed in the capital, then gradually in major cities and then spread throughout the country.
Evolution of the Russian franchise market occurred with the international practice and therefore the first franchise was foreign in Russia. In 1993 there was the first point of a public catering Baskin-Robbins based on a franchise system in Russia. It has been more than 20 years but the Russian franchise market of restaurants and cafés is just beginning to gain momentum, and it is 15–20 % below the world. According to various estimates, from 750 to 1,000 franchise concepts represented in the country, about a third of them — foreign, thus a large proportion of franchises is created directly by domestic companies.
We turn to the structure of the Russian market of franchises. The undisputed leader in the number of proposed franchises is a trade — 47.6 % of all the offered franchise, with more than half falls on the franchise stores for men, women, youth, children, sports clothing and footwear. The field of trade is 15 % of all franchises on the global franchise market.
Russian franchise in retail trade is represented by the following companies: «Milavitsa», «Ascona», «Aykraft optics», «Yves Rocher», «Pyaterochka».
The second largest number of proposed franchises occupy franchise a public catering — 11 % of the franchise market, more than half of which is the restaurants, coffee shops, cafes, bars, canteens: «33 Penguin», «Subway», «Little potato», «Travel's coffee». A quarter of them offers fast food, cakes, pancakes, pizza.
4.2 % of the total market franchises relates to the field of cars (auto services, car washes, auto parts stores etc.). Medicine encompasses 2.6 % of the total number of franchises; 2.4 % — the franchise of advertising agencies. Education and entertainment cover 1.8 % of franchises. Consulting, accounting, financing and tourism take equal values for 1.4 % of all franchises. The companies operating in the tourism industry include companies such as «Well», «Rosstur», «Intourist», «Master of rest», «Blue Sky». You can include the following franchises to others: financial intermediation law, optics, communications and so on.
At the same time, the proportion of foreign franchises is about 34 % in the Russian market. Such brands as KFC, Subway, Baskin Robbins, Burger King, Cinnabon, Pizza Hut, Terranova, Call, Mango and others have the greatest popularity.
In 2015 in Russia such companies as «Hippo», «Ascona», «1C: Franchising», «of TELE2», «Well» became the most attractive for start-ups where the investments doesn’t exceed 500 thousand rubles as well as «33 penguin», «Invitro», «Little Potato», «Laboratory Hemotest», «Aykraft optics» with investing no more than 2 million rubles .
Thus franchising in Russia is a relatively new trend in the economy, nevertheless economy, in particular small and medium-sized businesses, will receive a powerful impetus for further development and prosperity of Russia with the development of this form of business. But the main problem for the further development of franchising in Russia is the imperfection of the legal framework; Russia doesn’t have a law on franchising. There were recorded special laws regulating the relationship of the franchise system members only in three countries — the United States, Romania and Moldova.
The general trend of the global franchise market is the fact that it shows positive factors of growth due to the growing middle class in developing countries in South America, Eastern Europe and Asia. Franchisors are interested in expanding their presence in new markets, offering European, American and Japanese products and services that are in a high demand all over the world. According to Franchise Direct, in 2014, in general the increase in the proportion of franchising has been fixed on the global market, which directly and indirectly contributes to the reduction of unemployment .
So the situation on the market is currently characterized by a rapid growth of the franchise in the domestic and foreign markets of goods and services. This caused by that franchising as an effective business conduct system is sufficiently interesting and promising in the world market because its use is associated with lower cost, lower-risk and relatively high degree of mobility in the conditions of crisis or economic downturn. In these latter days we can observe an increase of franchising offers on the international market, new industries and technologiesare emerging, the price range and the range of deductibles are expanding. Eventually, the accelerated development of international franchising will strengthen the position of small and medium-sized businesses and curb the rise in unemployment, even in times of crisis.
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