A method of marketing and distributing based on a two parties relationship - thefranchisor (the owner and granter of right) and the franchisee (the recipient ofright).The right granted is for the purpose of running the business by using the trademark or trade name based on a specific system, at specified location or area andwithin a specified period of time.Malaysia Franchise Act 1998 - aims at creating a systematic registration system tooversee a well-managed and healthy growth of franchise business in the country
Buying a name/reputation Established markets Technical/management assistance Standardized procedures Quality standards Selection of location Facility design Quicker cash flow
Loss of independence High initial fees High royalties and advertising allowances Contractual restrictions Inapplicable advertising Termination clauses Not receiving promised help Unsuitable products Lack of competitive advantage
Three types of popular franchise system. They are Trade Mark/ Trade name Franchise Product Distribution Franchise Business Format Franchise
Closely resembles licensing whereby the franchisor gives the franchisee the rightto manufacture products by using the brand name, trade name, trademark, logo, caricature and others owned by the franchisor for each area.The approach of this type of franchise does not require a completesystem, however the franchisee needs to be supervised in order to ensure thequality and good name of the brand is preserved.
The franchisor gives the franchisee the right to sell and distribute productsproduced by the franchisor.Franchisor provides guides and training to the franchisees on how to manage theproduct distribution.Development of its operating system is not so comprehensive.Popular among automotive industries such as Edaran Otomobil Nasioanl Berhad(EON) and some chains of petrol stations such as Petronas, Shell, Mobil, etc.
Most comprehensive and popular type of franchise system.Franchisees are given the right to use the brand name, distribute the franchisor’smanufactured goods, and the right to duplicate the whole business system aspracticed by the franchisor.In business format franchise, the franchisor is responsible to prepare thefranchisee beginning with the concept development and selecting the location, upto the operation manual, training, accounting system, advertising andpromotion, and continuous business development assistance.
The results of economic crisis of 2008 are distinguishable for the Ukrainian franchise market: - Entrepreneurs started analyzing the effectiveness of investing and as a result they became much more interested in buying franchises. - Many companies failed, because they were offering franchises with models that are not able to survive in economically unstable conditions (or management could not manage such models). - Some companies have even stopped their activities. However, the areas of franchising have expanded since 2008. Companies which are working in franchise market cover 15 areas such as retail trade, catering, gas stations, production. The experts of federation of franchising, hospitality and infrastructure of Ukraine say that there is a still big number of promising industries, there are still many areas that will run on a franchise in the future. Indeed, the level of competition is very low in these areas today, although they are profitable and just started developing in Ukraine. These areas are agriculture, delivery, real estate transactions, sale of goods that were in use, design and architecture, distribution, automobile, purchase, storage, communication, realization of electrical equipment, Internet access services, landscape design, production and sale of low alcohol and alcohol-free drinks, service, accounting and auditing, rent, health, security services, travel services, repair services, animals caring, sports, chemical industry, laboratory services, photo services and Legal services. So, 27 areas have their investors, but they do not have franchisees to promote these types of businesses. That is why the franchise is very promising direction for doing business in Ukraine and experts expect that the number of franchisees will increase in the future.
Franchising has many advantages that can reduce operating costs and increase efficiency of production activities, which is especially important for Ukraine nowadays. However, the Ukrainian franchise market has a number of problems to be solved. They are as follows: 1. Ukrainian entrepreneurs are unaware of the basic principles of franchising business. 2. The regulations do not meet the content of franchising and business. 3. Franchisees are unprotected (especially Ukrainian franchisees, which have franchise agreements with foreign franchisees). 4. Lack of information about franchising as a method of doing business. 5. Lack of business testing practice. Franchises at the Ukrainian market become more various every day because new industries and technologies appear. A price range also enlarges: franchisee can choose from cheap franchises of domestic services or rental to expensive franchises of fashionable restaurants and production. Most Ukrainian franchise systems are concentrated in the capital and only small percent of franchises are by birth from large regional centers. In addition, most of franchise units are situated in the biggest Ukrainian cities, such as Kharkov, Dnepropetrovsk, Donetsk, Odessa and Lviv. But, many cities are not yet acquainted with franchising. There is a tendency of glutting the cities and companies redirect in openings of franchise units also in smaller cities. A crisis amended plans of development of the most franchise systems, majority of franchisee are operating in regions, where there is rather difficult economic situation now. However, the periodic openings of other franchisers refute of this tendency. The most popular franchises in Ukraine nowadays are those, which need up to 10,000 USD – 15, 000 USD for opening, such as fast-food, vending, and tourism.
Area Number of Number of Number of Number of Number of branches brands franchisees outlets franchised outletsTrade 34 1021 179 29032 13303Consumers 22 313 75 5880 2263servicesCatering 14 252 50 2929 1760Information 7 47 8 385 128Business 7 84 21 2535 2116servicesProduction 6 37 12 558 389Vending 5 17 11 6200 1195Finances 4 14 3 638 93Total 99 1782 359 48157 21247
Franchising should be considered as a tool of world globalization. Since globalization is a process of global economic, political and cultural integration and unification, Ukraine, in this sense is interesting and promising market for foreign franchises output and development of global brands. Here are some factors responsible for this attraction. First, the number of Ukraines population, geographical location and the possibility of further expansion through Ukraine into the CIS countries. Secondly, the increasing market demand, especially fast food and service markets. A striking example of standardized services is a growing number of language schools, services for comprehensive child development, tourism and other services. The striking example of catering market is development of pizzerias and fast food. Third, the availability of financial resources for potential franchisees to open their business through the purchase of a franchise. The so-called "entry barrier", or the amount required for investment in the average franchise is from 50 000 U.S. dollars. Fourth, we are mentally close to the European Coulter, and we can develop almost anything that is already tested in Europe or in the United States.
In Ukraine, there are already many different foreign franchises, their number could be higher, but many foreign franchisors are eyeing to our terms of business vision, there is no secret that they are still very different from European standards, starting from the registration of its business to all kinds of checks government agencies. Currently, many local businessmen are negotiating the purchase of promoted and popular franchises in the world, since they already have positive experience in the local market and need to diversify its business. Buying a franchise of hyped foreign business, they save time and money to create a "bicycle". Local franchisors once spent a lot of time and money by creating and developing your brand, and when they began to develop a network, faced with the competition of foreign franchises.
Ukrainian franchisor, sooner or later have to think about foreign markets, as the globalization of the world will not pass by the CIS countries, and hence the local franchisors will compete with foreign, albeit in its territory, but with global budgets and approaches, in which the different markets is already their recipes.
For example in Ukraine is an annual International franchising forum FHI Ukraine (Franchising Hospitality Infrastructure in Ukraine) which aims to share experiences on the development of franchise systems, matchmaking, networking, as in the Ukrainian market of franchising, as well as with international organizations working in the field of franchising . Also in Ukraine, exhibitions and round tables, there are publications and websites about franchising, franchise directories available, work consulting and brokerage companies that are foreign franchises in Ukraine.
Franchising market in Ukraine continue to updating with new offers, and what is more obvious with new brands. At the beginning of next month in Kiev will be opened fast food restourant Kentucky Fried Chicken. Among famous brands that either are negotiating with partners in Ukraine, either are looking for partners are Papa Johns, Pop-A-Lock, Radio Shack, Subway, Bennigans, Hard Rock Café, Carls Jr., Dennys, Dairy Queen, 7 camicie , Rosa Clara, Pizza Hut and many more. Moreover, we would like to draw attention to the Telepizza (pizza) and Pressto (dry cleaning) brands. These are a very well-known networks in Spain. These brands are now estimated to enter the market of Ukraine, their representatives are planning to hold a series of meetings in Kiev at the end of October.