wipo_smes_lhe_2_07_

1. INTRODUCTION TO FRANCHISING AND ITS
IMPORTANCE TO ENTREPRENEURS &
SMALL & MEDIUM ENTERPRISES
by
Tan Tee Jim, S.C.
Senior Partner,
Head, IP & IT,
Lee & Lee
Lahore, December
2007

2. 2
How to be a successful entrepreneur –
a tip

3. WHAT IS FRANCHISING?
 An arrangement whereby a party (franchisor), who
has developed a way of running a business
format/system successfully, licenses the rights to
operate that format/system using his trademark,
name or other IP rights to another party (franchisee)
 The licence involves the franchisor granting a right
to use the format/system, trademark, name or other
IP rights in exchange for an initial fee and annual
royalty.
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4. WHAT IS FRANCHISING?
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“Franchising allows people to
go into business for
themselves, not by
themselves”

5. WHY FRANCHISE?
 A recognised brand name.
 Enhanced business image.
 Consistent quality.
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6. WHY FRANCHISE?
 Franchises offer important pre-opening
support:
 site selection
 design and construction
 financing (in some cases)
 training
 grand-opening program
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7. WHY FRANCHISE?
 Franchises offer ongoing support
 training
 national and regional advertising
 operating procedures and operational
assistance
 supervision and management support
 increased spending power, access to bulk
purchasing and economies of scale
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8. DISADVANTAGES
 The franchisee is not completely independent.
 In addition to the initial franchise fee, franchisees
must pay ongoing royalties and advertising fees.
 Franchisees must be careful to balance
restrictions and support provided by the franchisor
with their own ability to manage their business
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9.  A damaged, system-wide image can result if
other franchisees are performing poorly or the
franchisor runs into an unforeseen problem.
 The term (duration) of a franchise agreement
is usually limited and the franchisee may have
little or no say about the terms of a
termination
DISADVANTAGES
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10.  Successful franchising essentially involves
trust and understanding between the
franchisor and franchisee
 Franchisor’s financial position and track
record
 How thoroughly has the business been
market tested
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ASSESSING
FRANCHISING OPPORTUNITY

11.  How well the format/system works in practice
(Are existing franchisees pleased with their
business? Any bad news?)
 Does the business have staying power? Or is
it based on something which is temporarily
fashionable?
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ASSESSING
FRANCHISING OPPORTUNITY

12.  Assess the reputation and reliability of the
franchisor
 Find out the demand for the goods/services offered
in the franchise
 Do sales projection
 Find out from other franchisees the support
services provided
 Work out the amount of capital that is needed
upfront
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HOW TO ASSESS A PROSPECTIVE
FRANCHISE?

13.  Work out the amount of cash that is needed
under the worst case scenario
 Go through the contract thoroughly with a lawyer
concerning , in particular,
 rights of the franchisee
 obligations of the franchisor
 terms of termination
 restriction on business entered after termination
 resolution of disputes
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HOW TO ASSESS A PROSPECTIVE
FRANCHISE?

14.  Tenure/Period of contract
 Initial fee
 Royalty/management fee
 Renovation cost
 Territory
 Supply of goods and services
 Compliance with contract
 Terms of termination
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WHAT IS INVOLVED IN
FRANCHISING?

15. 15
STEPS INVOLVED IN FRANCHISING?

16.  Conduct feasibility study
 Set up systems/procedures and support
functions
 Study the operations manual
 Register trademarks and other IP rights
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WHAT SHOULD A COMPANY DO TO GET
READY TO BE A FRANCHISEE?

17. TYPES OF FRANCHISE
 Generally there are 2 main types of
franchises:
 Product distribution franchises; and
 Business format franchises.
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18.  A product distribution franchise model is
very much like a supplier-dealer
relationship.
 Typically, the franchisee merely sells the
franchisor’s products. However, these type
of franchises will also include some form of
integration of the business activities.
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PRODUCT DISTRIBUTION
FRANCHISES

19. PRODUCT DISTRIBUTION
FRANCHISES
 Examples of famous product distribution
franchises include:
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20. Produces the syrup
concentrate
Sells the syrup
concentrate
FRANCHISEE Produces the final
drink
Retail Stores
Restaurants &
F&B Outlets
Vending
Machine
Operators
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PRODUCT DISTRIBUTION
FRANCHISES

21. BUSINESS FORMAT
FRANCHISING
 In business format franchises, on the other
hand, the integration of the businesses is
more complete.
 The franchisee not only distributes the
franchisor’s products and services under
the franchisor’s trademark, but also
implements the franchisor’s complete
method to conduct the business itself.
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22. BUSINESS FORMAT
FRANCHISING
 Examples of famous business format
franchises include:
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23. BUSINESS FORMAT
FRANCHISING -
outlet in
Sale, Australia
outlet in
Marseille, France
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24. FRANCHISING IN SINGAPORE
 About 350 active franchises, such as
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25. 25
FRANCHISING IN SINGAPORE
Feasibility of Franchising
Franchising is a more feasible option of business
expansion than starting own outlets

26. 26
FRANCHISING IN SINGAPORE
Success of the Franchise

27. 27
FRANCHISING IN SINGAPORE
Success of Franchising
Franchisors’ Improvement in Average Monthly Sales since Franchising

28. 28
FRANCHISING IN SINGAPORE
Success of Franchising
Franchisors’ Improvement in Average Monthly Net Profit since Franchising

29. 29
FRANCHISING IN SINGAPORE
Success of Franchising
Franchisors’ Improvement in Average Monthly Sales since Franchising

30. 30
FRANCHISING IN SINGAPORE
Reason for Franchising
2/3 of franchisees felt that economies of scale in bulk
purchasing encouraged them to consider franchising

31.  Generally young and well educated
 62% below 40 years old
 57% had post-secondary education
 32% own their own outlets
 46% occupy the outlets as tenants
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FRANCHISEES IN SINGAPORE

32. 32
FRANCHISING IN SINGAPORE
Franchising helps existing businesses do better.
Franchisees’Response to the Statement:
“Joining a Franchise has Helped Me to Do Better than
Before.”

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FRANCHISING IN SINGAPORE
Business Performance
Percentage Increase in Average Monthly Sales for
Franchisees who were Previously Running a Business in
the Same Trade

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FRANCHISING IN SINGAPORE
Business Performance
Percentage Increase in Average Monthly Net Profit for
Franchisees Previously Running a Business in the Same
Trade

35. THANK YOU
Tan Tee Jim, S.C.
tanteejim@leenlee.com.sg
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