Classification by Scale or Franchise Method of Franchisor to Franchisee


This franchise. In Vietnam, a typical business that successfully uses this method is Pho 24.

1.2.3.2. Classification by scale or method of franchising from the brand owner to the franchisee

Single-unit franchise: is a form in which the brand owner “sells” the franchise to a suitable partner to open a single store in a certain geographical area. The advantage of this form is that the brand owner can work directly and closely with the franchisees, however, when the number of franchisees is too large, it will be difficult for the franchisor to control the entire system. Some franchise systems in this form are: Hilton Hotel, Pho 24, Trung Nguyen...

Exclusive franchising (Master franchise/ Sub franchising): is a form in which the brand owner will choose an individual or local business in the country or region that he wants to penetrate as the exclusive franchise "buyer". To obtain an exclusive franchise, the franchise "buyer" must pay a transfer fee higher than other forms of franchising. This franchise "buyer" is both the franchisee from the brand owner and the franchisor for other franchisees (secondary franchisees) within the agreed geographical area . Thus, the brand owner has almost transferred all of his burden in developing the franchise system as well as the product brand in that geographical area to the exclusive franchisee. The franchise fee collected from secondary franchisees will be divided between the brand owner and the exclusive franchisee according to the pre-agreed ratio. The exclusive franchisee must commit to a certain number of stores opened within a certain period of time or else the monopoly will be lost. For example: Indian company Aptech grants exclusive franchise to FPT Corporation in the Vietnamese market.

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Area development franchise: in this form, the franchisee is allowed to open many stores in a relatively large area. They often have to commit to opening a certain number of stores within a certain period of time or they will lose the right. The regional franchisee is not allowed to " sell " the franchise to subsequent buyers. The fee for this form of franchise is also relatively high. In some cases, after a period of good business, the "buyer" of the regional franchise can apply to convert it to an exclusive franchise contract if they want to "sell" the franchise to a third party. For example: 7-Eleven Group conducts franchising in Japan.

Joint venture franchising: This is essentially a form of cooperation between the brand owner and the franchisee. One party contributes capital, local market knowledge and the other party contributes the brand (possibly with capital) to establish a joint venture company. This company becomes the company that represents the brand owner with full business rights in a certain geographical area. This is a form that the brand owner does not favor because it will have to accept financial risks if the joint venture fails. For example: Mc Donald's franchises in the UK through the joint venture company Mc Donald's Golden Arches Restaurant.

1.3. CONDITIONS REQUIRED FOR BUILDING AND DEVELOPING A FRANCHISE

Franchising is growing stronger and stronger, but not all businesses are successful when using this method. Before a company begins the process of building an expensive franchise program, it is necessary to carefully check the feasibility of the franchise strategy. Through studying the franchise model of some world-famous brands and reading books and newspapers, the author has drawn out 5 necessary factors to conduct franchising.


success: building brand identity, standardizing consistent processes, managing people, marketing efforts, and long-term strategy.

1.3.1. Building brand identity


A business can only conduct a successful franchise when it has a brand identity. Brand identity is the core value and characteristics of the brand, the mark that exists in the customer's mind most deeply, showing the outstanding difference compared to the brands of competitors. Brand building will revolve around the "soul" of those core values ​​to create a consistent image and commitments to customers. It can be said that the greatest value of a franchise contract lies in conveying this identity to the franchisee as a superior competitive advantage to help them build their business as quickly as possible.

Understanding this, most businesses are constantly trying to strengthen, build and develop their brands, especially businesses that want to franchise. Because brand identity is the first factor that attracts franchisees to them. It can be said that the popularity of the franchise brand is directly proportional to the success of the franchisee. That is why big brands in the world such as Mc Donald's, 7-Eleven, KFC, Pizza Hut... although famous worldwide, still focus on building and promoting their brands to consumers and franchisees. A strong brand does not mean that the brand is known by many people, but whether customers prioritize choosing that product or service or not.

However, along with building brand identity, when franchising, companies must also pay special attention to maintaining the integrity of the brand image in all stores in the franchise system.


franchise. Because just a small difference, a lack of uniformity, or failure to follow the standards of the corporate brand will affect the brand image of the entire system. The larger the franchise system, the easier it is for the franchisor to lose control if the brand identity is not consolidated and protected. The work of consolidating and protecting the brand identity is no longer just the work of the franchisor, but it requires a very high level of awareness from the franchisee. The franchisee himself must also be aware that brand identity is a "vital" factor - a prerequisite for success as well as a core factor for failure - for the existence and development of the entire franchise system.

1.3.2. Standardize the synchronization process


Franchising is not simply the franchisor allowing the franchisee to use the same brand, but it also involves the transfer of a business method from production methods, restaurant decoration to service style... all must follow a model set by the company. A consistent brand image is one of the keys to success when building a franchise business model. Customers must see the quality and standards of all stores with the same brand name as the same or at least equivalent. Just one store in the franchise system with poor service quality will affect the overall image and reputation of the entire system.

Many large franchise systems in the world still have problems in maintaining uniform standards in all stores in the same system. For example, for Hilton and Sheraton Hotel Corporation, customers often complain about the difference in quality between hotels owned by the parent company and hotels purchased by the franchise. This leads to customer skepticism when deciding to choose Sheraton Hotel. Meanwhile, for Marriott Corporation, customers can hardly distinguish between Marriott hotels owned by the company and Marriott hotels purchased by the franchise.


Franchising relies on a very tight control system. The synchronization of the entire system requires the franchisor to focus on inspection and supervision to promptly detect discrepancies and take immediate corrective measures. At the same time, the franchisee's strict compliance with the synchronization procedures is also an important factor contributing to the success of the entire franchise system.

Table 1.2: Basic factors that create synchronization


Basic elements that make up the consistency of the franchise system


* Front facade of the front door


* Interior decoration of the store


* Products and services


* Promotional section


* Staff uniform


* Publications

(Source: Franchise - the secret to success with the franchise business model)


1.3.3. Choosing the right partner


Franchising is a business method that requires close cooperation between the franchisor and the franchisee throughout the operation process. Therefore, the franchisee will have to find a partner to contact to apply for a franchise that is suitable for the characteristics of the business, as well as the field and type of business that he wants to do, and the franchisor must also carefully research the franchisee before proceeding with the franchise. Just one wrong choice of franchising partner will cause losses, affecting the reputation of the entire franchising system. During the operation process, there is always a need for smooth coordination between the franchisee and the franchisee.


franchising. Therefore, it requires both parties to have trust and respect for each other. The franchisor must provide timely support and assistance to the franchisee, and the franchisee must be aware of strictly complying with the franchisor's regulations.

In the world, large companies pay great attention to researching and selecting suitable franchise partners because just one unsuitable partner will affect the entire franchising system of the company. 7-Eleven is a typical example in selecting franchise partners. To become a 7-Eleven franchisee, one must have experience in business in general and experience in the retail sector in particular, and these people must have customer service skills.

1.3.4. Marketing efforts


Most franchises have their own marketing and advertising budgets. Many franchise models require quite specific marketing rules and a combination of franchisors and franchisees. Depending on the type of business you choose, you can choose the most suitable marketing and advertising methods. Starbucks has succeeded by making every employee in any position a great marketing expert so that they can advise and directly market the Starbucks brand at all times.

In addition, cultural factors are also very important. Chains such as McDonald's have built national marketing plans in addition to regional plans for their operating systems. Franchisors must understand that the customer experience in each locality and region is a unique advantage for the franchisee in that locality, and the franchisee should take advantage of that advantage to strengthen its brand. But the most difficult part of a franchise relationship is how to combine the brand's identity with the local marketing plan. That is why businesses are required to franchise.


In addition to general advertising campaigns for the entire system, there must be separate marketing efforts for each franchise area.

1.3.5. Long-term strategy


Franchising typically shortens the time it takes to get the initial facilities up and running, but that doesn’t mean you don’t have to develop a long-term strategy. It can take a franchisee about 2 to 3 years to see a profit, and without adequate planning, the franchisee will be swallowed up before it has a chance to succeed.

In fact, some franchisors only focus on replicating the business model and do not really focus on developing the brand and a long-term development strategy. Some franchisees only see immediate benefits and do not care much about developing the brand with the franchisor. Sustainable development always requires businesses to have a long-term development strategy. Especially in franchising activities, that strategy requires coordination from both parties for long-term goals.

1.4. EXPERIENCE IN BUILDING AND DEVELOPING FRANCHISING IN THE CONTEXT OF GLOBALIZATION IN SOME COUNTRIES IN THE WORLD AND IN THE REGION

1.4.1. United States


The franchising model is considered to have originated in the United States in the mid-19th century, when for the first time in the world, the sewing machine manufacturer Singer signed a franchise contract with a partner. As the first country with the most complete franchise system, the United States is now also the country with the strongest franchise, not only in terms of the number of franchise systems but also in terms of the number of domestic and foreign franchise stores. In 1994, 35% of total retail sales in


America is from franchise stores. By 2000, this rate increased to 40% with revenue up to 1,530 billion USD, creating jobs for more than 8 million people. On average, every 12 minutes, a franchise store is born [43].

Table 1.1: Total number of franchise stores in the US over the years



(Source: FRANdata findings- facts about franchising in US)


In the US, franchising is considered a "money-making economy" because it is a way to simplify common business concerns such as bankruptcy, hiring workers, developing brands, etc. According to statistics from the US Chamber of Commerce in 2006, the success rate of a franchised business or store is always over 90% after 10 years of business, while this rate in independent businesses and business units is only about 15% [22, p.112].

Table 1.2: Success rates for independent businesses and franchise businesses in the US

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