What Is Franchising?

Franchising (Franchising) means that the investor has licensed his trade name, trademark, service mark, trade secret, etc. to the operator under certain conditions, allowing him to engage in the same business operations as the authorized person in a certain area. ^[1]

Franchise

Franchising refers to the investment

The franchise originated in the United States. In 1851, in order to promote its sewing machine business, Singer Sewing Machine Company began to grant distribution rights for sewing machines. It set up franchise stores throughout the United States and wrote the first standard franchise contract. It is recognized in the industry as The origin of commercial franchise in the modern sense.

Commercial franchise

Commercial franchise can be divided into three types according to the form of its franchise, the contents and methods of authorization, and the strategic control methods of the headquarters.

1. The franchisee invests in the construction of a factory, or uses OEM's trademark or logo, patent, technology, design and production standards to process or manufacture the licensed product, and then passes the dealer or retailer. For sale, the licensee does not deal directly with the end user (consumer). Typical examples include: Coca-Cola's bottling plant and the production of Olympic-labeled products.

2. Products-Trademark franchisees use the franchisor's trademark and retail methods to wholesale and retail the franchisor's products. As the licensee, it still maintains the trade name of its original enterprise, and sells products produced by the franchisor and obtained trademark ownership singly or at the same time as selling other goods.

3. Business model The franchisee has the right to use the franchisor's trademarks, trade names, corporate logos, and advertising, and operates in accordance with the single-shop business model designed by the franchisor; the licensee is in the public's full image of the franchisor's business. Appear; the franchisor has unified management of the licensee's internal operation management, marketing and other aspects, and has strong control.

Utility franchise

The Administrative Measures for Municipal Public Utility Franchise issued in March 2004 stipulates that: Municipal public utility franchise refers to the government selecting a municipal public utility investor or operator through a market competition mechanism in accordance with relevant laws and regulations, and clarifying its A system of operating a municipal utility product or providing a certain service within a certain period and scope. "Because this franchise is a government-authorized franchise, it can be called an" administrative franchise. "

The scope of the municipal public sector's franchise includes: urban water supply, gas supply, heat supply, sewage treatment, garbage treatment, and public transportation, which directly affect social public interests and industries that involve the allocation of limited public resources.

The types of franchise can be summarized into the following points according to different division methods:

From May 16th to 18th, the Beijing stand of China Franchise Exhibition 2015 ended successfully. The total exhibition area of this franchise exhibition is 35,000 square meters. More than 500 participating brands cover more than 80 industries, covering all aspects of social life, gathering a large number of leading brands from various industries, and attracting a large number of professional visitors.

Among the many brands and the vast crowds of this franchised carnival, Aidibao stands out and introduces the fresh, unique, healthy, delicious and infinitely creative fresh fruit flowers and fresh fruit desserts that are popular in 14 countries and regions around the world to domestic attention to healthy food Of consumers and investors have unparalleled innovations.

Aidibao ranked 40th among the world's top 500 chain brands. In 2011, Forbes was selected as the 9th most profitable chain brand in the world. The reason why Aidibao can develop more than 1,200 stores around the world is that it has created a series of products that satisfy surprises, unique and fresh celebrations, and guide this experience into a fashion.

As the freshest franchise business in the world, Aidibao has a complete store management system SMSx system (developed by the world-renowned software company NARANGA American Qi Orange Software) and an advanced global synchronous training system nXstep.

The early franchise was a product trademark type franchise. At this stage, the franchisor provided the franchisee with only the right to use the goods and the trademark. In return, the franchisee paid the franchiser regularly.

Franchise has a history of more than 100 years, and its success has attracted worldwide attention. In recent years, franchising has also grown tremendously in China. The reason why this distribution method is prosperous is its business advantages.

1. Franchisees use franchise to implement large-scale, low-cost expansion

For franchisors, the following advantages can be obtained by means of franchising:

(1) The franchisor can maintain a small scale while implementing centralized control, which can earn reasonable profits without involving high capital risks, let alone take into account the daily chores of franchisees.

(2) Because franchise stores have a deeper understanding of their regions, it is often easier to discover business areas that the company has not yet covered.

(3) Since the franchisor does not need to participate in the employee management of the franchisee, it has relatively few employee issues that it must deal with.

(4) The franchisor does not own the assets of the franchisee, and the responsibility for ensuring the safety of the assets falls entirely on the owner of the asset, and the franchisor does not have to bear the relevant responsibilities.

(5) Franchisors engaged in manufacturing or wholesale industry can establish a distribution network with the help of franchise to ensure product market development. Some people say that there are Coca-Cola in some people's places, and Kodak in colored places. Why are these brands ubiquitous? The reason is that they have used franchise methods for large-scale, low-cost expansion.

2. Franchisees use "franchise"

Some people vividly likened franchising franchise to "enlargement of the chassis", that is, the use of the franchisor's trademark, special skills, and business model to repeatedly use it, and thereby expand its scale.

(1) You can enjoy ready-made goodwill and brands. Since the franchisee inherited the goodwill of the franchisor, it had a good image in the opening and entrepreneurial stages, enabling many tasks to be carried out smoothly. Otherwise, building a strong image with a strong advertising campaign is a huge expense.

(2) Avoid market risks. For investors who lack market operation, they are often at a disadvantage in the face of fierce market competition. Investing in a well-performing and powerful franchiser, with its brand image, management model and other support systems, the risks are greatly reduced.

(3) Share the benefits of scale. These economies of scale include: economies of scale in procurement, economies of scale in advertising, economies of scale in operation, and economies of scale in technology development.

(4) Obtain multi-faceted support. Franchisees can receive various support from franchisees, such as training, address selection, financial financing, market analysis, unified advertising, and technology transfer.

3 Franchise is welcomed by consumers for its management advantages

Another reason for the successful development of franchising is accurate positioning. Because of accurate positioning, the company's target market can be selected accurately, marketing strategies can be combined around the target market, and changes in the target market can be understood in time to keep the company's products and services at the forefront of the times.

(1) It is because of the franchise itself that the franchisee has obtained a complete and rigorous operating system. However, it is for this reason that it is difficult for franchisees to change this business model to adapt to market and policy changes. In addition, due to the different consumer needs in each region, it is difficult for franchising to maintain a sustainable advantage everywhere.

(2) For consumers, frequent changes of franchisees have brought them doubts, resulting in unclear responsibilities among franchisors, current franchisees and past franchisees, and shirk their responsibilities.

(3) Franchising can only focus on one area, and it is impossible to achieve strategic victory in each market.

(1) The rapid development and expansion of the scale have become a growth point for the development of the national economy.

According to the statistics of the Domestic Trade Bureau, as of the end of 1999, the total number of chain companies in the domestic trade system has reached more than 1,800, with 26,000 chain stores and a turnover of 150 billion yuan, accounting for about 5% of the total retail sales of consumer goods. According to statistics from relevant departments, franchise supermarkets and convenience stores in the mainstream format of chain operations. In 1997, there were 95 franchise companies with sales exceeding 10 million, an increase of 1.6 times over the previous year, and 755 outlets, an increase over the previous year. 3.7 times. Franchise companies accounted for 36% of the total chain companies. According to this calculation, there are more than 600 franchised enterprises in various industries across the country, about 5,000 outlets, and an annual turnover of about 50 billion yuan. In recent years, the sales realized by chain operations have increased at a growth rate of more than 40% each year, which greatly exceeds the growth rate of social consumer goods in the country by about 10%, about 30%.

(2) The franchise chain operation has expanded to multiple formats and fields.

From the perspective of the business format, it mainly focuses on supermarkets and convenience stores, and has developed into specialty stores, boutiques, and warehouse-type shopping malls. From the perspective of the industry, it has expanded from the retail industry to catering and production materials, and has expanded from tangible goods to service operations. Business, service and other industries. For example, Beijing Quanjude Roast Duck Restaurant currently has 60 franchise stores and outlets. China's domestic franchise business has developed in the fields of books, dyeing, washing, car rental, maintenance, housekeeping services, fitness and entertainment, hairdressing and beauty.

(3) New advanced management techniques, promotional strategies, and business methods are widely used by franchising.

Franchising has broken the traditional relationship between business and industry, agriculture, business, and retail. In the spirit of "learning a technology together, making a product, sharing a brand, and obtaining a huge profit", it has fundamentally changed its operating method, especially one. Approved brand stores, with manufacturers as the leader, combined with agents, adopt franchising methods, and have formed a chain operation network throughout the country.

(4) Franchising has become the main means of enterprise expansion.

In the case of relatively saturated urban markets, many chain companies began to extend from cities to surrounding areas through franchising. In more developed areas such as the Yangtze River Delta, the Pearl River Delta, and the Jiaodong Peninsula, some chain companies have more than half of their stores at the county level. The following towns. Most of these enterprises use franchise to expand their surroundings by using their goodwill, business technology and commodity procurement advantages.

Development of franchise in China

From the beginning, the franchise in China is mainly based on the second-generation franchise, that is, a full-service franchise, instead of starting from the first-generation commodity trademark-type franchise, and gradually developing to the second-generation franchise. Even in the United States, the current first-generation franchise still accounts for 30% -40% of the entire franchise. China's franchise mainly started in the tertiary industry in the retail, catering and service industries. In contrast, foreign franchise generally started in the manufacturing industry, and the manufacturing franchise still accounts for a certain proportion.

By the end of 2006, the number of franchise systems in China had exceeded 2,600, with nearly 200,000 franchise stores, an increase of 13% and 16% respectively over the previous year. Chartered companies provide more than 3 million jobs to society. Since 2000, the franchise business in China has shown a steady and rapid development trend. The proportion of franchise companies adopting franchising is increasing. By the end of 2006, franchising companies accounted for 69% of the total number of chain enterprises. Among them, the franchise companies in the catering and service industries accounted for 95% and 83% of the total number of chain enterprises in their respective industries, and the retail industry accounted for 59%. Of the top 100 chain enterprises released in March 2007, 46% of them carried out franchising, and the sales scale of the franchise reached 102 billion yuan.

Franchise industry coverage is getting wider and wider. Chinese franchise has covered all 13 major categories of this classification, more than 80 sub-sectors and formats. The areas not covered are due to the different economic and social systems and consumption habits in China. They are mainly focused on business services such as finance, taxation, insurance, dry cleaning, auditing, accounting and truck leasing. These services serve commercial organizations, such as the dry cleaning industry. Like Carlyle dry cleaning in Xi'an, it quickly grew up by franchising. And some home services, such as lawn care, sanitation and pest control services.

On May 1, 2007, the "Regulations on the Management of Commercial Franchise" (hereinafter referred to as the "Regulations") aimed at regulating commercial franchise activities and promoting their healthy and orderly development were officially implemented. In order to ensure the implementation of the Regulations, on the basis of in-depth research and extensive solicitation of opinions from various quarters, the Measures for the Administration of Commercial Franchise Records and the Measures for the Administration of Commercial Franchise Information Disclosure were promulgated. The promulgation of these two measures and the implementation of the specific measures of the Regulations are also important guarantees for regulating franchising activities and promoting the healthy and orderly development of commercial franchising.

According to the amazing performance that franchising has achieved in China in just two decades, the growth momentum of franchising in China is unabated. From the perspective of foreign and domestic franchising practices, it can be said that the development of franchising in China will definitely have an infinitely broad space!

Introduction to International Franchise Development

1: For domestic and foreign business, there are approximately 20 countries with more than 1,000 franchise franchisees.

2: There are about 15 countries with more than 200 franchise licensees operating in the country.

3: Organized franchise associations in about 50 countries.

4: Franchise sales in 1998 reached $ 119 billion (US $) (870 billion yuan).

5: 4,000 licensees and 170,000 franchisees.

Current international franchise status:

1: United States

Franchising is the fastest growing and most permeable business model

About 40-50% of retail sales come from franchisees

Annual sales reach $ 100 billion

About 75 industries now use franchising as a distribution method

2: Canada

1327 licensees

Total 7,500 franchisees

3: Europe

Franchise sales in 1998: $ 119 billion

4000 licensees, a total of 170,000 franchisees

4: Australia

Franchise first appeared in the 1970s

By 1996, 800 franchisees were operating in Australia

5: Greece

3% of retail sales come from franchisees

Franchise first appeared in the 1970s and gained widespread development after 1990

6: Singapore

Franchise first appeared in the 1970s

85 domestic franchise licensees by 1995

125 franchised manufacturers in 1996

7: Malaysia

Franchise first appeared in the 1960s

Franchise operations accounted for 2% of total retail sales in 1996 ($ 609 million)

After China promised to fully open the franchise market within three years when it entered the WTO in 2001, China's franchise has ushered in the rapid development of rapid popularization. The number of franchised companies in China has grown from a rare company at that time to the number one in the world, reaching 2000 Many, nearly trillion sales, the speed of growth is unexpected. However, the lack of restrictions on the development of the standard has also led to a mixed development of the industry, a low survival rate, a lack of standardization of industry management, and joining traps from time to time.

The rapid development of the industry requires the establishment of a legal system that regulates the development of the industry. For several years, the franchise community has placed great expectations on the promulgation of the regulations.

At the end of 2004, the Ministry of Commerce officially promulgated the Measures for the Administration of Commercial Franchise. On the one hand, this is to fulfill China's WTO accession commitments, to regulate foreign-invested enterprises to enter the Chinese franchise market; on the other hand, it is to regulate domestic commercial franchise behavior and promote the healthy and orderly development of commercial franchise operations. Of course, the fundamental reason for the legislation is not that the direct marketing legislation is mainly to repay our commitment debts when entering the customs, but that the government does have internal needs to promote the sound development of the franchise business, and more importantly, the rapid development of the franchise industry itself in China. A relatively complete and standardized regulation is required to regulate and manage to ensure the healthy, rapid and stable development of the franchise industry. This domestic demand is not only the needs of the industry, but also the needs of the current government executives. So at the same time when entering the customs, the franchise legislation came out sooner and more smoothly than the direct sale legislation.

From the formal implementation of the Measures on February 1, 2005, China's franchise will begin to enter the era of legalization and internationalization. There is no doubt that the Chinese franchise market will become an international market fully open to foreign investment. Chinese and foreign franchise brands will compete with each other to promote the development of Chinese franchise. At the same time, the international Chinese franchise market will also rapidly increase domestic The management level of franchise enterprises promotes domestic franchise brands to go abroad and realize the true internationalization of China's franchise.

The promulgation of the franchise law on time destroyed the introduction of the direct sales law as soon as possible. Franchising and direct selling are international commitments made by the Chinese government when it joined the WTO in 2001-three years of opening up and legislation. The market economy is the legal economy, which is the contract economy of both parties A and B. Therefore, compliance with the entry commitments is itself a manifestation of China's market economy.

Decree of the State Council of the People's Republic of China

December 2012, Issue 2

Revised Administrative Measures on Commercial Franchise Information Disclosure ^[2]

As far as franchisees are concerned, there has been a class of entrepreneurs in China, with 10 million laid-off workers nationwide, many of them small and medium-sized entrepreneurs with 100,000-200,000 yuan. In 1996, households with annual incomes of 30,000 to 100,000 yuan nationwide accounted for 7.15%, of which Guangdong, Shanghai, Beijing, and Tianjin were 39%, 29.2%, 20.8%, and 9.6%, respectively. The number of households above 100,000 yuan accounted for 2.2%. In 1997, the balance of savings deposits of urban and rural residents reached 4,628 billion yuan. This is the huge foundation for entrepreneurship funds. While franchising provides them with a lot of opportunities to create wealth, realize entrepreneurship, and become a boss, they undoubtedly also start the development of franchising. To the role of fueling the flames. Especially now, with the increase of the unemployment rate of ordinary people in China and the increasingly obvious government's support for entrepreneurship policies, under the situation of coexistence of pressure and power, and micro and macro conditions, it is best to start a business and solve employment. One way of franchising is bound to have an astonishing development in China. In the end, the promulgation of the Franchise Law and the establishment and implementation of the national franchise strategy will bring franchise into a stage of comprehensive socialization, which will enable China to win more proactive conditions in the new economy era of competition. In short, based on the amazing performance that franchising has achieved in the country in just two decades, the growth momentum of franchising in China is unabated. From the perspective of foreign and domestic franchise practices, we can firmly predict that the development of franchise in China will have an infinitely broad space! Understanding the franchise and participating in the franchise will be a wise choice for Chinese people of insight!