FRANCHISING: A Fine Way of Doing Business

One pre-eminent hazard that a local product meets in the wider, free-wheeling, oftentimes survival-of-the-fittest environment of the global export market is not only stiff competition, but also outright hostility. No one enjoys the though of sharing or losing a hard-gained slice of the market and naturally reacts abrasively to a “new boy in town.”

Competition is good in that it pushes the product to a continuous improvement in quality and the business to a deeper concern for the consumer. It challenges the business mind to be creative and the workplace to have greater efficiency. But hostility is another matter. The new player, usually a small one, starts with a handicap, not given a level playing field, weighed down with the feeling of being an intruder, an alien, in the global game. Retailers among small- and medium-scale enterprises are the most affected, but even big transnationals find their hands full, coexisting with cultural prejudices and protectionist attitudes in foreign markets that they are trying to penetrate.

The emerging business environment seems to have evolved tools and ways to breach these old walls, helped along by easier information access provided by the electronic world wide webs. In fact, one bright and promising way whose prospects are just unfolding, especially for Philippine business, is franchising.

It is one spot where Philippine business seems to have successfully hurdled the challenges in the global field and is now poised to reap bumper harvests in the near future, blazing the way for other strong domestic contenders to follow.

That bright prospect for franchising is reflected in the eye of Ms. Ma. Alegria Sibal-Limjoco, president of the Philippine Franchise Association, as she inspires energy from among the member-entities of the association on the fact that “franchising is the fastest growing sector in retailing,” and believing strongly that “(it) will explode to become a major industry by itself.”

In her presentation during the recent Philippine International Franchise Conference & Expo 2002 at the Westin Philippine Plaza and the World Trade Center, Ms. Limjoco said franchising as a way of doing business has dramatically grown in the last 30 years in the Philippines, with local entities poised to become top dollar earners for the country in the next five years.

Among the notable local franchisors are those carrying the brands Jollibee, Goldilocks, Chowking, Max, Crystal Clear, as well as the non-food names of Bench, Penshoppe, Kamiseta, and others. Many of these burgeoning local large players, notably Jollibee, have successfully penetrated markets overseas and have started to capture a particular niche for Filipino tastes and Philippine food products in foreign outlets.

The Philippine Franchise Association has been taking steps in encouraging the incubation of food production and processing initiatives among small- and medium-scale entrepreneurs in the regional centers of the country. The next step is to try those who prosper in the regional incubators in the Metro Manila food court. From there, those with good potentials can expand nationwide. Reaching a level of at least 100 outlets operating nationwide, a player may then test his wings in the international field.

Interestingly, the franchise success rate of in the Philippines has been posted at 90%, outdistancing traditional retailing, having a success rate of only 25%, by a hefty 65%. Moreover, franchises trace a steady success line from start, as compared with traditional retailing which goes on a continuous slump, in the same timeline.

Substantiating these stats is the steady stream of consumers regularly mobbing fast food outlets for snacks, meals, drinks, delicacies, and promos at all hours of the day along population traffic merging points in Metro Manila and provincial centers.

The festive frontage and company logo design and mascots of such franchisees as Jollibee, Shakey’s, McDonald’s, Goldilocks, Max’s, Chowking, Pizza Hut, have become landmarks and trysting points, definitely contributing to a positive change in the physical environment and in urban lifestyles. The laid-back cafe crowd has been outnumbered and outpaced by the self-service generation instigated by the food chains. The easy accessibility and affordability of the products and services provided by the outlets have been a great leveler of social classes, and opened minds to a simplification that falls in tune with the easy convenience propping the mall generation.

In the analysis made by the retail and franchise industry of the Philippine market, the young sector, those up to 29 years, appropriates the biggest slice, making up for 64% of the 80 million Philippine population; those in the 30-59 bracket make up only 30%; while those from 60 up, only 6%. Yet all of these
groups one can find a good representative number in any food chain outlet at any given time.

Intriguing as it may come, the concept of franchising is not new. According to Mr. Raffy Recio, who is a member of the Education Committee of the Philippine Franchise Association, a good theory is that the word is medieval and French in origin, and the practice came about when some farmhands asked the landlord “to be given the right” to collect the fiefs from people tilling the land. In fact, the French derivative actually means “to give a right,” he said.

In the Philippines, he further said, some of the pioneer franchises were Singer and the soft drink companies. In the 80s, there were only 45-50 such franchise entities here, and it was only in 1995 when the Philippine Franchise Association was
founded, at a time when there were 111, consisting of 47 foreign and 64 local franchises operating locally.

Since then, barely seven years in span, the number has multiplied seven-fold. There are today 360 foreign franchises and 348 local ones, and the number is growing fast. The growth areas in franchising are identified as in food and beverage and non-food including cosmetics and toiletries, health services, laundry services, hotels and motels, security, printing and electronic publishing, car services and accessories, maintenance and cleaning, etc.

Growth in retailing and franchising has been due to many economic and policy factors. One is the expanding local customer base, which represents 14% of the total ASEAN market, and the current 3.6% growth (as of 2000) in personal consumption habits of consumers. Another is the growing preference for convenience shopping, technological breakthroughs improving operations efficiency and facilitating expansion, and the promotion on the growth of small and medium enterprises. Still another is the rising quality of the workforce which multiplies productivity.

Perhaps the most important thing going for franchising as an interesting growth industry and potential dollar earner of the country is what former Trade and Industry Jose T. Pardo, who is the founding chairman of the Philippine Franchise Association, said of the sector recently.

He said: “The franchise industry insulates business from a hostile marketplace. As one of the bright spots in the economy, government should help the industry to succeed.” And for those going into franchising, two important things to remember: full commitment to established system (or way of doing things) of the franchisor; and long-term relationship that works to mutual benefits.

Indeed, the way of the future for retail business is definitely franchising. This appeals strongly to starting entrepreneurs. Franchising opens big markets for small business in our global economy.