by Suzie Snezner
Definition: A group of businesses with a set of common guidelines that belong to a network. The networked group dispenses licences for single business operators to promote a set of services or products. Most franchise networks issue licences to set up outlets in set areas. A franchised outlet is most commonly operated by an independent manager that takes part in decisions affecting the entire business network. For example, a single Pizza Hut shop operator can get a say in how the chain's advertising funds are spent.
Let's pick for instance a car wash operation. A prospective owner / manager could face 2 options. He could start his own business and set up his own policies, service standards, equipment etc - or he could choose to make his operation a part of a franchised network. The franchise option provides him often with decades of experience, detailed operation manuals, staff productivity guidelines, and countless other helpful resources. The biggest downside is that he gets a much less flexible business model, and he cannot simply change his range of services / policies easily.
The popularity of franchises has risen significantly in the last few decades in Australia. A whopping $130 billion a year is estimated to turnover in franchised businesses. There are many options on offer in a range of industries.
McDonalds is possibly the most successful network. With over 30,000 locations, $25 billion in annual turnover, 1.5 million employees, and 70 million daily patrons in 130 countries - they are 2nd to no other chain. 33% of all Australian takeaway meals are served by McDonald's. Starting in 1940 from 1 shop, it grew exponentially after changing their business model be based on mass production.
Around the world, franchises chains enjoy a varying degree of success and exposure. Per capita, New Zealand has the highest amount of franchised chains, with over 400 chains operating and only 3 million people. China has seen a massive rise in recent years in the franchise industry with over 2000 KFC outlets opening, at double the rate of McDonalds. India, in comparison, is lagging in this field. With widespread poverty and heavy regulations imposed on foreign investors - the 1+ billion strong nation is far behind most developed nations when measuring on a per capita basis.
In Australia, franchising is regulated by the "Franchising Code of Conduct", under the Trade Practices Act of 1974. This code requires franchise network operators to produce a PDS which must be given to the new owner at least 14 days before entering an agreement.
Franchised operations do enjoy a higher success rate. While around 80% of non-franchised businesses fail within the 1st year - only 5% of franchised shops cease operations within the same period. Belonging to a business network has shown to make a return, mainly due to the knowledge and vast experience that is provided by the franchisor. Many managers who start up in SMEs, use a franchised outlet as a springboard, and then move on to build on their knowledge and create independent businesses of their own.
Author and writer Suzie Snezner is a consistent writer for <a href="http://www.franchisepoint.com.au/">franchise opportunities </a> a business which she has just written a comprehensive article about <a href="http://www.franchisepoint.com.au/what-is-a-franchise.asp">What is A franchise</a> to help small business people have a complete understanding of this type of business.
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