Franchise pros and cons. Prospects in Russia.

Not many businessmen can answer the question what franchise or franchising means. Although all over the world franchising perfectly proved itself as the way of rapid advance in trading. If what statistics said is true, then in 80% cases using this system of doing business gives an opportunity to pass a five-year milestone in development of the company and to continue working with high economic indicators, whereas the majority of self-developed companies rarely come to two years.

Franchise or franchising is the way of partnership when a copyright holder (franchisor) grants a user (franchisee) the right to use in its entrepreneurial activity a range of exclusive rights owned by the franchisor on a fee basis, such as trademark, service mark, know-how and etc. In other words, it’s a business-system that allows making money out of brand name selling. In Russia franchises are mostly common in service industry, retail and public nutrition.

Companies have long ago started to use franchising for branching out and coming into new markets. For a franchiser it is a good way to save on initial investments, and for a franchisee - on advertising and promotion. At the same time, franchisee pays holding company initial installment (lump-sum payment) and periodical payments (copyright royalties) except initial investments.

Certainly, franchising wins in the speed of the business development. It is profitable for both sides. There is a so-called «grass effect», i.e. the initiative of business development comes from below, and it isn’t planted from above. Franchisee is interested in the development of his own enterprise, the success of the company brings the profit, and the failure - serious losses. Rationally organized franchise is the symbiosis: some get an opportunity to branch out without key investments, others – to have a ready-made business with recognizable name. But Russian reality makes changes in this rose picture.

Many experts note that the biggest problems in Russia arise due to the fact that the difference between franchise and own business start-up from greenfield is understood by halves. Franchisees come across the limitation of their freedom in all things: from selection of premises to company’s development strategy, along with constant control on the part of franchisor. However it’s not infrequent that rich people buy franchises. But due to lack of experience in business dealing even well-known brand can’t help. Smashup of “Pyatyorochka” in Perm is an example.

Despite essentially opposed profits from franchise for franchisor and franchisee, it’s important for both to minimize the possible business smashup risks. Therefore before making a deal it’s essential to check the prospective partner for trustworthiness and solvency.

Information and analytical system GLOBAS-i ® helps to find all the necessary information about the company you are interested in on-line. The Solvency index helps to estimate the financial position of the company and the Reliability index reveals fly-by-night companies.