Franchising Business

One way to becoming wealthy is to franchise a business. The good thing to franchise a business is that the business is already proven and successful. You'll just have to copy the business system. But before you get into franchising, be sure to have a feasibility study of the business your'e going into. Ask questions and if possible, consult a legal counsel.

Franchising in the Philippines began in the 1980s, with the sector predominated mostly by foreign franchise companies. From around 20 foreign and local franchises, the sector rapidly grew, with the figure reaching around 1,000 by 2008.

The growth of franchises has been helped by the various programs undertaken by the Philippine Franchise Association (PFA), which is a voluntary self-regulating governing body for franchising in the country. Established in 1995, the PFA now has 180 franchisors and allied members nationwide and is currently the country’s biggest franchise association.

PFA members are bound by the Fair Franchising Standards (FFS), a Code of Ethics which the Association developed, ensuring that they commit themselves to respect and to apply fair set of provisions in the conduct of the sale of their franchises, protecting both franchisors and franchisees.

With over 90% success rate, franchising has evolved as a business model primarily identified with minimal risk. This, in turn, makes franchising a most preferred strategy that guarantees countless opportunities for all entrepreneurs.

Through this booklet, PFA aims to help increase the level of awareness in the MSME sector, even the aspiring entrepreneurs, on franchising as the best strategy to achieve rapid business expansion, while maintaining high survival and sustainability rates. Recognizing the significant roles that MSMEs play in national development, PFA continuously links the franchise advantage to the MSME sector in the hope of retaining greater economic activity.


What is franchising?

Franchising is derived from the Old French word “franc” which means right or privilege. It refers to the method of practicing and using another’s perfected business concept. This duplication of a successful business involves two legally independent parties – the franchisor and the franchisee.

In a franchise relationship, the franchisee is granted the right to market a product or a service under a marketing plan or a system that uses the trademark, name, logo and advertising owned by the franchisor.

As a contractual agreement for the franchisee to use the franchisor’s business, operating and marketing strategies, franchising establishes a relationship with a successful business allowing entrepreneurs to use and capitalize on its proven system and name.


What are the different types of franchising?

There are two different types of franchising – product franchising and business format franchising.

Product franchising, also known as trade name franchising, is that type of franchising wherein a manufacturer grants a franchisee the right to sell its products, but with no method of doing business. Examples of this type of franchising are car dealerships and service stations. Product franchising usually peg royalty collection on a product basis and not on gross sales as compared to business format franchising.

A more complex form of franchising is the business format franchising. Also identified as a name and process franchise, this format features a broader and ongoing relationship between the franchisor and the franchisee. Aside from granting the right to use the name and market the products and services of the franchisor, the franchisee is also provided a complete plan for managing and operating the business – a transfer of the proven way of doing business that has been developed by the franchisor. This plan often includes a full range of services, including site selection, training, product supply, marketing plans and even assistance in obtaining financing. All of the franchisor’s operating systems, technical expertise, marketing systems, training systems, management methods and essentially all relevant information, are transferred to the franchisee.

Business format franchising offers franchisees the advantage of a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch. Franchisors are also able to expand rapidly across countries and continents. Franchisees are offered significant training, which is not available for free to individuals starting their own business.

In this arrangement, franchisors typically control how franchisees conduct business to ensure uniformity. Though these controls may significantly restrict the franchisee’s ability to exercise its own business judgment, the end result is to the benefit of the consumers because certain standards are maintained. To this end, franchisors may require the franchisee to operate in a particular manner - operation during certain hours, using only pre-approved signs, employee uniforms, and advertisements, or abiding by certain accounting or bookkeeping procedures. The franchisor may also require the franchisee to purchase supplies only from an approved supplier, in order to ensure that the consuming public does not suffer from inconsistency in product quality.

With the means of distributing goods and services perfected, rapid expansion of a successful business concept occur more quickly. Modern day franchising is primarily in the business format mode, accounting for around 90% of franchise businesses worldwide. PFA is an association of franchisors who are into business format franchising.



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