Nowadays, the Revised Corporation Code makes establishing a business from scratch easier than ever. However, there are still risks involved in setting up a business. To reduce these risks, franchising is a good business model, since it involves buying in an established business. For established businesses, franchising is also effective because it allows businesses to grow. Here are several reasons why franchising is an effective business model.
Franchising Involves Investing in an Established Brand
Franchising is less risky because it involves investing in an established brand. For instance, it is less risky to establish a Jollibee franchise than to set up a fastfood restaurant of your own because people can recall the brand, and love the taste of Chickenjoy. Since the brand is established, consumers have already bought in the brand, while establishing a business from scratch would be extremely risky in the first few years. This is because brand faith develops over time. Also, you can be sure to deliver well, for the franchisor will train you. So, you can be assured of consumer trust, along with franchisor support, if you decide to franchise.
Franchising Reduces Expansion Costs
For established businesses, on the other hand, franchising allows them to cut expansion costs. For example, the National Wrestling Alliance (NWA) was able to expand its reach in the USA from 2012-2017 by licensing the NWA brand to various wrestling promotions, who benefited from the prestige of the NWA brand and World Championship. This benefited the NWA because it had control over the main NWA Championships (World, Tag Team, Junior Heavyweight, etc.), but it did not have to shoulder the costs of holding wrestling events. As a result, the NWA expanded its reach, but saved a lot of expenses. As a result, franchising, by outsourcing business expansion, allows franchisors to cut costs.
Franchising Allows Access to New Markets
Franchising not only benefits the franchisor by allowing expansion costs to be cut, but it also allows business owners to access protectionist markets. This is because a business can expand to another country by entering into a joint venture with a local franchisee. For example, the Indonesian convenience store Alfamart was able to enter the Philippines by engaging in a joint venture with SM. Due to this, Alfamart was able to comply with the 60-40 ownership rule, unlike GoJek, which could not satisfy the 60% Filipino ownership requirement. Thus, franchising allows businesses to enter new markets, especially in other countries.
Franchising Can Ensure Brand Survival
Another advantage of franchising is that it can assure the survival of a business when times are rough. An example would be Lawson’s, which started in the US, but was reestablished in Japan when its US parent company shut down, but the Japanese franchisee remained strong. Due to this, if a franchisor suffers from financial troubles and has to shut down, the franchisee may be able to take over the entire business and continue the legacy of the original franchisor.
Franchising Helps Entrepreneurs Stay Ahead
In the end, franchising is an effective business model because it allows the franchisee to invest in an established brand with minimal risk, and the franchisor is allowed to expand into new markets with ease. As a result, franchising benefits both the franchisor and franchisee. For entrepreneurs interested in education, an Ahead franchise is perfect for you because it will allow you to pursue your business advocacy while minimizing risk because you will be investing in a brand that has been trusted for the past 24 years. Hope your business dreams will come true!