The word ‘franchise’ comes from old French, meaning ‘privilege or freedom’. In the Franchise Middle Eastwas an actual privilege or a right; the local sovereign would grant the right to a monopoly for a certain type of commercial activity, such as holding markets or fairs, operating the local ferry or hunting on his land.
Over time the regulations governing franchises became a part of European Common Law. Over the centuries the franchising concept has evolved as the economies of the nations of the world have evolved. In the 1840s in Germany some of the major ale brewers granted franchises to certain taverns, giving those taverns the exclusive right to sell their ale. This was the beginning of the concept of franchising as we know it today.
Around the turn of the century, oil refinery companies and the automobile manufacturers began to grant the right to sell their products. At this stage in the evolution of franchising it was essentially granting the right to distribute and sell a manufacturer’s products. Business format franchising, which is the dominant mode of franchising today, came onto the economic scene after World War II in the US with the return of the millions of servicemen and servicewomen – and the subsequent baby boom. There was an overwhelming need for all types of products and services, and franchising was the ideal business model for the rapid expansion of the hotel/motel and fast food industries.
According to the International Franchise Association, the economic impact of business format franchising is much greater than product distribution franchising. In 2007, business format franchising (restaurants, real estate services retail, lodging, business services and personal services) provided five times the jobs and had twenty times as many establishments as product franchising (gasoline/service stations, automotive and truck dealers, beverage bottling).
The outlook for 2013 in the USA is optimistic as franchise businesses are expected to continue to grow at a slightly faster rate than other businesses in the private sector, in terms of contribution to GDP and job creation. The lodging industry would rank fourth in terms of contribution to employment as it is expected to provide jobs for more than 706,000 people, with quick service restaurants still ranking at the top. The output of lodging franchise establishments is expected to reach $802 bn, also ranking fourth in terms of output.
Franchising is an appealing way for growth-oriented firms to enter new markets and expand delivery of service concepts to multiple locations without incurring high investment costs ensuing from company-owned and managed sites. By developing successful business models and exporting them to franchisees, a franchisor taps into new markets, cultures, resources, skills and networks and strategically integrates diversity into his business. Although franchising is most commonly associated with fast-food restaurants, new concepts have been created, developed and commercialised continuously in countries around the world. |