Franchising in Russia

Franchising - from the French for 'Free', is a method of doing business wherein a franchisor licenses trademarks and methods of doing business to a franchisee in exchange for a recurring royalty fee.

The term is commonly used to describe a wide variety of business relationships which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty but no method of doing business.

In the US franchising falls under the jurisdiction of a number of state and federal laws. Contrary to what might be expected, there is no federal registry of franchising or any federal filing requirements for information. Instead, states primarily collect data on franchising companies and enforce laws and regulations regarding their spread.

Franchising is at least 150 years old. One early example resulted in the characteristic look of historic hotels (bars) in New South Wales, with franchising agreements between hotels and breweries. An American example was the telegraph system operated by various railroad companies but controlled by Western Union, or selling a certain make of automobiles in a car dealership.

Some people would argue that franchising (in a non-profit sense) goes back even further; science-fiction author Neal Stephenson pointed out a resemblance between franchising systems and churches (specifically the ones that proselytize) in his breakthrough novel, Snow Crash.

Modern franchising came to prominence in the 1950s with the plethora of franchise-based fast food restaurants, of which McDonalds is the first and most globally successful. Many retail sectors, particularly in the United States, are now dominated by franchising to the point where independently-run operations are the exception rather than the rule. As an example, the Sport Clips Franchise organization only opens company owned stores to test new marketing concepts or ideas. As a result, Sport Clips owns very few of the over 200 franchisee owned stores. There is much information on franchising online.

As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators).

As long as their brand and formula are carefully designed and properly executed, franchisors are able to expand their brand very rapidly across countries and continents, and can reap enormous profits in the process, while the franchisees do all the hard work of dealing with customers face-to-face. See customer service.

In response to the soaring popularity of franchising, an increasing number of communities are taking steps to limit these chain businesses and reduce displacement of independent businesses through limits on "formula businesses."

Franchising is both an old and a new concept. The term from the French originally meant to be free from servitude. Its meaning in the context of present-day promotions is the opportunity for an individual to own his or her own business, even if he or she is inexperienced and/or lacks adequate capital. During recent years, franchising, as a type of business operations, has been expanding rapidly and entering into new areas of application. The most recent industry study estimates that franchised businesses accounted for $803 billion in annual sales in 1992. Retail (business format) franchising is estimated to account for 35% of total U.S. retail sales. More than 8 million people are employed by franchise establishments.

Franchising is a form of licensing by which the owner (the franchisor) of a product, service or method obtains distribution through affiliated dealers (the franchisees). The holder of the right is often given exclusive access to a defined geographical area.

The product, method or service being marketed is identified by a brand name, and the franchisor maintains control over the marketing methods employed, or assists the franchisee in the operation of the business.

In many cases, the operation resembles that of a large chain with trademarks, uniform symbols, equipment, storefronts and standardized services or products. The franchisor maintains uniform practices as outlined in the franchise agreement.

The International Franchise Association, the major trade association in the field, defines franchising as "a continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organizing, training, merchandising and management, in return for a consideration from the franchisee."

Franchising has been described as "a convenient and economic means for the filling of a drive or desire (for independence) with a minimum of risk and investment and maximum opportunities for success through the utilization of a proven product or service and marketing method." The owner of a franchised business, however, must give up some options and freedom of action in business decisions that would otherwise be open to the owner of a non-franchised business.

In a way, the franchisee is not his own boss, because in order to maintain the distinctiveness and uniformity of the service and to insure that the operations of each outlet will reflect favorably on the organization as a whole and protect and build its goodwill, the franchisor usually exercises some degree of continuing control over the operations of its franchisees and requires them to meet stipulated standards of quality. The extent of such control varies. In some cases, franchisees are required to conduct every step of their operation in strict conformity with a manual furnished by the franchisor. ............