The Advantages and Disadvantages of Franchising

Over the past years, franchising has been booming in the Philippines.

In fact, for 2008 and 2009, the years when businessmen are mostly cautious because of the ongoing financial crisis, business experts have been advising would-be businessmen and entrepreneurs to go into franchising.

For one, franchising is a quick way to start a business. For another, the number of companies and business entities that have been offering to franchise their businesses has been growing for the past 10 years or so. This growth continued even during the global economic crunch. Lastly, franchising has been contributing a lot to the Philippines’ economy, making it one of the primary movers in our economy’s growth.

Just some of the information and statistics (in the Philippines) worth mentioning here:

  • 1,000 brands are now franchised in the country;
  • there are five principal franchise sectors: retail (specifically clothing); cafes; fast food; bakeshops, hospitality and wellness and food carts.
  • 45% of the sales from retail outlets within shopping centers and malls are from franchised businesses;
  • Franchising contributes around $6.6 billion of the Gross Domestic Product of the Philippines, which is around 5% of the GDP; and
  • Franchised entities employ around one million Filipinos.

What makes franchising so attractive then that entrepreneurs are choosing this option rather than starting businesses from scratch? What are its advantages? On the other hand, what are its disadvantages?

One of the Fastest Growing Franchise in the Country

Mang Inasal
Mang Inasal
Mang Inasal opening in our city
Mang Inasal opening in our city

A Video About Franchising in the Country (some words are in Filipino)

Advantages of Franchising:

1) The business you are franchising is already successful and is a proven idea. Usually, before offering the business for franchising, the original owners have already build it up and have already made it successful. Franchising, for them, is a way to expand the business; it is not a way to build the business from a small one to a big one.

2) The brand name is already recognized and name-recall is already very easy. Plus the franchisor or the owner of the franchise will take it upon himself to promote the franchised name or product, which will benefit the franchisee.

3) You may have exclusive rights to market the franchised products in your territory. One example is Starbucks Philippines. This one is franchised, yes, but the franchise belongs to just a single entity in the whole country.

4) A franchisee will enjoy the benefits of being supported by the franchisor. This is part of the franchise agreement. In return for the franchise fee the franchisee pays the franchisor, the latter commits to support, to train, to share ideas and even manpower to the franchisee.

5) Systems are already in place. From getting the supplies to cooking the food (if you’re franchising a fast food or a food cart business) to selling the products or services to summarizing your numbers and producing your financial reports, the systems are already there for you. You just need to follow them.

6) You will get to leverage on the good name and purchasing power of your franchisor when it comes to sourcing your supplies from suppliers.

Starting a Franchise

Buying a Franchise

Disadvantages of Franchising:

1) You may be exposed to fraud. If you fail to investigate the background of the franchisor or you’re taken in by promises of quick profits with low franchise costs, chances are, you will just find yourself holding an empty bag (after paying the franchise fee).

2) Costs may be higher than if you start your own business from scratch. Other than the initial cost of acquiring the franchise, you may also pay an agreed percentage of your sales and marketing or advertising fees.

3) When you buy a franchise, you are not free to do your own thing. You don’t have much control on the products that are to be sold, the system that should be in place and, even, the location and general look of your business establishment. You are bound by the franchise agreement and you have to do everything to the letter. If you’d rather do things your own way, this may raise issues .

4) If something bad happens to your franchisor or if the franchisor will suddenly get a bad reputation for poor quality, undelivered goods or services, etc., you and your franchised business may also be affected. Worse, if your franchisor suddenly goes out of business, you will go out of business as well.

5) More legal considerations (which will drive your initial cost higher because you will need to hire a legal counsel for this). The franchise agreement is pages long (40 pages? 50 pages? 60 pages?) and you will need all the expert advice you can get to ensure that you are not getting the short end of the bargain. Costly or not, better hire your own lawyer when reviewing the franchise agreement.

Buying a franchise may be an easy way to enter your chosen market or business but it is definitely not a walk in the park. You need to consider well the advantages and disadvantages of franchising. Other than these advantages and disadvantages, the most important thing you need to consider is whether you have the appetite to enter into franchising. Can you handle being told what to do with your business rather than you thinking about and deciding on all these things? Can you handle the reporting requirements and the sales targets or goals? Can you handle the costs of buying the franchise and putting up the business? It’s all really up to you.

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Comments 37 comments

australianfranchises 4 years ago

Well this is a great for the people who are looking for developing the franchises business. Thanks for sharing this information guys and keep on updating the good work.


Tim McDougall 4 years ago

Great Hub here. There is obviously lots of great information for people looking to buy into a franchise system. For those interested in developing their own franchise system, I thought i'd share this article written by a colleague of mine in which he shares some of the pitfalls to avoid: http://www.dcstrategy.com.au/press/franchising-pit...

Again, great hub.


friqure 4 years ago

i benefited a lot,keep more great info!!


Student S 4 years ago

The information I have optained from the site, has been very informative in my field of study


BusinessTime profile image

BusinessTime 4 years ago from Twin Cities

Great info! I wrote a similar article your readers might be interested in, found at http://www.clickandinc.com/blog/index.php/is-franc... -- thanks for the great hub, voting up!


Paul Gozon 5 years ago

Franchising are killing true entrepreneurs, local economy, local business in the long run. It is also affecting tourism, it does not create diversity, originality. Those who go to franchise, use more of their money than their entrepreneur skills and wits to create unique business. Most of the franchise business don't purchase locally, most profit are channeled back to their main. So in the end, it draining the local economy, eliminating opportunities.


Puneet_Dutt profile image

Puneet_Dutt 5 years ago

I think that the disadvantage of fraud can be eliminated if the person buying, makes the purchase through legitimate networking channels and referrals. We're a lead generation magazine for business opportunities, franchises, and MLM's and we're going strong on reputation.

Thanks for the tips!

Puneet Dutt

The Business Exchange Magazine

www.BusinessExchange.ca

Twitter: @BusinessExchang

Like Us on Facebook! http://www.facebook.com/home.php?#!/pages/Business-Franchise-Investment-EXPO/35978003231


maxravi profile image

maxravi 5 years ago from India

Its really a good way of self employment.I will do that when i will retire.voted up!


matthewjason profile image

matthewjason 5 years ago

great hub.

Really franchising is good thing as well as bad thing you are getting more money if you are doing it genuinely and by studying the whole business of the company of franchiser.

And if you are not good in that you are getting loss in terms of business!

Nice informative hub like this HUb.

Thank you Very Much!


KenWu profile image

KenWu 5 years ago from Malaysia

Well written piece of article. Franchising indeed is good if the brand is already established and well-known. The only down side is this will always cost a lot of money to get started.


intelligentplan profile image

intelligentplan 5 years ago from Cambridge. UK

Great article with very useful info. There is a lot of invaluable info here


LasanthaW profile image

LasanthaW 5 years ago from Sri Lanka

Franchising is the practice of using another person's business model. The franchisor allows the independent operator to adopt the company’s entire business format ...... ......... .. To read more about this please visit http://hubpages.com/business/Franchising-Technolog...


ramy 5 years ago

Great points on both the advantages and disadvantages of franchising. I've never heard of Mang Inasal, hmmm maybe there's an opportunity to franchise it in Canada? :)


emievil profile image

emievil 6 years ago from Philippines Author

Yes, it is good.


jeffreysammisolania 6 years ago

business is business. franchising is good, isn't it?


emievil profile image

emievil 6 years ago from Philippines Author

@MsFran, I don't know if Jollibee is accepting franchises now. They stopped when they went public. But yes, almost all our fast food outlets now are franchised. And if you can forget about not being the one who's really in control and try to do your best, then there's no reason why you can't be successful as a franchisee.

@Krissy, hey thanks for coming back. I'll try to give an answer as soon as I can.

@Jeanie, thanks. Thanks also for your valuable inputs. Hope to see you again in the future.


jeanie.stecher profile image

jeanie.stecher 6 years ago from Seattle

Hi there emievil. In my own personal opinion, a good or strong franchise combined with an excellent location will definitely make one a rich man. Also, certain innovations regarding the trend or market will help your franchised business. For some, it would be hard to start up so they managed to buy a franchise instead and continue the business, but with a price of course. For some who has low capital, they opted to start less and hope and pray that they will, someday, grow into one.

Nice insights you have here, hope to share more with you.


Krissy 6 years ago

thanks emievil.. have read it once.. I guess have to read more this entrepreneur mag. expect your answer emievil. Thanksomuch!


MsFran profile image

MsFran 6 years ago from Here and There, Everywhere

It may be that you don't have much control over your actual business when buying a franchise, but if positioned in the right place and managing it properly it definitely has to be profitable.

When was the last time anyone went into a SM/Gaisano mall and didn't have to queue or look for a seat, especially with the major players like Mac, Inasal and Jolibee.


emievil profile image

emievil 6 years ago from Philippines Author

OnlineMillionaire, with a name like that, I hope you will write more hubs about making money online.

@BPO, you're welcome.

Krissy, I'll get back on you about that. There's a local magazine about franchises - the Entrepeneur magazine. Maybe you want to check that out.


Krissy 6 years ago

I would like to start a small business through franchising. What is the smallest capital I need to have to start my business? What is the hit franchising business in the philippines nowadays?


BPO profile image

BPO 6 years ago from US

Hello,

I run a small BPO firm. Never thought of Franchising before. Now I will.

Thanks.


OnlineMillionaire profile image

OnlineMillionaire 6 years ago

Franchising are great but you need lots of money - best way to go is start a business online low cost high profits :)


emievil profile image

emievil 6 years ago from Philippines Author

@ss sneh, you're welcome.

@mutiny, yes, dare to dream :). Good luck!


Mutiny92 profile image

Mutiny92 6 years ago from Arlington, VA

I would love to own a tax franchise someday...dare to dream!


ss sneh profile image

ss sneh 6 years ago from the Incredible India!

Hi! franchising is a better idea in these recession hit economy. However as you have mentioned one has to do a comprehensive study about the brand and the market in your local area before investing. -- Thanks


emievil profile image

emievil 6 years ago from Philippines Author

Hey LeanMan, well if you love the food here, say goodbye to your leanness :). Great tips on franchising, hope you write a hub about it. I definitely agree with getting in touch with the other franchisees just to avoid any surprises later on. Thanks for your comments.


LeanMan profile image

LeanMan 6 years ago from At the Gemba

I love all of the food there in the Philippines. I am often amazed at the number of food franchises there are, and some advertised on line that I have never seen or heard of..

Before anyone parts with their hard earned money to buy into a franchise they must do their research.. the best is to talk to other owners of the same franchise, the person selling the rights should be happy to put you in touch with a number of owners to talk with, if not you should ask yourself why not??


emievil profile image

emievil 6 years ago from Philippines Author

Hey borge. Thanks for your comments. I'm sending you an email about Mang Inasal. Hope it helps.


borge_009 profile image

borge_009 6 years ago from Philippines

Wow, mang inasal. I love their food there. We are planning to buy a franchise but is somewhat afraid of what benefits it will give us. Thanks for sharing this


emievil profile image

emievil 6 years ago from Philippines Author

Yup Laswi. Jollibee beat McDonald's here in my country. :) Thanks for mentioning it. Unfortunately, right now, I think Jollibee is no longer into franchising but its other food divisions are. I'll go and check your hub. :)


laswi profile image

laswi 6 years ago from Sri Lanka

One of the biggest franchise business in the world is McDonald's. It is the worlds largest food service business. But Emievil, when it comes to the Philippines your own Jollibee has effectively beaten McDonald's. It’s the king of the burger market in the Philippines. Please read more about Jollibee on http://hubpages.com/hub/Jollibee_king_of_burgers_i...


Dao Hoa profile image

Dao Hoa 6 years ago

Franchising is very tempting, but the high fee and not free to do what I want held me back. However, I am still looking into this yet! Thanks.


LRobbins profile image

LRobbins 6 years ago from Germany

Great points on both the advantages and disadvantages of franchising. I've never heard of Mang Inasal, hmmm maybe there's an opportunity to franchise it in Canada? :)


Residual4Income profile image

Residual4Income 6 years ago from Phoenix, Arizona, USA

I heard franchising once described as buying a job instead of having one.


emievil profile image

emievil 6 years ago from Philippines Author

You're welcome Hello. Yup, franchising / franchise a Jekyll and Hyde thing but then again, all businesses have risks. I guess it will be up to the entrepeneur to handle these risks. Thanks for being the first to comment on my hub.


Hello, hello, profile image

Hello, hello, 6 years ago from London, UK

Franchise, as you pointed out in your hub can be very benefiting or a great disaster. I personally wouldn't take that risk Thank you for your hub.

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