“Here’s an arrangement where the franchiser designates a territory, not just an outlet, for which a franchisee can use the trademark and the business system.”
We are all familiar with single-unit franchising, the route normally taken by franchisers to franchise their business. A single-unit franchise agreement is drawn up for a single location. The franchisee can use the franchiser’s trademark and business system only in the location specified in the franchise agreement. Suppose the franchisee wishes to open second or more locations. In that case, separate single-unit franchise agreements must be drawn up.
Territorial franchising is different from single-unit franchising. As the term indicates, a territorial franchise is not for just a single location but a particular territory. Another term for territorial franchising that’s used internationally is “master franchising,” which is more commonly used in the Philippines. Under this arrangement, the franchiser specifies the territory for which the franchisee can use the trademark and the business system. A territory, of course, can be a province, a city, or a group of islands like Visayas or Mindanao.
WHAT’S REQUIRED OF THE FRANCHISER
Processing for territorial franchises normally takes longer than that for a unit franchise. In this case, the franchiser will not only consider the capability of the territorial franchise applicant to manage one branch but also their capability to manage multiple branches. And from the usual determination of management capability, the franchiser will also need to look at the competence of the prospective territorial franchisee. Build a middle management team to run the franchised branches within the territory.
The franchiser then has to implement additional monitoring and control systems for the franchised branches within a territorial franchise since reaching these territories could take hours. The branches would not be within the usual daily route of the franchiser’s service officers. This could mean using state-of-the-art communications technology to effectively monitor the operations of those branches.
For instance, one franchiser had to install remote cameras to check on how customer service is provided and how the branch is maintained and manned daily. Another franchiser found it necessary to have the branches in a particular franchise territory hooked by POS (point-of-sale system) to its headquarters. This enabled it to constantly monitor product movement and provide proper inventory forecasting assistance to those branches.
Due to the distance factor, field visits by the franchiser to the branches of a territorial franchise cannot be done as frequently as those to single-unit franchises. For this reason, a territorial franchisee must be given additional training on effectively providing operational assistance to its branches.
WHAT’S REQUIRED OF THE FRANCHISEE
Based on the intrinsic differences between single-unit and territorial franchises, it is evident that territorial franchising will require much more dedicated resources. People, finances, and, most important, the franchisee’s time.
Knowledge of the local market and the franchise network is even required for unit franchisees. Still, the extent and scope of this market and network knowledge are much more significant in the case of an entire territorial franchise. Indeed, the territorial franchisee will have to study the market characteristics. And the potential of the whole territory for his territorial franchise application and for every branch they intend to put up within the franchised territory. In short, the franchisee must do the market study on two levels, not just one.
Master franchising is generally similar to territorial franchising, but the scope of the former is much broader. While territorial franchising covers only a specific territory in a particular country, master franchising usually involves or covers an entire country.
MASTER FRANCHISING BY HOMEGROWN FRANCHISERS
The highest goal that a homegrown franchiser can aspire for is, of course, to go global. This is because going global can add great and immeasurable value to the brand and prestige to the franchiser. More than that, being able to go global is proof that Filipino companies can compete in the worldwide community of franchisers.
Master franchising is, in fact, the route that has been taken by most successful international franchisers. Which the Philippines has been awash for so many years now. Therefore, our homegrown franchisers should learn from these successful international franchisers and use the very same mechanisms they are using to expand internationally.
HOW MASTER FRANCHISING CAN BE DONE
The first question that needs to be answered by a homegrown company aiming to enter international master franchising is this: How do we go about doing it?
This may sound facetious, but the first step required of a company wanting to enter international franchising is to decide that it wants to do so. Due to the complexities involved in master franchising, it will not do for companies to be half-hearted in pursuing it.
THE NEED FOR FULL COMMITMENT
The next step is to prepare to plan for international expansion. one that explicitly identifies your goal. How you want to achieve that goal, your action plan, the resources and people required to implement the plan, the responsibilities of the people involved in the undertaking, and the timeline for achieving your goal.
A very important step must be undertaken to clearly identify the core product or service. You would like to franchise internationally and clearly state the value proposition you want to bring to the international market. This value proposition should be invariable in whatever country you are going with your international franchise, for it is the very “soul” of your franchise model.
In master franchising, many ramifications must be considered from country to country. Since each of them will have a different culture and be another type of market. Very early in your planning stage, you need to determine what cannot be changed and what can be adapted to the market in each of your target countries.
Next, the franchiser must determine the most important aspects of pre-operating and continuing support and assistance that must be provided to the master franchisees in a particular target country. On this basis, the franchiser can establish the initial master franchise fees, the franchise fees for each branch, and the marketing support fees. Even if the franchiser has had experience determining these fees locally. Doing them for the international market will generally be more complicated as there are many other inputs and costs to consider, like travel to the target country.
Of course, a critical requirement for master franchising is registering your trademark with the country you are targeting. This is usually not a very complicated thing to do because many companies’ laws on intellectual property are international in character, with practically the same or similar procedures for registering a trademark. The important thing, however, is not to overlook your trademark registration in each country where you intend to open a master franchise.
The international master franchising process will normally be much longer. And more laborious than that for a purely local franchise, but successfully establishing your franchise in one or more countries other than your own will be well worth the effort.
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You may contact Armando “Butz” Bartolome for questions and more information.
By email: aob@gmb.ph
FB Page: Armando Bartolome
Linkedin: https://www.linkedin.com/in/franguru/
Website: https://www.gmb.ph
