Having first made itself known back in the 1990s and not having received proper development then for a number of reasons, in the last 15 years, franchising is rapidly gaining momentum in Russia.
While in the countries of the European Union and the United States, franchising relations already totaled almost 100 years of history. According to an interview with the president of the RAF (Russian Academy of Franchising), Russia "ranks eighth in the world in terms of the number of national concepts (65% of the total number of franchises in the country) ..." [30]. Franchising is inherently a reflection of mutually beneficial economic relations with a low degree of risk and stable income between a large company and an entrepreneur. This gives a rather large effect from the cooperation between the franchisee and the franchisor, united under one trademark: together they carry out activities that are beyond the power of one individual entrepreneur. Given that in Russia small and medium-sized businesses (as of 2017) account for 20% of GDP, franchising concepts and their development are steadily leading to increased economic welfare and its stabilization.
Attractiveness is also expressed in the complex nature of relationships, their transparency, efficient distribution of investments, wide distribution system goods and services, strengthening the competitive advantages of market participants, the opportunity faster entry into the market with minimal risk to new participants in the system. Franchising gives great chances for success, and thereby becomes an increasingly popular way of organizing business around the world. In this regard, the study of franchising, its specific features, as well as development prospects abroad and in Russia is very relevant today.
Today, international business is characterized by the presence of a number of factors that hinder its development. In particular, there is a need to expand sales of manufactured products, attract specialists to the dealer network of large firms; increase efficiency and extend the life of small businesses. All this is possible using a mechanism such as franchising: it allows you to increase the profitability of small businesses by combining the advantages of small and large businesses. Just 15 years ago, the term “franchising” in the Russian Federation was not so popular and not so accessible in implementation, while in the USA, for example, the concept had a century-long history. To date, there are many definitions of franchising and its subject - a franchise or franchised package. Some of the theorists define franchising as a system of relations and obligations between the parent company and smaller firms:
- “Franchising is a business organization in which a company (franchisor) transfers to an independent person (franchisee) the right to sell the product and services of this company” [39, 408];
- “Franchising can be described as a special method or method of commercial activity, when an individual entrepreneur or a small commercial enterprise agrees with a large company that is well known and enjoys a good reputation in the national or international market that this entrepreneur (or enterprise) will conduct its commercial operations under the name of such a company or under its brand or to render their services under the brand name of service ”[9, 203];
- “Franchising is a form of long-term commercial service for firms, within which the franchisor transfers the rights to sell its goods and services to the franchisee firm, which simultaneously obtains the right to use the brand, marketing technologies, service standards, corporate design and business reputation of the franchisor” [5, p. 380];
- “Franchising (franchising) - a system of selling licenses (franchises). The franchisor gives the organization permission to use its production technology, brand, trademark and logo in exchange for payment of royalties for their use ”[18, 99];
- “The essence of franchising is as follows: a large parent company (franchisor), grants the right to a small enterprise (franchisee) for a certain period of time and in a certain place to conduct entrepreneurial activity using its trademark, production technologies, know-how in a form that is determined by the terms of the contract ”[10, 201];
Thus, we can conclude that franchising is a form of entrepreneurship in which the development of the concept of doing business and its implementation is carried out by two legal entities - the franchisor (the person providing the brand) and the franchisee (the person supplying, manufacturing products and services under this brand ) In general, franchising is the integration of small and large businesses in order to expand the market. At the same time, combining all the above terms, it is possible to highlight the characteristic specific features for franchising, which will help to more fully represent the essence of this process.
1. Relations between the franchisor and the franchisee are regulated by a certain type of license - a franchise. In some sources you can come across such concepts as “franchisor company”, “franchisor”, “franchisor”, “licensor” equivalent the concept of "franchisor" in our study, and the "franchisee", "franchisee", "licensee" are equivalent to the concept of "franchisee". A franchise (or license, franchise package) is a complete business system that serves as the subject of relations and determines the terms of use of the brand and system, its term, rights and obligations of the franchisor and franchisee.
2. Also, the system of relations in the franchising system involves payments in favor of the franchisor. Usually these are 2 types of payments - down payment and regular deductions (royalties) paid by the franchisee to the franchisor for the services provided and for the franchise.
3. Franchising is a long-term commercial relationship and legal independence of the parties.
4. The franchisor is usually a company that has earned the trust of consumers in the market, has proven the success of the business scheme, as well as a kind of reproducibility (or versatility) of the business model. Franchisees are usually smaller firms, or individual entrepreneurs, who can quickly open their business with the least risk (provided that the franchise is correctly selected) and successfully operate in the market.
The International Franchising Association identifies about 80 sectors of the economy in which franchising methods can be used. These industries include: car repair, bookstores, children's clothing and training, accounting services, construction, grocery stores, cosmetic stores, education, employment services, restaurants, hotels, tour services. operators, entertainment and so on. The most popular areas where franchising is developed are wholesale and retail trade, the service sector, and construction. It is under this system that many construction and logistics companies, car service services, restaurants and snack bars, consulting firms providing audit, legal and other services are created. The popularity of using franchising in these areas is explained by the following fact: one of the significant competitive advantages in these industries is creating a brand reputation.
Regarding the classification of types of franchising, an analysis of literature research in this area, it was possible to distinguish classification according to 2 criteria:
1. By type of production, that is, at what stages of production is the transfer of goods / services to the franchisee.
2. A way to provide a franchise.
As for the first classification criterion, 4 types are usually distinguished:
-good goods (franchising of goods);
-industrial;
- business (business format franchising);
-service.
Commodity franchising (franchising a product or a trade name) is franchising in the field of retail for the sale of finished goods [38, 420]. Often the role of the franchisor is the manufacturer who sells the finished product or semi-finished product to his franchisee. The latter, in turn, sells through its wholesale and retail network, providing pre-sale and after-sale customer service.
Production franchising implies the following type of relationship. In its production, the franchisee uses all possible distribution channels, “know-how”, the franchisor’s trademark in the manufacture of its products. That is, the franchisees here simply act under the brand name of the franchisor, but they are also included in the full commodity-production cycle of the enterprise’s economic activity. A rather important point in this type of franchise is strict quality control by the franchisor and detailed regulation of activities.
Business format franchising is mainly used to open stores, kiosks, groups of stores with the aim of selling sets of goods and services under the name franchisor. This is possible by acquiring a license to establish business enterprises under the brand name and tight control of the franchisor over compliance with technology, quality and training. Business franchising is divided into 3 subgroups [38, 488]:
- franchise workplace - work franchise, that is, the franchisor creates a well-prepared workplace for the franchisee; the main investment is the purchase of a vancounter;
- franchise-enterprise - a commercial franchise requires large investments in the production cycle, the availability of working premises, additional staff;
- Investment franchise, in which the main goal is to return the initial amount of investment.
A service franchise is similar to a commodity franchise with the condition that the franchisee carries out a strictly defined contractual type of activity in the service sector under the franchisor’s trademark.
As for the classification according to the second criterion, the most common ways to provide a franchise are:
- direct franchising (classic model);
- Master franchise (developing franchising), which, in turn, can be divided into sub-franchising and regional (district franchising).
Direct franchising is most common abroad, but not recognized in the Russian Federation [11, 6]. There is a simple explanation for this, described below. The classic franchise implies 2 types of payments (initial and regular royalties), strict selection of franchisees; registration for use of a trademark in government bodies; training, strict adherence to corporate standards, as well as very tight control over the conduct of business, and regular reporting. In domestic culture, franchisees acquiring an international franchise, unfortunately, are not always ready to “adapt to the tight control of the Western model” [11, 7]. Direct franchising provides, however, a very close relationship between the entities. With international franchising, the geographical location complicates the whole process due to the fact that there is no way to support franchisees at the local level.
Master - franchise (developing franchising). Implies franchise sales for a specific region. A fairly developed scheme in international franchising, because often the rights to develop systems in the territory of one country are transferred. Thus, buying this type of franchise, the franchisee himself becomes a franchisor. Accordingly, sub-franchising is a form of franchise organization in which a franchisee with a general license exercises control over a certain area with the right to sell sub-franchises. With district franchising, the franchisor has the right only to develop a certain area with an agreed number of enterprises and a schedule for their opening [24, 438].
As for the franchise system itself, then, based on all of the above, we can say that this definition refers to such an organizational structure that consists of 2 entities - a franchisor and a franchisee, which is clearly mutually beneficial for both - the functions of wholesale and retail trade are combined, and, accordingly, costs are actually reduced. At the same time, as in any other system, the organizational structure should reflect the totality of the links in the system, their relationship and relationships in the process of functioning, and also ensure the formation of a communication network for making management decisions that meet the goals of the franchise system If we talk about the typology of franchising systems (based on the franchisor’s place in the sales channel), here we can offer the classification presented by E.P. Golubkov [24, 230-231]:
1. A commodity producer is a retailer.
2. A commodity producer is a wholesaler.
3. Wholesaler - retailer.
4. Service provider - retailer.
The first system is practiced when transport (logistic) communications are established. For systems of the second type, the transfer of sales functions to a merchant is characteristic, with which the manufacturer enters into a franchising agreement. The third system is applied when the wholesale organization receives goods from many manufacturers and integrates retailers into the franchising system. For such systems, franchising is usually used in a business format.
And the fourth system is practiced in the provision of a trademark, methods of production and sale of services.
The first two systems are characterized by commodity franchising. The fourth system is the service one.
Any system of franchise relations is built on the basis of the following principles [47, 239-240]: professionalism, equality, organization of a continuing education system, marketing support, support for the high status of the franchisor, constant exchange of information, assistance to the franchisee in the formation of the image, support of a certain level of control.
Also, an analysis of the literature in this area allows us to highlight the advantages and disadvantages of the franchising system for both the franchisee and the franchisor.
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