Saturday, 4 July 2009

Franchising in the Philippines: Progress and Prospects

IDEA Corkboard
BY RENZ ADRIAN CALUB
BusinessWorld
http://www.bworldonline.com/BW070409/content.php?id=idea

FRANCHISING has become an easy and convenient way to deliver goods and services to consumers. Aside from usual food and beverage establishments, other services such as salons, hotels, and many others are now also open for franchising.

Clearly, consumers are not the only ones benefiting from the welcome convenience offered by quick services or from the wider range of products and services made available to them.

Franchisers, in turn, also reap the benefits through profit.

It would be interesting to know what is behind franchising and how it exploded in the market.

Origins

Franchising has had a long history, but the concept is widely believed to have started from sewing manufacturer, Albert Singer.

The idea came about to address one common problem in business: funding.

In the 1850s, the Singer Company produced sewing machines, but could not pay its salesmen their salaries. As an alternative, the company created a network of dealers who paid Singer a fee to sell the machines. These first franchise owners made money for each sewing machine they bought from Singer and eventually resold within their particular territories.

Other prominent examples abound in history. Coca-Cola, for example, was originally created as a fountain drink until Benjamin Thomas and Joseph Whitehead obtained permission in 1899 to bottle the soda. Upon realizing that they alone could not afford to create a bottling company, the two created a franchise company that sold the right to bottle the cola to individual plants.

In the Philippines, franchising also traces its roots to the Singer Sewing Machine. In that period franchising was limited only to foreign businesses and public utilities services until the Philippine Franchising Association was created in 1995. During that time, there were only 111 franchise concepts which eventually grew to 967 concepts in 2007.

Lucrative business

Over the years, franchising has become a lucrative enterprise.

In the Philippines, the number of franchise concepts has grown by 19.8% in a span of 12 years to 2007.

In the same year, of the total number of franchise concepts, 43% are in the food sector, 28% and 21% involve retail and services, respectively, and 3% are engaged in specialized services such as hotel services and memorial services.

According to Philippine Chamber of Commerce and Industry President Samie Lim, franchising is a promising venture given the country’s growing consumer market and rising per capita incomes and rate of urbanization.

The emergence of the business-process outsourcing industry also gives opportunities for establishments to extend their operating hours to cater to different workers throughout the day, especially to those working in graveyard shifts.

According to Philippine Franchise Association (PFA) President Robert F. Trota, franchising remains a good business option amid the economic slowdown.

The continued inflow of OFW remittances also provides adequate support from both the supply and demand side. Remittances enable some households or persons to venture into franchising; at the same time, remittances also boost the consumption of goods and the patronage of various services that franchised establishments offer.

The overall effects on the economy have been substantial. In the latest PFA study presented by the chairman emeritus Samie Lim, income from franchising represents some five percent of the country’s gross domestic product from 2005 to 2007, which translates to approximately P106.75 billion for the economy. It is also an important means to create enterprise and generate employment, creating an estimated 200,000 franchise outlets and employing almost a million of Filipinos nationwide.

Department of Trade and Industry Undersecretary Zenaida Maglaya has noted that franchising is a sure and secure way to a successful business due to the availability of technology, formula, and the process, giving the entrepreneur an advantage since he or she will not necessarily start from scratch.

Prospects

In addition to the emergence of the business process outsourcing units, the franchising industry also sees tourism as a road to market expansion for local businesses.

According to Franchising in the Philippines in 2008: Country Report, tourist inflows afford franchisers an opportunity to acquire concepts from the country where these foreigners come from to cater their needs and preferences.

In addition, the franchising industry can capture more investment in the forward and backward linkages in the tourism industry; in this case, they can venture into travel and transport services, hotel and other accommodation services, food and beverage, and others.

The franchising industry also boasts a competitive stance in franchising operations abroad. In fact, the Philippines ranked 4th in the world when it comes to franchising concepts (and 1st among ASEAN nations). With its success in the local market, some brands such as Jolibee, Bench, Max’s Restaurant, etc. have penetrated and established their grounds in the foreign market.

Indeed, the franchising industry has proven to be a successful business in the country, surviving even in tough economic times. Further, this business has indeed provided starting entrepreneurs a good head start in the world of business, given the readily available technology and process of running the franchise. With its growth in the local market and penetration in the international market, this venture is indeed a good business prospect.

References:

* Rubio, Ruby Anne. RP leads ASEAN in franchising. BusinessWorld, 05 Jul 2007. Retrieved August http://codex.bworldonline.com/php/new_webget.php?htm=07/07070560.htm&uid=IDEA
* “Franchising seen weathering down.” BusinessWorld. Volume XXI, issue 242. S1/1 “Franchising in the Philippines in 2008: Country Report”
* Seid, Michael H. History of Franchising: Where it all began…The evolution of franchising. Retrieved June 23, 2009 http://www.whichfranchise.org/article.cfm?articleID=255
* Younger, Bill. The History of Franchising � The Creation of the Franchise Business. Retrieved August 28, 2008 http://ezinearticles.com/?The-History-of-Franchising—-The-Creation-of-the-Franchise- Business&id=113608

For inquiries on IDEA, please contact Eduard Robleza at edjrobleza@idea.org.ph.

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