Your Guide to Franchise

CAIRO - 31 January 2019: An increasing number of consumers in the modern age trust branded products and services. One of the greatest growth strategies ever to attract these consumers is franchising, which creates promising business opportunities for local investors, particularly in developing countries where market saturation has not been reached yet.

The International Franchise Association’s (IFA) Vice President, International Affairs and Chief of Staff, Josh Merin, shared insights with Business Today Egypt on how the sector operates to promote and protect the interests of IFA members across the globe through trade missions, advocacy, conferences, educational programming and research. He also digs into the details behind just what makes franchising a growth strategy to consider.

How would the International Franchise Association (IFA) cooperate with Egypt?

The IFA values its longstanding relationship with the Egyptian Franchise Development Association (EFDA) since its establishment. Through the World Franchise Council, both the EFDA and IFA have worked together to support the development and protection of franchising to promote a collective understanding of best practices in fair and ethical franchising across the globe. This collaboration has deepened in the recent years; with each association’s role in the leadership of the World Franchise Council. The EFDA and IFA’s relationship is growing still deeper moving into 2019; with IFA’s support of the Legal Symposium being mounted by EFDA and the EFDA’s adoption of the IFA’s Certified Franchise Executive (CFE) program. This program aims to enhance the professionalism of franchising by certifying the highest standards of quality training and education. Meeting the requirements of the program and completing its course of study; this leads to the Certified Franchise ExecutiveTM (CFE) designation. In addition, the CFE program offers a wide range of continuing education programs for professional development.

What are the requirements to earn the Certified Franchise Executive designation?

To earn the CFE designation, a candidate must enroll to the program [enrollment in Egypt is through EFDA] and accrue the designated number of credits in three main categories: education, participation, and experience, and later pass the program’s final exam.

There are 745,290 franchises operating in the United States. How many of those are American and how many are foreign?

While it is not possible to provide a precise count, IFA estimates that more than 90 percent of the brands that these units are affiliated with are American either in origin or ownership. In recent years numerous international franchises have established successful and growing presences in the U.S. market.

What sectors in the U.S. provide good franchising opportunities? What are the countries/ regions that attract American franchisors per industry/sector?

The personal services sector is a franchise witnessing extensive growth. Much of it is driven by demographic and social trends, such as parents investing in their children’s development, increased demand for senior care, and the continually rising focus on fitness. Some of the most popular markets to U.S. franchisors include Canada, Mexico, the UK, Australia and the Gulf area.

Which is more common, manufacturing or service franchising?

There are two types of franchising relationships: the business format franchising and the product distribution franchising. The most identifiable type to the average person is the business format franchising, where the franchisor provides not only its trade name, products, and services, but also its know-how and the business’ entire operating system. This format also offers the franchisee a structured site selection and development support, operating manuals, training, brand standards, quality control, a marketing strategy and business advisory support.

While the other type of franchising, the product distribution franchising, is based on a supplier-dealer relationship where the franchises simply sell the franchisor’s products. In this relationship, the franchisor licenses its trademark and logo to the franchisees, but typically does not provide them with an entire system for running their business. The most common industries that adopt the product distribution franchising include soft drinks, automobiles and gasoline. Manufacturing businesses more commonly (but not exclusively) adopt the product distribution franchising while service businesses are more oriented to business format franchising.

What are the qualifications of a potential franchisee?

Each individual franchisor set their own qualifications to award a franchise. These qualifications range from proven experience to investment requirements, and widely vary across industries and brands.

When would a brand need a franchisee to enter a certain market instead of just a licensee or instead of directly investing there?

The business model to use when entering a new market is a key strategic decision. Even within franchising there are different models, including direct franchising (franchisor directly engages in development and support of single units in a foreign market), area development (territory or country agreement with no subfranchising), and master franchising (subfranchising). Many franchisors use different models depending on the attributes of the market. A franchise relationship is much more extensive than a relationship that is license only. For example, a franchisee will usually receive training, marketing and other support on an ongoing basis and need to conform to brand standards as compared to simply selling a branded product.

What a franchisor and a franchisee should do to avoid manipulation by the other party?

Before investing, franchisees should clearly understand the franchise business model. It is the responsibility of each prospective franchisee to conduct a thorough due diligence of the franchise system, to retain competent legal and other advisors and to fully understand the terms before signing any franchise agreement. Prospective franchisees have the prerogative, at the beginning of the franchise relationship, whether or not to enter into any particular franchise relationship or franchise system.

Similarly, franchisors should clearly understand the franchise business model prior to choosing franchising as a method to expand their business concept.