by Rudolf Kotik
In a world in which business strategies and techniques are continually improving, superior customer relations and outstanding supplier relationships are critical. In many ways, the franchise relationship is the definitive expression of this principle. A Franchisor and its Franchisees jointly contribute to a supply system for products or services focused on the customer. They obligate themselves to each other under an agreement and endeavor to establish a durable, long-term relationship that will impact virtually on every aspect of their respective businesses and protect that supply system. Few other business arrangements are so all encompassing. Unless a Franchisor and its Franchisee deliver to each other what they have promised, the supply system to the customer will be compromised. The mutual commitment of the Franchisor and Franchisee to their network and resulting consistently high level of customer approval of their products or services easily recognize good franchise systems.
A franchise relationship must have an effective structure. Franchising is a contractual relationship. The Franchisor and the Franchisee each make commitments and agree to operate under certain constraints. In the aggregate, these commitments and constraints constitute the structure of a franchise relationship. That structure must protect the Franchisor and all Franchisees of the franchise network and afford opportunity and security of the Franchisee. There are a number of elements of the structure of a franchise relationship that are critical to its effectiveness as the foundation for an expanding franchise network.
Franchisors control the products and services that their Franchisees are permitted to sell in order to control quality of the goods and services sold by Franchisees. Limiting the scope of the franchised business to those products and services that are within the scope of the Franchisor’s expertise and to preserve a uniform image. It is common for Franchisors to permit some Franchisee experimentation and variation because Franchisees are an excellent source of innovation, regional variations may be necessary and different customer bases may require variations in product or service mix or different emphasis.
Franchisors typically prohibit their franchises from having investments in or performing services for a competitive business. This prohibition is intended to protect confidential information, maintain the Franchisor’s revenue, prevent the use by competitors of the Franchisor’s know-how and focus the Franchisee’s efforts on his franchised business. Such prohibitions are sometimes limited to the Franchisee’s territory or a larger territory, but frequently have no geographic limitation. Prohibited competitive business may be defined broadly, including related types of business. Such prohibitions are a deterrent to the Franchisee and a risk to termination of his franchise if he does not comply.
Rudolf Kotik is the founder of RK Franchise Consultancy Inc, who developed more than 350 Filipino Companies into Franchise Systems. email: rk@rkfranchise.com
