Forget commercial marriage, franchising is an entrepreneurial alliance. JASON GEHRKE
By Jason Gehrke
In observing franchising in Australia and after visiting the United States, I have noticed a difference in the approach to the franchise relationship taken by the franchisors of both countries.
In the main, Australian franchisors are generally more concerned about the long-term viability of the relationship after the sale, whereas the American counterparts tend to be more focused on selling franchises rather than the after-sale relationship.
Of course there are exceptions on both sides, but I feel that this key difference in approach often causes problems for US systems entering foreign markets.
This may explain why our coastline is littered with the shipwrecks of US systems that tried and failed to enter the Australian market, who in their haste to do a deal did not take the time and effort to understand the vagaries and nuances of the Australian way of life and customise their business model accordingly.
Indeed more than one major US brand (now a household name in Australia) failed at least once before finally establishing sustainable operations here.
Because Australians speak the same language and lead similar lifestyles to Americans, it might be understandable that they may occasionally overlook the other differences that create a cultural gap between us.
But when franchising to a non-English speaking country, the same mistakes are still made, as I discovered on a visit to Germany in late 2005 where I was reliably informed by the head of the German franchise association (Deutsche Franchise Verband) that one US-based system was granting franchises without yet translating its operations manuals into German.
This poorly-considered approach by international systems entering Australia at least may be partially addressed by the new requirement under the Franchising Code of Conduct for foreign systems to prepare disclosure documents in accordance with Australian law even if they are only granting one master franchise for the country.
Whereas previously single-grant international franchisors were exempt from providing disclosure information, they will now be required to take some time and effort to assess the market and ensure they comply with the code, and in doing so may also develop a better understanding of the requirement to customise their system for the local environment.
Ironically, and despite the approach to international franchising by some US-based systems, franchising in the US has given us two terms that may better describe the unique nature of the franchising relationship in Australia.
The first of these is entrepreneurial alliance, a term that immediately establishes and recognises the dynamic nature of franchising at franchisor level (that is, the entrepreneurship needed to develop the concept at the outset), plus the self-driven characteristics of successful franchisees who see opportunity to partner with a franchisor for greater success than they could achieve by themselves.
The nature of an alliance is that there are goals common to both parties, as well as obligations. An alliance also suggests a time or situationally-dependent relationship, which is also in keeping with the concept of the limited term of a franchise, and the option to renew usually available to both parties at the end of the term.
In many ways this is more illustrative of the nature of the franchise relationship than a “commerical marriage”, a favourite term often used by franchise observers and media alike, and which draws obvious parallels with real life marriage.
However the difference in franchising is that neither party expects to stay together until “death us do part” – both parties know up-front through the disclosure document and franchise agreement what their obligations to each other will be before, during and after the relationship, and in the event of a serious dispute, mediation is a legal requirement. Furthermore, there are no offspring from a franchise, creating awkward weekend arrangements for child visitation after the relationship has ended.
Another term to come out of the US is that of intrapreneur, or inside entrepreneur, whose innovation and drive can accelerate their business development within a larger organisation by drawing on its resources, rather than striking out on their own. This term fits perfectly with the concept of entrepreneurial alliance, as franchisee intrapreneurs still require the framework and concept of the franchise system on which to build their own entrepreneurial success.
The inference of both of these terms is that profit underlies the nature of the relationship, and this is perhaps not as apparent in a “commercial marriage” where profit may be a byproduct of, but not necessarily the reason for, the relationship.
Either way, for franchisors and franchisees an entrepreneurial approach that produces positive outcomes for both parties in recognition of the unique interdependence of their relationship is a healthy sign of a long-term and prosperous business dynamic. For franchising in Australia, this approach is potentially more evolved and widespread in its application than in the United States, notwithstanding the origin of the terms used to describe it.
Jason Gehrke has a passion for franchising. He has been involved in the sector for 17 years as a franchisee, a franchisor, provided PR and marketing services to more than 30 leading Australian franchise systems, and presented to literally thousands of potential franchisees and franchisors over the years. He is a director of the consultancy Franchise Advisory Centre and is the immediate past CEO of automotive paint and plastic repair franchise, Kwik Fix
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Carl Zwisler writes: If you have just returned from the International Franchise Expo, an event at which franchises are promoted to prospective franchisees, I can understand the feeling that US franchisors mostly focus on selling franchises. However, the success of franchising in the US has been dependent upon franchisors fostering and nurturing excellent relationships with their franchisees over the long term. One need only look at the programs offered at the IFA Annual Convention or the many other meetings conducted by IFA to gain an understanding of how important these matters are.
IFA pesident Matt Shay addressed those very issues in an interview with Don Sniegowski on his Blue Mau Mau website this week.
Having said that, it is fair to say that some franchisors have granted franchises in other countries without understanding the country, the culture or what would be required to make the franchise succeed there. However, I have personally participated in many educational programs sponsored by IFA and others over the years which are designed to educate franchisors and prospective international master franchisees about what is needed for successful international franchise relationships. Regretably, far too many international franchisors and prospective master franchisees are learning about these issues the hard way, through trial and error, rather than through taking advantage of the courses, materials and consultants who can help them to avoid or overcome the problems which consistently recur in international franchising.