FRANCHISE
INTRODUCTION
Franchise comes from the Anglo-French derivation -
from franc -
meaning free, privilege
or freedom and is used both as a noun and as a (Transitive) verb.
Franchise was first introduced in the 1840s; the
German brewer gives
exclusive rights to certain shops to sell
their home-made beer. In 1850's by Isaac Singer,
Singer make sewing machine, when they want to increase sales distribution
of sewing machines. Even though his effort failed,
but he was the first
person who introduced the franchise business format
in the U.S. Then it
was followed by another,
more successful franchisees,
John S Pemberton,
the founder of Coca Cola.
However, according to other sources, which follows Singer then
is not Coca Cola, but the auto company General
Motor Industry that sells vehicles to appoint
distributor franchise in 1898. After that, it followed by soft drink companies
in the United States as a distribution channel in
the U.S. and other countries.
Franchising in Indonesia
known since the 70's when the Shakey Pisa,
KFC, Burger King
and Swensen came. It seen very rapid development began
around 1995. Franchise in Indonesia has
experienced the deterioration due
to financial crisis. The recipients of foreign franchises were forced to close down because the value of the rupiah plunged very
deep. Until 2000, foreign franchises are still waiting
to go to Indonesia. That is
because the economic and political conditions that have not been marked by the feud stabilization of
the political elite. It was only in 2003, the franchise business in the country has developed very rapidly.
EXPLANATION
v Definition of Franchise
Definition of franchise can be divided into 2 (two) aspects, namely
1. Juridical
a. According to
the legislation
- According to Article 1, paragraph 1 of Government Regulation No. 42 tahun2007 on franchising. It is a special privilege that is owned by an individual or business entity to business system with the hallmark of the business in order to market their products and / or services that have been proven successful and can be used and / or used by another party based on the franchise agreement.
- According to article 1 1ayat Minister of Industry and Trade No. 259/MPP/Kep/7/1997 on Provisions and Procedures of Franchise implementation, which is a franchise was the engagement in which one party is given the right to utilize and or use of intellectual property rights or meeting or the hallmark of any party to a reward based on the requirements set other party, or in the provision and sale of goods or services.
b. According to expert opinion
- According to Peter Mahmud, definition of franchise as a juridical:
"A contract which entitles the other party to use the names and the procedures that are owned by those who have the right"
- According to Salim HS, in juridical terms of franchise is a contract made between the franchisor and the franchisee with the provisions of the franchise franchisor to license to use the trademark goods or services within a certain period and the payment of certain royalties to the franchisor
2. Business Aspects
a. Bryce Webster suggests understanding the business aspects of the franchise from one of the methods of production and distribution of goods and services to consumers with a certain standard and system of exploitation.
b. According Indonesia Franchise Association, the franchise is a system of distribution of goods or services to end customers, where they are the owner (franchisor) gives rights to individuals or companies to carry out business under the brand name, systems, procedures and ways predetermined a period of time covering a specific area.
- According to Article 1, paragraph 1 of Government Regulation No. 42 tahun2007 on franchising. It is a special privilege that is owned by an individual or business entity to business system with the hallmark of the business in order to market their products and / or services that have been proven successful and can be used and / or used by another party based on the franchise agreement.
- According to article 1 1ayat Minister of Industry and Trade No. 259/MPP/Kep/7/1997 on Provisions and Procedures of Franchise implementation, which is a franchise was the engagement in which one party is given the right to utilize and or use of intellectual property rights or meeting or the hallmark of any party to a reward based on the requirements set other party, or in the provision and sale of goods or services.
b. According to expert opinion
- According to Peter Mahmud, definition of franchise as a juridical:
"A contract which entitles the other party to use the names and the procedures that are owned by those who have the right"
- According to Salim HS, in juridical terms of franchise is a contract made between the franchisor and the franchisee with the provisions of the franchise franchisor to license to use the trademark goods or services within a certain period and the payment of certain royalties to the franchisor
2. Business Aspects
a. Bryce Webster suggests understanding the business aspects of the franchise from one of the methods of production and distribution of goods and services to consumers with a certain standard and system of exploitation.
b. According Indonesia Franchise Association, the franchise is a system of distribution of goods or services to end customers, where they are the owner (franchisor) gives rights to individuals or companies to carry out business under the brand name, systems, procedures and ways predetermined a period of time covering a specific area.
v
Types of Franchise
There
are three basic types of franchises:
Product
Franchises.
Manufacturers use the product franchise to govern how a retailer distributes their product. The manufacturer grants a franchisee the authority to distribute goods by the manufacturer and allows the owner to use the name and trademark owned by the manufacturer. The franchisee must pay a fee or purchase a minimum inventory of stock in return for these rights. Examples of Product Franchises include: Mobil, Goodyear, Baskin Robbins, and Ford Motor Company.
Manufacturers use the product franchise to govern how a retailer distributes their product. The manufacturer grants a franchisee the authority to distribute goods by the manufacturer and allows the owner to use the name and trademark owned by the manufacturer. The franchisee must pay a fee or purchase a minimum inventory of stock in return for these rights. Examples of Product Franchises include: Mobil, Goodyear, Baskin Robbins, and Ford Motor Company.
Business
Format Franchising.
This is the most popular form of franchising. In this approach, a company provides a franchisee with a proven method for operating a business using the name and trademark of the company. The company will usually provide a significant amount of assistance to the business owner in starting and managing the company. The franchisee pays a fee or royalty in return. Examples of Business Format Franchises include: McDonalds, Dunkin Donuts, Carvel, AMMCO and Fantastic Sam’s.
This is the most popular form of franchising. In this approach, a company provides a franchisee with a proven method for operating a business using the name and trademark of the company. The company will usually provide a significant amount of assistance to the business owner in starting and managing the company. The franchisee pays a fee or royalty in return. Examples of Business Format Franchises include: McDonalds, Dunkin Donuts, Carvel, AMMCO and Fantastic Sam’s.
Manufacturing
Franchise.
These types of franchises provide an organization with the right to manufacture a product and sell it to the public, using the franchisor's name and trademark. This type of franchise is found most often in the food and beverage industry, but can be applied to other industries. Examples of Manufacturing Franchises include: Coca-Cola, and Sealmaster.
These types of franchises provide an organization with the right to manufacture a product and sell it to the public, using the franchisor's name and trademark. This type of franchise is found most often in the food and beverage industry, but can be applied to other industries. Examples of Manufacturing Franchises include: Coca-Cola, and Sealmaster.
ADVANTAGE AND DISADVANTAGE OF FRANCHISE
v
Advantage of franchise: As a business structure, a
franchise can certainly be an appealing option. With a number of advantages, it
is often the choice of those looking to start a new business without the risks
associated with going out on their own.
An
Established Business
A
franchise offers the advantage of operating under the banner of an already
established business. The ideas, the brand, the operating techniques and much
more are already tried and tested and in place ready to be implemented again
and again at a new location as each franchisee takes up the mantle.
A
Known Brand
Operating
under the banner of a franchise allows a franchisee to take advantage of the
previously established brand of the business. This means there will (in theory)
be far less work (and cost) involved in trying to establish and build on the
brand of the business. It will already be known and trusted by the market and
therefore should produced a steady stream of brand-loyal customers. Adopting a
franchise means the advantage of the franchises trademark and the benefits of a registered trademark.
Simpler
Business Financing
Yet
another advantage of franchises is the fact that acquiring business finance is
generally easier. Investors are far more willing to invest in a business with
an established network, secure brand and effective support structure. In some
instances, finance may be acquired from the franchisor, making life even
simpler for the new business.
Business
Relationships
The
franchisee can also take advantage of the numerous business relationships
already established by the franchisor. In all likelihood, relationships with
suppliers (and perhaps distributors) will already be in place and easy to
manage. The advantages of already established relationships with advertisers
and marketing teams may also be of benefit to the new business start-up.
Support
and Security
Franchises
offer the advantage of a support and security system. Often franchisors will
offer training schemes and support with things like the management of accounts,
sales, advertising and more. These sorts of things may well be included in the
price of the franchise fee.
Less
Likely To Fail
The
old myth is that 95% of businesses fail within the first
5 years – this (false) point is often championed by franchisors who
are trying to encourage new people into their network. The security offered by
the franchise can give the impression that the business will be less likely to
fail.
You’ll
Make More Money?
People
often think that another advantage of starting a franchise is that they will
make more money. With the backing of a big name and a big brand, they think
they’ll get more customers and thus more profits. In truth, this isn’t always
the case. The fees that a franchisee pays to the franchisor often means a big
cut in profit and due to the limits imposed by the rules of the franchise it is
often less easy to invest the profits in a tax-efficient way as you could by forming a new limited company. A franchisee might benefit
from higher profits in the beginning, but in the long term, they will often
find that starting their own business would have been more profitable.
v
Disadvantage of
franchise:
Just as with any business model, there are disadvantages to setting up a franchise.
Quite often people are under the mistaken belief that the advantages outweigh
the disadvantages, but this is because they are commonly blinded by the
potential risks of starting a new business from scratch.
No
Control
The
first and most significant disadvantage of a franchise is the fact that the
franchisee has no control of the business or how it is run (or very limited
control). The rules of the business are already established and part of the
franchise agreement. How the business operates is set out by the brand of the
franchise and it is very rare that a new franchisee will be able to operate
outside of these borders.
Tied
To Suppliers
Operating
a business, you’d probably like to keep costs down. Finding the cheapest
suppliers to minimise your overheads and maximise your profits. But being part
of a franchise means you’ll be required to use the franchise supply network.
You will be tied to the suppliers dictated to you by the franchise agreement.
The obviously disadvantage for a franchisee here is not only the lack of
control, but the reduction in potential profits.
Risks
From Others
Another
serious disadvantage of a franchise is the risk that others might damage the
reputation of your business. As a franchisee you would rely on the brand of the
business to bring you customers. If other franchisees did something to damage
the reputation of the brand, this would have a knock on effect on your own
business. Potentially this could damage your sales and overall profits.
Franchise
Costs
This
is a big disadvantage for most franchises – the costs. A franchisee will often
be expected to pay an initial cost to buy into the franchise agreement. As part
of the continuing franchise agreement, they will then be paying on-going fees
for the support and training provided by the franchisor. In the long term, this
means a restriction to the amount of profit (and money in your pocket) that you
can make as a franchisee. Completing a company
formation
to start your own limited company will often be the better choice, as there
will be fewer restrictions on how you operate your business and more potential
avenues for profit, without the overheads.
Cut
Of Your Profit
The
franchisor will expect a cut of your profit. You do all the hard work and still
have to pay them for the privilege of using their name (and support). When
times are hard, this might mean a further reduction in already low profits and
a struggle for your business.
FRANCHISE LEGAL BASIS
Basic Law Franchise
• Treaty as the legal basis of the Civil Code Article 1338 (1), 1233 s / d 1456 Civil Code; each party is free to do anything it is not contrary to the laws, customs, propriety or other matters relating to public order, as well as about terms of the validity of the agreement and so on.
Basic Law Franchise
• Treaty as the legal basis of the Civil Code Article 1338 (1), 1233 s / d 1456 Civil Code; each party is free to do anything it is not contrary to the laws, customs, propriety or other matters relating to public order, as well as about terms of the validity of the agreement and so on.
• The law of agency as a legal basis; Civil Trade (Broker & Commissioner), the provisions of which are administrative as various provisions of the Ministry of Industry, Commerce and so on. There were often determined that the firm in the franchise contract , between the franchisor and the franchisee there is no agency relationship.
• Trademark Law, Patent and Copyright as a legal basis; since participated involvement trademarks and logos belong to the franchisor in a franchise business, let alone the possible existence of a new discovery by the franchisor, the invention which is patentable. Law 19 (1992) Brand, Law No 6 (1982) Patents, Law 7 (1987) Copyright.
• Foreign Investment Law as a legal basis; when the franchisor will open an outlet in a country which is not their country is the franchisor should be consulted before the foreign investment law experts on various possibility and alternatives that may be taken and the most profitable. Franchise is precisely chosen to circumvent certain restrictions for a foreign company when they wanted to operate through direct investment.
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