Francorp - The Franchising Leader in the Philippines
Francorp - The Franchising Leader in the Philippines

Franchise Hotline : (+632) 638.3149 to 50

Should I open new stores or expand through franchising?

Written by

Sam Christopher Lim

SVP for Marketing and Strategy, Francorp Philippines

There comes a time in the life of a company that an inevitable question comes – with the success of my business, how can I expand to new branches and locations? There are 2 main expansion routes that corporations take. The first is through funding their new corporate owned stores and the second is through franchising.

Expanding through corporate owned stores gives the owner more control over every aspect of the business. It gives the business flexibility to change directions and quickly adopt new policies by issuing new orders to store managers. Given that the store staff are your employees, you have the freedom to instruct them with new policies, new operations as well as reassign them as you wish. In addition, it gives you the predictability of being able to plan out when and where to open your new stores.

This strategy, however, also comes with risks and limitations. First, it is more capital intensive. Whether through savings or new loans, you will need to invest in building new branches and funding it’s operational expenses. In addition, it requires more operational management.   Additional expenses are incurred if the corporation has provincial branches.  More staff is required in order to efficiently manage these branches, and more employees will increase overhead costs.

The second option for entrepreneurs is franchising. Franchising gives owners access to unlimited capital and time to expand their business. It allows owner to expand using other people’s time, money and people.

(1) Using Other People’s Money   If the corporation adopts a franchising business model, then it will expand by using the money of other entrepreneurs.  The corporation does not need to enter into a financial arrangement with the bank and/or operate its shares of stock to the public.

(2) Using Other People’s Time.  The franchisor works with franchisees who are owners and entrepreneurs in their own right. These owners will run the business just like the franchisor and will manage the operational staff, thus freeing the franchisor from direct operational responsibilities of the franchised stores.

(3) Using Other People’s Network.  Business is about relationships, and franchising allows entrepreneurs to tap other people’s network to not only run the business, but create stronger local relationships in their specific localities.

Franchising for all its advantages, however, does also come with disadvantages. Firstly, franchising requires a deliberate investment of the owner’s time and money to develop professional franchise systems. From operations manuals, franchise business plans, legal agreements and franchise marketing plans. Secondly, because franchisors are working with franchisee owners, they cannot always just dictate new directions as they would to employees, but instead should work with these entrepreneurs as partners when implementing new ideas & systems. Lastly, franchisors need to invest time and resources in finding the right franchisee partners to ensure long term success.

Successful companies have usually tried to combine both corporate owned store expansion and franchising to achieve their success. The Generics Pharmacy, for example, wanted to focus on supplying quality products, creating a strong trusted brand and giving value added services in store such as free doctor’s consultations and check ups, so they heavily adopted the franchising model. They were able to grow to 1,800+ stores in just 8 years with over 99% of the stores franchised. Bench, for example, has bene highly successful  with their strategy of opening majority company owned stores, while offering key provincial stores as franchises. Many fast food chains on the other hand try to balance with about half corporate and half franchised stores.

There is no one size fit all solution to expansion, the important factor is that entrepreneurs know the advantages and disadvantages of various routes, and understand that healthy growth requires a mix of corporate owned stores and franchised stores. Corporate owned stores help you understand and continuously improve systems and operations and can be used as a test bed for new product introductions and a prototype for new systems you plan to implement. While franchised stores allow for rapid expansion and deeper reach into other cities and provinces. It also brings in top quality ideas as your franchisees are entrepreneurs like yourself, and will continuously look for ways to improve the business.

Francorp helps businesses scale up through franchising by helping entrepreneurs create detailed operations manuals, professional business plans, franchise legal agreements and conducting regular How to Franchise Your Business Seminars.For more information contact Francorp Philippines at (02) 638-3149,(+63917) 835.55.30, email info@francorp.com.ph, or visit francorp.com.ph.

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Chris Lim is the Senior Vice President for Marketing and Strategy of Francorp Philippines (francorp.com.ph); President of U-Franchise Sales & Management (www.ufranchiseasia.com); and Chairperson and Director for Special Projects, ASEAN Integration-Philippine Franchise Association.