Room to grow

Intheblack, Sep 2008 by Parker, Derek

"In Australia, there has to be a cooling off period before any contract is signed. There are also requirements that franchisors provide detailed information in a disclosure document.

"We advise potential franchisees to take legal advice and to be wary of signing up with any franchise system that chooses not to belong to the FCA. I believe that the member-standards model, in conjunction with appropriate regulation, is the best model for franchising - and that is how the industry is moving in most places in the region."

Wright says this is a big step forward from the outdated thinking that the secret of franchising success was in the sign-on fee. "There may still be some franchisors in the region who are mainly interested in getting the up-front money, but that is certainly not a formula for long-term success for anyone."

One of the largest franchise groups in Australia, Gloria Jean's Coffees, has been successful in making inroads into several Asian countries.

It has established a major support office in Kuala Lumpur, although the country with the most Gloria Jean's outlets at present is the Philippines, with 35 stores. "The Asian franchise sector is extremely dynamic," says Rudi Seller, global franchise development manager for Gloria Jean's Coffees International.

"Our experience in Asia underlines the point that a global franchisor needs to be willing to invest time, energy and money in finding the right master franchisee.

"We are currently engaged in moving into China, and we have spent over a year finding the best person. You want someone with the right experience, the right values, and the right fit with the company."

Seller believes the current regulatory framework in Asia is suitable for the franchise environment. "It has to be remembered that a heavy-handed approach to regulation can easily stunt an industry's development," he explains. "There has to be room to grow."

Evolving framework

While the Australian franchising sector as a whole works effectively, there is a persistent current of criticism, mainly from former franchisees. Jason Gehrke is director of the Franchise Advisory Centre, a Brisbane-based consulting firm. He has conducted a series of surveys to pinpoint the cause of disputes. "A common view for a dissatisfied franchisor is that the business has not performed to expectations, especially on the financial side," Gehrke says. "When this feeds through to other aspects of the person's life, feelings can become very intense.

"Franchisors are required by the code to provide a great deal of information to potential franchisees, but a significant number of potential franchisees simply don't go through it in enough detail."

Gehrke says there are also plenty of issues on the "other side". The research shows that many franchisors start to franchise before their business is really ready.

For franchisors to operate successfully, they need to have solid information and management systems, a robust operating model, and arrangements for the thorough training of franchisees.