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Defining franchising

http://www.dreamstime.com/royalty-free-stock-photo-franchising-billboard-sunrise-background-green-rising-sun-image35362775By David Gray and Lauren Kenley
The concept of franchising has grown at a remarkable rate across a wide spectrum of industries, to the point where today, almost everyone in the business environment is familiar with the term ‘franchise’ and has come into contact with the products and services offered by franchise businesses. In fact, greater than half of all retail sales in Canada, accounting for more than $60 billion per year, are currently conducted through franchises.

Franchising has become a convenient means for individual entry into the business world. It allows aspiring entrepreneurs to take advantage of established operational processes and brand awareness, both of which are foundations for business success.

The history of franchising
Franchising dates back to the 18th century, when German brewers first granted rights to certain taverns to market their ales. It was only in the late 19th century, however, that franchising had a major impact on the working world, setting into motion a trend that would change the way people carry on business in the modern day.

Specifically, in 1851, the Singer Sewing Machine Company began to make use of a franchising model to distribute its products throughout a widespread area. Singer became the first company to prepare franchise contracts. These documents became the basis for today’s franchise agreements.

Through the late 1800s and into the early 1900s, advances in technology, transportation and communications set the stage for mass production and distribution of foods and other products. This enabled the establishment of retail and restaurant chains, including franchises. As time went on, many other forms of franchised establishments followed suit.

The modern concept of franchising saw another significant increase in popularity after the Second World War. Baby boomers grew up with a heavier reliance than their parents on mass-produced and -distributed products and services. During this period, the categories of franchises expanded, with the business concept becoming widely visible in the form of fast-food restaurants, cleaning establishments, equipment rental stores, motels, recreational service providers and automobile and trailer rental lots.

During the expansion of franchising in the 1960s and 1970s, unfortunately, many franchisors were poorly managed, underfunded companies, which resulted in insolvencies. Also, there were many fraudulent franchisors engaged in oppressive activities, taking unfair advantage of naïve investors and providing nothing in return for their large sums of money. By the summer of 1969, for example, close to 2,000 franchises had been sold in North America, but fewer than 200 actually opened. And many of those that opened did not survive for long.

Over the last 30 years, however, franchising has matured. The methods for distributing goods and services through franchised business structures has expanded into many new areas and built solid bases for steady franchisee growth. Once again, many well-established companies see franchising as an attractive way of expanding.

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