Você está na página 1de 14

IMPROVING SMALL

BUSINESS SURVIVAL RATES


VIA FRANCHISING:
The role of the banks in Europe

Professor John Stanworth


Peter Stern

INTERNATIONAL FRANCHISE RESEARCH CENTRE

SPECIAL STUDIES SERIES NO.2


NOVEMBER 1993

PUBLISHED BY UNIVERSITY OF WESTMINSTER PRESS


ISBN 1 85919 090 1
THE INTERNATIONAL FRANCHISE International Journal (MCB University
Press). Additionally, Franchise Growth And
RESEARCH CENTRE (IFRC) 1993-2007
Failure In The U.S. And The U.K.: A
University of Westminster, London, UK.
Troubled Dreamworld Revisited received the
Best International Paper Award in 1997,
"The International Franchise Research
again from the Society of Franchising. This
Centre (IFRC) is committed to
paper was later published in Franchising
improving the understanding of
Research: An International Journal.
franchising. This is achieved by the
publication of impartial research and
Close links were fostered with universities in
by the encouragement of informed
Rome and Pisa (Italy), Haute Alsace
debate."
(France) and Boston, Minneapolis and
Texas (USA), with a view to research
Franchising operates in a dynamic environ-
collaboration. Professor Pat Kaufmann of
ment, with new issues and challenges
Atlanta, Georgia, addressed our inaugural
emerging, including: globalisation, coping
annual strategy seminar, in 1994. Overseas
with competition, disclosure, industry
speakers in subsequent years included
regulation, managing relations with
Cheryl Babcock, Director of the Franchising
franchisee associations, franchisee
Institute, University of St. Thomas,
recruitment & market saturation.
Minneapolis (1995), Professor Rajiv Dant,
University of Boston (1996), Professor
Against this backdrop, the IFRC was
Francine Lafontaine, University of Michigan
established in 1993 by Professor John
(1997), Professor Claude Nègre, University
Stanworth (Director of the Future of Work
of Haute Alsace (1997), Colin McCosker,
Research Group at the University of
University of Southern Queensland (1998),
Westminster), supported by Brian Smith (ex-
Professor Frank Hoy, University of Texas at
BFA Chairman, franchisee, franchisor and
El Paso (1998), Professor Jack Nevin,
author), and Chair of its Steering Group.
University of Wisconsin-Madison (1999),
Professor Tom Wotruba, San Diego State
FOUNDER MEMBERS
University (1999), Professor Bruce Walker,
University of Missouri, (2000), and,
Founder members and sponsors included:
Professor Wilke English, University of Mary
Barclays Bank, the British Franchise
Hardin-Baylor (2000).
Association (BFA), Dyno-Rod, Franchise
Development Services Ltd., Lloyds Bank
IFRC members were active supporters of the
(now Lloyds Group), Mail Boxes Etc.,
International Society of Franchising, and
Midland Bank (now HSBC), Prontaprint,
hosted the ISoF 2005 conference in London.
Rosemary Conley Diet & Fitness Clubs,
Royal Bank of Scotland, The Swinton Group,
The IFRC ceased its research activities in
and Wragge & Co.
2007, when John Stanworth took retirement.
PUBLICATIONS
Web versions of IFRC Special Studies
Series Papers 1993-2001 (listed overleaf)
Their support enabled the IFRC to publish a
number of reports, including its Special
Many of the earlier papers have been re-set,
Studies Series Papers, journal articles,
to allow a successful conversion to Acrobat,
book chapters and conference papers.
and are now available online.
Two IFRC papers received three awards
John Stanworth, Emeritus Professor,
over a period of 12 months (1996-97). The
University of Westminster
first being Business Format Franchising:
http://www.westminster.ac.uk/schools/
Innovation & Creativity or Replication &
business
Conformity ?, which received the Best
International Paper Award in 1996, from the
David Purdy, Visiting Fellow,
Society of Franchising. This paper also
Kingston University
received the Outstanding Paper of 1996
http://business.kingston.ac.uk/sbrc
award from Franchising Research: An
December 2010

International Franchise Research Centre Special Studies Series Papers 1-16 Web Versions 2010 p.1
LIABILITY DISCLAIMER 10 London: A Capital City For Franchisee
Recruitment, (Mills, Stanworth &
The information and analysis in each report Purdy), 1997
is offered in good faith. However, neither the
publishers, the project sponsors, nor the 11 The Effectiveness of Franchise
author/s, accept any liability for losses or Exhibitions in the United Kingdom,
damages which could arise for those who (Chapman, Mills & Stanworth), 1997
choose to act upon the information or
analysis contained herein. 12 Franchising: Breaking Into European
Union Markets, (Stirland, Stanworth,
IFRC Special Studies Papers 1993-2001 Purdy & Brodie), 1998

Web versions published online December 13 Succeeding As A Franchisor,


2010, via http://www.scribd.com/: (Stanworth & Purdy, published jointly
with Business Link London Central),
1 The Blenheim/University of 1998
Westminster Franchise Survey:
Spring 1993, (Stanworth & Purdy), 14 Direct Selling: Its Location in a
1993 Franchise Typology, (Brodie &
Stanworth), 1999
2 Improving Small Business Survival
Rates via Franchising: The Role of the 15 Unravelling the Evidence on
Banks in Europe, (Stanworth & Stern), Franchise System Survivability,
1993 (Stanworth, Purdy, English &
Willems), 1999
3 Targeting Potential Franchisees:
Industry Sector Backgrounds and 16 Survey: Professional Services For
Declared Areas of Interest, (Purdy & Franchising In The U.K., (Stanworth &
Stanworth), 1994 Purdy), 2001

4 The Impact of Franchising on the


Development Prospects of Small &
Medium-sized Enterprises (SMEs) in
Europe, (Stanworth & Purdy), 1994

5 The Blenheim/University of
Westminster Franchise Survey: A
Comparison of UK and US Data,
(Stanworth, Kaufmann & Purdy), 1995

6 Developing a Diagnostic
Questionnaire as an Aid to Franchisee
Selection, (Stanworth), 1995

7 Franchising as a Source of
Technology-transfer to Developing
Economies, (Stanworth, Price, Porter,
Swabe & Gold), 1995

8 Aspects of Franchisee Recruitment,


(Macmillan), 1996

9 Business Format Franchising:


Innovation & Creativity or Replication
& Conformity ?, (Stanworth, Price,
Purdy, Zafiris & Gandolfo), 1996

International Franchise Research Centre Special Studies Series Papers 1-16 Web Versions 2010 p.2
INTRODUCTION present day and then to examine the specific
role and importance of the clearing banks
The last 2 decades have witnessed a involved in franchise lending throughout
metamorphosis in the scale and fortunes of Europe. Finally, issues relating to the future of
franchising in Europe (Abell, 1991; franchising will be examined.
Mendelsohn, 1992). For instance, when the
first serious research study of franchising in
Britain got underway in 1975, it was hampered HISTORY AND DEVELOPMENT OF FRANCHISING
by an almost complete absence of information
and statistics on what was still frequently seen A franchise relationship can take various
as a business marketing technique rather than forms and is often seen as having much in
an industry per se. In 1977, within a month of common with licensing. Typically, however,
the research study's publication (Stanworth, the relationship involves satellite enterprises
1977), the firms which formed the focus of the (run by franchisees) operating under the trade
study - Wimpy (fast food), Dyno Rod (drain name and business format of a larger
cleaning and hygiene services) and organisation (the franchisor) in exchange for a
Servicemaster (carpet and upholstery continuing service fee. The franchisee sets up
cleaning)- had joined with five other franchise his/her own business, operating along lines
companies to launch the British Franchise specified by the franchisor and trading in the
Association (BFA). product or service previously market tested by
the franchisor. The main advantage of
Since that time, membership of the British franchising to the franchisor is that it enables
Franchise Association has grown and now him/her to achieve national coverage for his/
embraces over 120 companies (including its her product or service more quickly. Most of
register of developing franchises) plus over 50 the necessary capital is put up by franchisees
affiliates, including professionals, banks and and the latter, being self-employed, are
consultants. The industry has developed its usually motivated to work hard in building up
own industry-specific exhibitions and their businesses which, at the same time,
publications, and the term franchising has ensures success for the franchisor.
been transformed in the public image from
being synonymous with ethically suspect The franchisee, on the other hand, gets the
business practices such as 'pyramid selling' to chance to run his/her own business, use of an
a bona fide business format with an important established tradename, prime rights to a
and legitimate role to play in a modern particular geographical territory where
economy. appropriate, head office advice and
administrative backup, plus the benefits of
Possibly the franchise industry's single most continuous market research and product or
impressive breakthrough has been its service development.
acceptance by banks in Europe. For instance,
in 1981 in Britain, the National Westminster Franchising is frequently seen as a relatively
(NatWest) Bank and then Barclays appointed recent phenomenon imported from the United
franchise managers to co-ordinate their States but the real pioneers of modern
activities in the franchise field. Lloyds franchising were almost certainly the British
appointed a franchise manager in 1982 and brewers of the 18th century who created a
the Midland had a manager with special system of 'tied' house agreements with their
responsibility for franchising in post by the end publicans which remains widespread to this
of 1983. However, it has been the NatWest day. It is true, on the other hand, that
Bank which has undertaken the essential franchising is today economically more
pioneering role in financing British franchising important in America. Franchise activities in
and has lent over £250 million to franchisees/ the United States now account for around
licensees through its centralised Franchise one-third of all retail sales and 10 per cent of
Section. gross national product. It is estimated that, in
America, there were around 492,000
It is the intention of this article to outline the franchise outlets in 1989 (including nearly
historical development of franchising up to the 95,000 franchisor operated) with a combined

International Franchise Research Centre - Special Studies Series Paper No.2 1


turnover of $678 billion (Acheson, 1991). The Manufacturer-Retailer Franchise

As yet, there exists no centralised statistical Here the manufacturer is the franchisor and
intelligence gathering machinery in Europe to the franchisee sells direct to the public. The
match that operated via the US Department of franchisee may operate the franchise as his/
Commerce up until the late 1980s. However, her sole business concern or, alternatively, as
non-government estimates indicate that, an activity within an existing business. Car/
taking into account the fact that European truck dealerships and petrol service stations
countries are individually substantially smaller are examples and these cover a large
in population than the United States, the proportion of franchise activities overall (they
imbalance in the extent of franchising in account for around 28 per cent of all outlets
Europe is not as great as is sometimes and 66 per cent of franchise sales in the
supposed. For instance, the number of United States).
franchised outlets in the United Kingdom
alone was estimated as long ago as 1984 The Manufacturer-Wholesaler Franchise
(Stanworth, 1984) at around 80,000. This
included retail petrol outlets, tenanted public The outstanding example of this type of
houses and voluntary group wholesale-retail franchising is the soft drinks industry
franchises operating in areas such as food dominated by Coca-Cola, Pepsi-Cola and
retailing and photography. This estimate of Seven-Up who franchise to independent
80,000 includes most areas of activity likely to bottlers which, in turn, serve retail outlets.
be encompassed in US official estimates of
franchise industry size. The Wholesaler-Retailer Franchise
A more recent estimate including full business The best-known examples here are the
format franchising together with associated 'voluntary' groups in grocery retailing where
sectors in franchised motor dealers, the the wholesaler (the franchisor) supplies
tenanted licensed trade, and petrol forecourts, products to the retailer (the franchisee) who is
indicates a total value for the franchising signed up on a voluntary franchise basis.
related sector in excess of £40 billion, or 29 Examples are Spar, Mace, VG, Londis, etc.
per cent of total retail sales, achieved through
74,000 outlets (The NatWest/British The Trademark, Trade-name, Licensor-Retailer
Franchise Association Franchise Survey
Franchise
1992, 1993).
This is the franchise sub-group that has grown
Annual sample surveys aimed at estimating
so remarkably quickly over the last three to
the size of the franchise industry in Britain and
four decades (especially in the United States)
restricted largely to the growth area of
and is still developing on an international
'business format franchises' (thus excluding
basis. The franchisor, who may not be a
most of the businesses mentioned in the
manufacturer, has a product or service to be
above paragraph), indicate that there are
marketed under a common trade-name by,
currently around 370 franchises with 18,000
usually, standardised outlets. This sub-group
outlets, employing 170,000 people and turning
approximates to what are often now known as
over something in the region of £4.5 billion per
'business format' franchises which have a
annum (The NatWest/British Franchise
high service element and are based on the
Association Franchise Survey 1992, 1993).
'cloning' principle, for example, fast food, fast
print services, cleaning and related hygiene
Since franchises often differ so greatly from
services, car-hire, car tuning, etc.
one another, it is useful to form them into
sub-groupings after the fashion originally
The underlying strength of franchising,
suggested by leading American expert,
combined with the cross-national drive for
Charles Vaughn (1979):
self-employment opportunities, goes a long
way towards explaining the ready
internationalisation of many franchises. The
American fast food giants come most

International Franchise Research Centre - Special Studies Series Paper No.2 2


TABLE 1: INTERNATIONAL FRANCHISE STATISTICS

Number of Number of Sales


Franchisors Franchisees US $bn

Australia (1987/88) 184 10,303 4.1


Austria (1988) 30 1,363 N/A
Belgium (1987) 77 4,045 3.2
Canada (1987) 1,000 45,000 51.7
Denmark (1989) 60 600 N/A
Germany (FR) (1987) 180 9,000 5.4
France (1988) 675 29,698 16.0
Italy (1988) 197 11,500 3.4
Japan (1988) 619 102,397 44.3
Netherlands (1988) 248 8,332 5.8
Norway (1988) 120 850 0.5
Republic of Korea 33 337 0.3
Sweden (1988) 60 1,000 2.4
UK (1990) 379 18,260 7.6
USA (1988) 2,177 368,458 190.1

These figures were compiled from a range of sources and exclude sales of Cars,
Trucks, Gasoline and the Soft Drink Bottlers.

obviously to mind here but there are markets can be penetrated:


outstanding European examples too. For
instance, Britain's own Body Shop, set up by '...franchising directly to individuals,
Anita Roddick in 1976, now trades in 41 company-owned operations, joint
different countries and 19 languages and ventures or master franchisors. Many
opened its 1,000th store in 1993. It has been franchisors use more than one method
described as Britain's most successful retailer in conducting foreign operations but the
abroad outpacing giants such as Marks and most popular, cheapest and fastest
Spencer and Mothercare. method is the master license
technique' (US Department of
Commerce, 1988).
INTERNATIONAL MARKETS
Under the master licence technique, a master
The internationalisation of franchising licensee receives the right to develop the
generally continues unabated, led principally franchisor's system in a specific country or
by American franchise companies. In 1989, region. The US Department of Commerce
almost 400 American business format claims that, 'Compared to other service
franchisors operated 37,600 foreign outlets sectors, the problems of franchise companies
covering most countries of the world. In an in accomplishing international transactions
increasing number of countries, the shift from are relatively less formidable' (US Department
manufacturing to services, the process of of Commerce, 1986). The heaviest foreign
urbanisation, rising disposable incomes and concentrations of American franchise outlets
expanding consumer markets provide similar are in Canada (11,182); Japan (9,249);
conditions to those which fuelled the earlier Continental Europe (5,405 - especially
franchising surge in the United States. France, West Germany, the Netherlands and
Belgium); the United Kingdom (2,961);
There are a number of ways in which foreign followed by Australia, Asia, Mexico, the

International Franchise Research Centre - Special Studies Series Paper No.2 3


TABLE 2: STATISTICAL COMPARISONS FROM DIFFERENT SOURCES

Number of Number of Franchise Sales


Franchisors Franchisee In Billion ECU
Outlets (Unless Otherwise
Stated)

Austria 30 1,363 N/A


- - -

Belgium 77 4,045 2.85


(135) (4,500) ($3.0bn)

Denmark 8 25 N/A
- - -

France 675 29,698 13.15


(680) (38,000) ($15.5bn)

Italy 197 11,500 4,500 (bn.Lire)


(99) (9,000) ($3.8bn)

Netherlands 248 8,332 5.4


(390) (8,500) ($7.0bn)

Norway 120 850 0.5


- - -

Portugal - - -
(100) (1,100) ($0.39bn)

Sweden 44 752 0.4


(110) (3,000) ($1.0bn)

UK 270 20,000 £3.80


(520) (30,000) ($5.0bn)

Germany 180 9,000 4.8


(400) (26,000) ($2.8bn)

Denmark, Greece, - - -
Spain & Norway (675) (10,000) ($1.3bn)

TOTALS: 1,849 85,565 -


(3,109) (130,100) ($39.8bn)

International Franchise Research Centre - Special Studies Series Paper No.2 4


Caribbean, Africa, and South America was quite explicit in its early promotional
(Acheson, 1991). literature, going into print very early on with its
statements such as:
National and international statistics on
franchising tend to vary considerably 'The bank has recognised the part that
depending upon their source (see, for franchising can play in the creation of
example, Stanworth, 1991, Acheson, 1991 new small businesses and has
and Mendelsohn, 1992). Mendelsohn, has appointed...Franchise Managers with
recently compiled the figures presented in specific responsibility to assist the
Table 1 which give at least some indication of development of new business through
the scale of international franchising. franchising'

Another recent compilation of statistics (Table and, more recently:


2), however, shows how variable statistics
can be and is presented here as an indication 'Recognising the contribution that
of the still often crude and imprecise nature of franchising can make to the
statistical estimates in this field. Here again, establishment of new small successful
sales of Automobiles, Trucks & Soft Drink businesses, NatWest now has a team
Bottlers (and Hotels) are excluded. of ten with responsibility to assist the
development of business through
The figures presented in brackets (shaded franchising'
rows) in Table 2 (Stanworth, 1991) relate to
1988 and are drawn from the Euromonitor The approach of the other major clearers was
publication, Franchising in the European essentially similar and, while the need to
Economy: Trends and Forecasts 1980-1990. provide information to Branch Managers out in
As can be seen, there are certain obvious the field may have been the initial impetus to
obstacles to direct comparisons with appoint franchise managers, an additional
European Franchise Association (EFA) function has been to develop a generally more
figures (not bracketed) for the same period formalised approach to the supply of funds to
i.e., 1988. The latter do not include Portugal, both franchisors and franchisees. At an
Greece or Spain, whereas the former do. international franchise convention in 1987,
Euromonitor amalgamate figures for NatWest's Senior Franchise Manager stated 3
Denmark, Greece, Spain and Norway, unlike principal objectives for his Franchise Section
the EFA. Also, sales turnover figures are (Stern, 1987):
presented in different currencies. Finally,
whereas the EFA presents data on number of ■ To produce detailed information packages
franchise outlets, Euromonitor figures in the for Branch Managers, customers and the
same column refer to numbers of general public as a basic guide to
franchisees. Given that some franchisees franchising and to inform and develop
may be expected to be multi-outlet holders, wider acceptance of the franchise concept.
we would expect numbers of franchisees to
be lower than numbers of franchised outlets, ■ To achieve market penetration and
which they are plainly not. maintain a knowledge and information
base via contacts in the field, including the
BFA itself, solicitors, accountants,
THE ROLE OF THE CLEARING BANKS IN BRITAIN consultants and, not least, NatWest's own
subsidiaries such as its vehicle equipment
Almost without doubt, the biggest single boost leasing and commercial/personal
to the prospects for franchising in Britain insurance subsidiaries.
came from the recognition and support
extended by the clearing banks. Interestingly ■ To develop the bank's small business
too, banks have recognised franchising as portfolio by safe lending to viable small
very much an avenue into small business businesses, established through reputable
rather than viewing it as an essentially big franchise networks.
business activity. In fact, the NatWest bank

International Franchise Research Centre - Special Studies Series Paper No.2 5


LESS RISK franchising 'establishment' to a somewhat
higher level around the periphery of the
While franchising should improve the chances industry.
of someone establishing a successful
business, the banks make it clear that any Before agreeing either franchisor or
business carries risk particularly when starting franchisee funding, each franchise is subject
up. When vetting the franchisor the banks are to a thorough investigation by the Franchise
establishing whether they are happy to carry Section. This evaluation includes an
a line of finance to a number of franchisees of examination of the pilot operation, financial
that franchise. They do not vet on behalf of stability, management structure, marketing
the franchisee, who is strongly advised to ability, product/service quality and brand
make an independent assessment of the awareness of the franchisor. It is also
business with the assistance of his/her examined from the viewpoint of the kind of
accountant and solicitor. information provided to, and the selection of,
prospective franchisees as well as the nature
To date, it does appear that, when a franchise and quality of services provided for
system is based on a good and tested product franchisees.
or service, an individual wishing to become
self-employed can achieve his/her goal more Of special interest to the banks is the quality
rapidly and with less risk than would be the of the franchisor's field support services since
case if he/she staged entry into self- the franchisee's ability to meet his obligations
employment by more conventional means. to the bank can be dependent on his ability to
Further, for the person without skills and prior deal with problems before they become
experience, franchising can have a particular serious. The franchise agreement is scruti-
appeal. The franchisor can put at his/her nised with attention particularly to the rights
disposal a product or service, training in a and obligations of both parties, any onerous
proven method of doing business, advertising clauses which could affect the bank, bases for
and other back-up services. contract termination or non-renewal, transfer-
ability and the conditions attached to sale.
The record of the clearing banks - or certainly
the NatWest Bank - indicates that franchise The bank is particularly concerned that the
lending, subject to the checks and forms of franchisor should have the ability to maintain
scrutiny outlined below, represents a relatively the franchise chain as a whole. The franchisor
safe form of bank support compared to is expected to consult with the bank should he
conventional small business start-ups. The suspect that a franchisee is encountering
precise level of failure amongst franchise difficulties, for example, failing to make
outlets is not easy to estimate and has been service fee payments, and certainly before
the subject of much previous discussion. termination.
However, a picture is gradually emerging. The
overall failure rate appears at least lower than One of the advantages of this form of funding
for small businesses generally (particularly over more traditional forms is its integrated
considering the sectors in which they nature. This may include a higher level of loan
operate). funding than the bank would normally
consider and, in some cases, at a lower rate
It has been estimated that, in 1992, in the of interest. While a conventional small
space of a year, around 10 per cent of businessman could usually expect to receive
franchise outlets in Britain either changed bank support on no more than a 1:1 own
hands or ceased operation (The NatWest/ funds/loan finance basis, a franchisee using a
BFA Franchise Survey 1992, 1993). Turnover bank package can expect this ratio to improve
can often disguise failure. However, it appears up to 2:1. Up to two-thirds of the total start-up
that most failures are likely to occur in what capital, including working capital, may be
has been termed the 'less predictable new provided.
arrivals in the industry'. Thus, there appears
to be a continuum of risk probabilities within As far as security for two-thirds finance is
the industry ranging from low amongst the concerned, the bank usually expect the bulk

International Franchise Research Centre - Special Studies Series Paper No.2 6


of the facility to be secured, invariably by cent, one quarter claimed to have raised in
personal assets with any balance unsecured. excess of 51 per cent. A more recent survey
In a situation where there is only, say, 20 per indicated that 59 per cent of all borrowers (44
cent security available, the bank can utilise per cent of all franchisees) raise finance from
the government backed Small Firms Loan clearing banks (The NatWest/British
Guarantee Scheme which is designed to Franchise Association Franchise Survey
assist small businesses in business 1990).
categories seen as worth supporting but
deficient in security even after the applicant The above research sought, amongst other
has pledged his/her personal assets. things, to gain an impression not only of the
extent of bank borrowing by franchisees but
The bank takes no security from the also of the impressions that franchisees had
franchisor when assisting a franchisee since of the clearing banks and, again, the results
the two are seen as separate business were favourable. Less than one-third of the
entities. The reason for the higher than sample felt that banks still did not really
conventional gearing ratios and possibly lower understand franchising and less than one-
interest charges is that, while the prospective quarter felt that the attitude of banks towards
franchisee may have no previous business franchising was unfavourable.
experience or record himself, the franchisor
does. Loans may be on fixed or variable BANK SUPPORT FOR FRANCHISING IN EUROPE
interest rates, and can include a capital
repayment holiday. In order to ascertain how banks elsewhere in
Western Europe have reacted towards
Whilst the recession has led to some franchising, a survey was carried out by the
reduction in staff trained in franchising in UK authors through the relevant Franchise Trade
retail banks, the use of the clearing banks by Associations. Trade Associations in the
the franchise industry appears set to develop countries studied represent between 20 and
as the industry matures and becomes 67 per cent of franchisors but, irrespective of
increasingly professional. As franchising numbers, can be expected to have an opinion
expands, so will the number of prospective as to levels of bank support for franchising in
franchisees sought by growing franchisors. their own country.
Research already shows quite clearly that
prospective franchisees are now considerably The results for European franchising generally
more knowledgeable than they were and this must be considered poor with only the UK and
is showing up in a trend towards them Dutch banks giving full support (Table 3).
considering several franchises rather than just Several countries' responses were negative in
one as was typically the case years ago. every respect. Only UK, Dutch and French
Thus, as franchisors compete for good banks show as having a good level of
franchisee prospects, an ability to franchise knowledge. Six countries show as
demonstrate good relationships with clearing having unsupportive banks with poor
banks has become increasingly important. knowledge plus there are 4 countries where
information was not available but is believed
The growing importance of bank finance to to be negative.
franchisees is reflected in research conducted
by the University of Westminster (Stanworth, The conclusion must be that UK and Dutch
1977 and Stanworth, 1984). For instance, an banks lead in positive and knowledgeable
in-depth study of 165 franchisees carried out response to franchising with Eire credible in its
in 1975-77 showed that 45 per cent had smaller marketplace. France is also
obtained funding assistance from clearing responsive although the banks have no
banks when starting-up. A subsequent piece involvement in the Trade Association and no
of research conducted in the 1980s showed specialist units or literature.
that 53 per cent had used bank finance. In fact
42 per cent claimed to have raised 26 per cent Whilst some interest is starting to be shown in
or more of their total set-up requirement emerging Eastern European countries, there
funding from clearing banks and, of this 42 per is clearly a vast knowledge gap and lack of

International Franchise Research Centre - Special Studies Series Paper No.2 7


TABLE 3: SURVEY OF BANKING INVOLVEMENT IN EUROPEAN FRANCHISING

Denmark Eire Finland France Greece Holland Italy Norway Sweden U.K.
Number of Major Banks 3 4 5 4 5 4 14 4 5 5

Does the Franchise ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓


Association have
Professional Affiliates ?
Number of Banking 0 3 0 0 0 4 1 0 0 5
Members

Any Specialist Franchise 1 ✗ ✗ ✗ ✗ 2 ✗ ✗ ✗ 4


Units ?

Perceived General Level of Poor Fair Poor Good Poor Good Poor Poor Poor Good
Franchise Knowledge in
Major Banks
Banks Generally Supportive ✗ ✓ ✗ ✓ ✗ ✓ ✗ ✗ ✗ ✓
of Franchising ?

Banks Keen to Lend to ✓ ✓ ✗ ✓ ✓ ✓ ✗ ✗ ✗ ✓


Franchisees of Established
Franchise Systems ?
Do Major Banks Produce ✗ ✓ ✗ ✗ ✗ ✓ ✗ ✗ ✗ ✓
Franchise Literature for
Their Customers ?

N.B. It is believed that there are no Bank Affiliates nor Specialist Units in banks in Germany, Austria, Switzerland or Portugal. Spain has no Franchise Trade Association.

02_TABL3.PUB
interest in the majority of European countries colleges of Britain and their counterparts
which needs to be addressed if franchising is abroad. Given the flexibility of the franchise
to reach its full potential in Europe. concept for movement across national
boundaries, it is important that this initiative be
THE FUTURE OF FRANCHISING IN EUROPE based on an international perspective.

The growth of franchising in Europe during the Finally, we come to the legislative aspect of
1990s appears set to continue, despite franchising and here current trends are
setbacks in the recent recession. A number of hopeful. On a number of occasions recently,
factors appear to be at play here. First is the in locations as far apart as America, Australia
general world-wide decline of traditional and the European community (EC), the issue
manufacturing industry and its replacement by of the legal framework surrounding franchise
service-sector activities. Franchising is operations has come into question. What has
especially well suited to service and people- tended to happen here is that the early fears
intensive economic activities, particularly of franchisors - that over-zealous legislators,
where these require a large number of with only an imperfect understanding of
geographically dispersed outlets serving local franchising, would force through inappropriate
markets. legislation - have not been realised.

A second factor is the growth in the overall In the United States, legislation has tended to
popularity of self-employment. Most be patchy and sometimes highly erratic,
governments in the Western world are looking varying on a State by State basis. In Australia,
towards self-employment and small business representations made to government by
as an important source of future jobs and, in franchisors appear to be bearing fruit and
Britain, over the last 15 years, the proportion likewise in Europe. For instance, the EC has
of the labour force in the self-employed sector published a block exemption regulation. This
has increased from around 7 per cent to is designed to allow franchising exemption
around 12 per cent (Daly and McCann, 1992). from competition laws framed for different
kinds of business. These have, on occasions,
As franchising becomes increasingly well threatened to encompass franchises as a
known and understood, it is likely to appeal to result of separate legal entities within a given
a growing number of people. Alongside this franchise operation co-operating (thus
trend, we may expect to see an increase in appearing to act in restraint of trade). The
the number of franchise opportunities. This most recent EC initiative will allow franchisors
process will be assisted, not least, by large to grant franchisees territorial immunity which
companies following the current trend towards appears quite logical given the original
divestment from centralised control of an intentions of the relevant legislation.
increasing proportion of their business
activities. A notable example in Britain has
been the franchising of domestic milk-delivery REFERENCES
in the United Kingdom (Fulop, 1989; Boyle,
1994). ABELL, M. (Ed.) (1991)
European Franchising, Waterlow Publishers,
Despite the rapid increase in the number of
business schools and college management ACHESON, D. (1991)
centres running undergraduate and graduate Franchising in the Economy, IFA Educational
courses on small business and Foundation Inc./Stoy Hayward
entrepreneurship, the potential of franchising
as a viable business option has generally BOYLE, E. (1994, forthcoming)
been overlooked. It is likely that the future will The Rise of the Reluctant Entrepreneurs,
witness the development of a growing liaison International Small Business Journal, Spring
between the worlds of franchising and
management education with a view to DALY, M. & McCANN, A. (1992)
integrating the topic of franchising fully into How Many Small Firms ?, Employment Gazette,
teaching programmes in the universities and February

International Franchise Research Centre - Special Studies Series Paper No.2 9


EUROMONITOR PUBLICATIONS (1987)
Europe in Focus: Franchising in the European
Economy - Trends and Forecasts 1980-90

FULOP, C. (1989)
The Effect of Changing Channels of Distribution in
the Market for Liquid Milk in the UK, Fifth
International Conference on Distribution - Vertical
Relationships and Distributive Trades, Bocconi
University, Milan, Italy

MENDELSOHN, M. (Ed.), (1992)


Franchising in Europe, Cassell

NatWest/British Franchise Association Franchise


Survey 1990 (The), (1990)

NatWest/British Franchise Association Franchise


Survey 1992 (The), (1993)

STANWORTH, J. (1977)
A Study of Franchising in Britain: A Research
Report, University of Westminster

STANWORTH, J. (1984)
A Study of Power Relationships and their
Consequences in Franchise Organisations,
University of Westminster

STANWORTH, J. (1991)
Franchising and the Franchise Relationship in the
European Community, in Abell, M., op. cit.

STERN, P. (1987)
Presentation Given to the 27th Annual International
Franchise Association Convention, Acapulco

U.S. DEPARTMENT OF COMMERCE (1986)


Franchising in the Economy 1984-86

U.S. DEPARTMENT OF COMMERCE (1988)


Franchising in the Economy 1986-88

VAUGHN, C.L. (1979)


Franchising, Lexington Books, 2nd Edition

International Franchise Research Centre - Special Studies Series Paper No.2 10


AUTHORS INTERNATIONAL FRANCHISE RESEARCH CENTRE

John Stanworth is the director of the The International Franchise Research Centre
International Franchise Research Centre (I.F.R.C.) is committed to improving the
and has been engaged in research into understanding of franchising. This is achieved
franchising since the mid-1970s. He also by the publication of impartial research and by
leads the Future of Work Research Group, the encouragement of informed debate.
based at the University of Westminster, which Membership is suitable for anyone with an
has a record of specialist research in interest in franchising and further details are
Teleworking, Small Business Development available from the address on the rear cover.
and Human Resource Management. Studies
have been undertaken for many clients,
including The Department of Trade & SPECIAL STUDIES SERIES
Industry, The Department for Education and
The Economic & Social Research Council. Papers in the Special Studies Series are
supplied free of charge to I.F.R.C. members
Peter Stern is the Senior Franchise Manager and are published a minimum of four times a
for the National Westminster Bank plc, year. They report upon a range of issues
London, and has been actively involved in which are felt to be of interest to the
franchising since the mid-1980s. franchising community. Subject matter
includes the findings of surveys of franchisors,
franchisees, and potential franchisees, and
also special interest matters, such as finance
for franchising.

International Franchise Research Centre - Special Studies Series Paper No.2 11