A C T A U N I V E R S I T A T I S L O D Z I E N S I S FO LIA OECONOMICA 17, 1982
Elżbieta G uzek, Tom asz Dom ański *
P O S S IB IL IT IE S FO R A PPLIC A T IO N OF FR A N C H ISIN G IN CENTRALLY PLA N N ED ECONOMY — CASE STUDY O F PO LA N D
F ran ch isin g is a form of co-operation betw een e n te rp rises consisting in tra n s fe r by an in itia tin g com pany X (franchiser, franchise-giver) to o th e r com panies Y, Z (franchisees, fran ch ise-tak ers) of a nu m b er of licences (brand nam e, d isp lay sign, d istrib u tio n strategies, set of pro -ducts, m anagem ent tech niques etc.) enabling organizations th e ir ow n econom ic a c tiv ity on the basis of m ethods a n d franchising channels tested in th e in itia tin g com pany.
This form of ties b etw een economic u n its is ra th e r uncom m on in c e n tra lly planned economies. Solutions in this field adopted so fa r con-sist p rim a rily in n ational com panies joining th e a lre ad y existing in te r-n atio r-n al frar-n ch isir-n g chair-ns (e.g. H oliday Ir-nr-n, Ir-n te r C or-ntir-ner-ntal, Novo- tel etc.). High econom ic p ro fita b ility of fran chising from th e m icro and m acroeconom ic points of view in com parison w ith o th er types of ag rem ents 1 as w ell as dynarem ic developrem ent of this systerem in rem any w e-s te rn co u ntriee-s (USA, FRG, Italy...) encourage ue-s to analyze applicabili-ty of sim ilar ties b etw een com panies in conditions ot th e c e n trally plan n e d economy.
We are p u ttin g fo rw ard a thesis th a t fran chising m ay find its wide ap plication in our socio-econom ic conditions, both in th e dom estic m a r-k e t and foreign trad e. R ealization of th is concept calls for application of m ark e tin g o rie n tatio n both by th e c e n tral p lan n in g organ and by individual com panies.
This w ork has been based, first of all, on analysis of secondary d a ta concerning franchising as w ell as on scarce Polish m aterials, discussions
* M.Ec., In s titu te o f M arketing, U n iv ersity of Łódź (Poland).
1 T his sta te m e n t concerns ag re em e n ts of licence, concession, agency, or jo in t- -v e n tu re type.
and in terv iew s c a rrie d in th e M inistry of F oreign T rad e and M arine Economy, T o u rist A gency „O rb is” in W arsaw , and in th e In stitu te of M ark etin g a t the U n iv ersity of Łódź.
1. C H A R A C TER ISTIC O F FR A N C H ISIN G T IE S
The fran ch isin g form of ties b etw een com panies is one of form s of th e so-called „C o n tractu al M arketing S y stem s” i.e. a system of ties betw een com panies based on concluded co n tra cts 2. The essence of fra n -chising is p resented in the d efinition of th e F re n ch F ran ch isin g Asso-ciation (AssoAsso-ciation F ran caise du F ranchisage). F ranchising, even though it does not belong to new concepts 3, does not possess a precise legal and form al qualification — a uniform definition. T hus th is form of a g re e -m ent, si-m ilar to the agency ag ree-m en t in Poland, can be re fe rre d to as an unnam ed agreem ent. A ccordingly franchising is defined th ro u g h analogy to o th er know n ag reem en ts (concession, b ran c h agreem en t, agency agreem ent, or jo in t-v e n tu re ).
A d efin itio n p rep a re d by th e F re n c h F ran ch isin g A sso c ia tio n 4 d e-scribes fran chising as „a m ethod of ties b etw een com panies w ith th e „ fra n c h ise -g iv e r” being on one side and one or several ,,fran ch ise-ta- k e rs ” on th e other. The fran ch ise-giver, or otherw ise th e in itia tin g unit, m u st possess his ow n tra d e m a rk , disp lay sign, and in th e fram ew o rk of th e a g re e m e n t — in exchange fo r d efin ite financial ben efits — he m u st tra n s fe r to th e fra n c h ise -ta k e r: an original set of know -how (from th e scope of m an ag em en t and distrib u tio n ) and an individualized collec-tion of p ro ducts or services h aving been tested e a rlie r on th e w ay of his ow n ex p lo itatio n on th e basis of successful tra d e techniques. Co- -o p eratio n b etw een both p a rtn e rs, being an object of th e agreem ent, m u st produce m u tu al benefits. The ag re e m e n t provides n ot for a single service (as com pared e.g. w ith a licence) but it establishes stab le ties b etw een p a rtn e rs providing a basis for fu tu re p e rm a n e n t exchange of services in th e a rea encom passed by the contract. T he fra n c h ise r does not lim it his services to tra n s fe rin g th e rig h t to use a b ran d nam e or
* S ee in te r alia: L. W. S t e r n , A. J. E l - A n s a r y , M a rketin g C hannels, P re n tic e -H a ll, Englew ood Cliffs, N.J., 1977, pp. 400—419; a n d P. K o t i e r , M ar-k e tin g M anagem ent. A n a lysis, P lanning and C ontrol, P re n tic e -H a ll, Englew ood C liffs, N ew Y ork 1976, pp. 283—284.
* T h e firs t co m pany to ap p ly fra n ch isin g w as th e A m erican S in g er co m p a-ny, w hich em ployed such ties in th e second h a lf of 19th c e n tu ry , A. S z n a j d e r , F ranchising, „H andel Z ag ran iczn y ” 1971, No. 8, p. 275.
1 C o llé d iv e w o r k C ham bre N ationale des C onseillers F inanciers, T ech n iq u e et P ractique du Franchising, P a ris— B ordas 1975, pp. 36—38.
display sign, b u t he binds him self to providing assistance to th e fra n -chisee in th e field of m anagem ent, planning, in v en to ry control, in fo r-m ation flow or pror-m otion r-m eans. H e also, in r-m ost cases, elaborates an overall s tra te g y concerning developm ent of com panies linked by a chain of franchising ties. F ran ch isin g is, m oreover, ch aracterized w ith eco-nom ic independence of p a rtn e rs w ith th e franchisee p rese rv in g his legal independence. A fran chising a g reem en t should also stip u la te division of costs incu rred by both sides and connected w ith ad m itta n c e of new econom ic u n its to the system . These costs include m ain ly in v estm en t outlays on co n stru ctio n of new projects, and costs connected w ith fu n c -tioning and ex p lo itatio n — and th ey a re covered by franchisees, th an k s to w hich th e tra d e risk of the in itia tin g com pany is insignificant 5.
The above quoted definition not only characterizes th e fran chising form of ties betw een com panies, b u t it also precisely defines all flows, th e ir directions and m u tu a l relatio n sh ip s w ith in a m ark etin g c h a n n e l6. This w ide approach to fran chising sim u ltaneously determ in es th e scope of ap p licab ility of this form of ties. F ran chising ties m ay be in itia -ted an y w h e re w h ere exist possibilities of reco n stru ctio n and copying of a tested p a tte rn . Today, according to the object of agreem ent, fra n -chising is divided into in d u stria l (the so-called Lifreding), service, and tra d e form s. Thus m an y au th o rs are w rong w hen th e y em phasize m ainly a d istrib u tio n aspect of these agreem ents. M oreover, w ith reg a rd to su -bjects re p re se n tin g p a rties to an ag reem en t w e can d istinguish betw een th e follow ing fran chising ties: p ro d u cer — r e ta ile r (e.g. C hevrolet cars, S ta n d a rd gas stations), p ro d u cer — w holesalers (F alstaff beer, Coca- -Cola), and w holesaler — re ta ile rs (grocery chain — In d ep e n d e n t G ro-cer A lliance, d ru g sto res of N ational D rug Co-operative).
The fran ch isin g concept b rie fly outlin ed by us originated and was developed in conditions of free m ark e t economy. A question arises h
e-s A big ad v a n ta g e of fra n c h ie-sin g ag re em e n te-s ie-s re d u c tio n of econom ic ac tiv ity risk of b oth p a rtn e rs . A ccording to e stim a tes of th e H a rv a rd B usiness School th e n u m b e r of unsuccessful ag re em e n ts am o u n ted to 10% in 1971 fo r fra n ch isees an d 1% fo r fra n ch isers. (E. B u r e l l e , Une E xplosion. De ľa u tr e cote de V A tlantique, „C om m erce M oderne” 1970, No. 1, p. 10).
• M a rk e tin g c h a n n el should be u n d ersto o d v ery w idely, i.e. as a system of in d e p e n d e n t in stitu tio n s a n d agencies p a rtic ip a tin g in th e process of tra n s fe rrin g all ideas, products, an d services fro m th e place in w h ich th e y w ere created, e x tra c te d or produced to th e ir place of consum ption. P hysical flow of ideas, goods, an d services in th is system is accom panied by o th e r flow s i.e. of nego-tia tio n s, sales pro m o tio n m eans, o w n ersh ip an d ex clu siv ity rig h ts, fin an cial rig h ts, risks, o rders, a n d m a rk e t in fo rm atio n . (See: L. W. S t e r n , A. J. E l - - A n s a r y , M arketing C hannels, P re n tic e-H a ll, Englew ood Cliffs, N ew Y ork 1977, p. 4).
re — w h at are th e possibilities of tra n s fe rrin g th is form of ties b etw een com panies to an e n v iro n m en t based on c e n tral p lan n in g principles? If th e ap p lication of this form w as possible in the c e n tra lly p lan n ed eco-nom ic system , th e re should be d e te rm in e d directions of changes in th e en v iro n m en t of com panies o p eratin g in th e m arket.
2. P O S S IB IL IT IE S FOR A P P L IC A T IO N O F TH E FR A N C H ISIN G CO N CEPT IN TH E CENTRALLY PLA N N ED ECONOMY
T he fu n d am e n ta l source of fran ch isin g ties in w e stern co u n tries w as a tre n d to w ards progressive in te g ratio n and econom ic cooperation. In te -g ratio n and co-operation ties b etw een individual com panies w e re an a n sw e r to rap id processes of p ro d uction and tra d e co n cen tratio n and high level of m a rk e t com petition. F ranchising, as it w as o rig in ally applied, w as grouping — firs t of all — sm all and m edium -size com pa-nies, w hich w ishing to su rv iv e in th e m a rk e t w ere com pelled to choose some form of in te g ratio n ties. E stim ates of e x p e rts prove th a t w ith o u t th e fran ch isin g form of d istrib u tio n , 52 p e r cent of p re se n t franchisees w ould lose th e ir independence 7.
In th e c e n tra lly p lan n ed econom y, th e basic reason w h y w e a re a n a -lyzing ap p licab ility of fran ch isin g is a possibility of im proving activities of dom estic tra d e and service com panies and utilizatio n of th is idea in in te rn atio n a l m arkets. T he c h a ra c te r of th e c e n tra lly p lanned econom y is not irreconcilable w ith assum ptions of franchising, as franchising ties assum e u tilization of p lan n in g to m axim ize effects (profits) fro m th e view point of th e w hole system . A pplicability of plan n in g in deve-lopm ent and o peration of franchising organizations, not only fo r sh o rt and m edium b u t also for long periods, is stressed by m an y w estern econom ists 8.
One of chief ad vantages accom panying application of fran ch isin g in c e n tra lly planned econom ies is a possibility of in te g ratio n and coordination of activities of m any sc a tte re d tra d e and service units, and e sta -blish m en t of a p p ro p riate system s for p a rtic u la r m ark e t segm ents. This re su lts from a fact th a t proper, tested, and ad ap ted to a d efin ite group of b u y e rs system s can b e tte r satisfy consum er needs th a n larg e com pa-nies. S im ultaneously fran ch isin g chains could obtain b enefits sim ilar
7 S. D. H u n t , T h e Socioeconom ic C onsequences o f th e Franchise S y s te m o f D istrib u tio n , „ J o u rn a l of M a rk e tin g ” 1972, Vol. 36, p. 33.
8 E.g. E. T. G r e t h e r, In tro d u c tio n : C ontractual M a rketing S y s te m s — So m e O bservations, p. XV, a n d L. P. B u с к 1 i n, T h e E conom ic Base o f F ranchi-sing, p. 33 (both a rtic le s in D. N. T h o m p s o n , C ontractual M a rketin g S y s te m , H e a th L ex in g to n Books, L exington, Mass. 1971).
to those of large com panies as th e ir activ ity w ould be carried on a large scale.
N onetheless, application of franchising in th e c e n trally p lan n ed eco-nom y calls for a n u m b er of essential changes in th e w ay of functioning and m an ag em en t of th e economy. F irs t of all, it becom es indispensable to ap p ly m ark e tin g o rie n tatio n and f u rth e r d ecen tralize decisional p ro -cesses. T h a t im plies for th e fran ch ise-g iv er a need to set up an original d istrib u tio n system or a specific ran g e of offered goods or services, as o rig in a lity of the proposed solution provides a basis fo r conclusion of franchising agreem ents. U tilization of all elem en ts of th e m ark e tin g m ix (product, prices, d istrib u tio n channels and prom otion) w hile fo rm u la tin g a s tra te g y of corm panies is a p rere q u isite of effective fu n ctio -n i-ng of fra-n chisi-ng u -n its i-n th e m ark et. F o r fra-nchisi-ng to be em ployed in conditions of th e c e n tra lly p lanned econom y, th e com pany and the c e n tral plan n in g organ m u st accept th e m ark e tin g o rie n tatio n leading to b e tte r know ledge of th e m a rk e t and th u s to b e tte r adapted, from th e co n sum er’s point of view , ran g e of offered products. This concept si-m ultan eo u sly calls fo r resig n atio n frosi-m p ro d uction orien tatio n in the com pany stra te g y . I t is only th e franchising system organized by m a rk e tin g o rien te d com pany th a t g u a ra n tee s u tiliz a tio n of econom ic r e -sources in line w ith gen eral social preferences.
In tro d u c tio n of fran ch isin g ag reem en ts in a c e n tra lly p lanned sy -stem calls also for creation of conditions allow ing for a w id er scope of decision-m aking freedom on m acroeconom ic scale, at th e level of indi-vidual com panies. A co-ordinating fu n ctio n of th e C e n tre is preserved. F ranchising, how ever, does not im ply lack of control as p erform ed by th e C entre, of econom ic a c tiv ity of u n its encom passed by th is system . T hese u n its m u st still possess a rig h t to cre a te individualized d istrib u -tion strategies, w hich could help in launching m a rk e t com peti-tion. E va-lu atio n system of com panies should be co n stru cted on th e basis of new sy n th e tic indices of ev a lu a tio n linked w ith the system of w ages and p rem ium s, and giving p refe re n c e to a d a p ta b ility of com panies to c h a n -ging conditions of th e m a rk e t environm ent. T h ere should be un d erlin ed individualization of solutions connected w ith variab les c h a ra c te ristic for d iffe re n t com panies and w ith b ran ch differences.
W ithin a d efin ite s tru c tu re of m ark e tin g channels franchising leads to q u a lita tiv e changes in p a rtic u la r flows, and m ain ly of negotiations, finance, inform ation, and innovation diffusion.
The negotiation flow b etw een econom ic u n its should be based on im plies th a t th e re m ust be, first of all, created legal conditions defining individualized legal solutions (form al individualization of contracts). It this form of ag reem en ts (it is necessary to avoid a legal gap observed
in th e case of th e agency agreem ent). T h ere should be d e te rm in e d a ty p e of legal relatio n sh ip of com panies and principles of th e ir financial s e tt-lem en ts (financial flow). System of se ttle m e n ts m ight be based on expe-rience gained by th e agency ag re e m e n t (system of p ay m en ts based on econom ic effects — sim ilar to ro y altie s or com m ission system ) or on new original principles.
The inform ation flow, in case of fran chising ag reem ents, includes v ertical and h o rizontal kinds of flows. V ertical flow s encom pass e x c h an -ge of in fo rm atio n b etw een fra n c h ise r and p a rtic u la r u n its of th e chain. T he fran ch ise-g iv er and th e fra n c h ise -ta k e r perfo rm th e functions of both rec ep to rs and e m itte rs of in form ation w ith the fran ch ise-g iv er p erform ing su p e rio r functions. In th e system of c e n tra lly p lanned eco-nom y th e fran ch ise-g iv er w ould be, m oreover, linked by th e in fo rm ation flow w ith th e p lan n in g C entre. S till, decisions concerning a s tr a -teg y w ould be tak en at th e m icro-level alth o u g h p referen ces of th e C e n tre w ould be tak e n into account. D ecentralization of inform ation flow s calls for creation of a system legally sanctioning freedom of con-tacts b etw een econom ic u nits and decision-m aking on th e m icro-scale. The vertical inform ation flow from th e fra n c h ise r to th e fran chisee or franchisees covers all elem ents of the m ark e tin g stra te g y of th e chain and reduces the risk connected w ith economic a c tiv ity of th e com -pa n y 9.
The inform ation flow is also connected w ith the innovation d iffu sion flow. In th e c e n tra lly p lanned econom y, w ith absence of an ta g o -nistic strateg ies of com panies, th e function of franchising ties gains a grow ing significance. W ithin a given franchising chain, th e fra n c h i-se-giver, having a t his disposal a centralized in fo rm atio n system , is equipped w ith a big innovation capacity and he tra n sm its all new solutions to th e rem ain in g u nits of the chain. T hus th e innovation d iffu -sion depends larg ely on th e in form ation flow w ith in th e chain and on its rela tio n w ith th e en v iro n m en t, especially w ith th e m ark e t. T he level of com petition as a factor d e te rm in in g innovations plays a sm aller role in th e c e n tra lly p lanned econom y. In th is situation, a d o m in an t role should be played in this field by consum er needs and preferences.
T he basic problem h am p erin g realizatio n of th e concept understood in th is w ay is to release innovation p ro p en sity in econom ic u n its of th e c e n tra lly p lanned economy. In th e fre e -m a rk e t econom y innovations are
9 E ffectiv en ess of in fo rm a tio n flow s is also co nnected w ith e x p a n d in g th e scope of ap p lied fra n c h isin g ag re em e n ts. A p e rfe c t form of in fo rm a tio n ab o u t p ossibilities a n d p ropositions of fra n c h is in g a g re em e n ts a re th e so-called fra n c h i-sing „ fa irs ” a t w h ich e x h ib ito rs o r p o te n tia l fra n c h ise -g iv e rs o ffer th e ir services (US ex a m p le ; C h e rry H ill M all F air).
stim u la te d by p ro fit and a w ish to re ta in technological and organizatio-nal sup rem acy over m a rk e t com petitors. W ith absence of com petition th e re m u st be created in th e c e n tra lly p lan n ed econom y a p ro p er sy stem of sy n th e tic ev alu atio n m easures, as th e innovation diffusion sy -stem cannot be in tro d u ced in an a d m in istra tiv e -d ire ctiv e w ay. It m u st be a re s u lta n t of an individualized s tra te g y of a chain of com panies aim ing a t w orking out original solutions.
P o te n tia l application of fran ch isin g a g reem en ts in th e c e n tra lly p lanned econom y should be considered from th e angle of th e dom estic m a rk e t and foreign trad e. In th e dom estic m a rk e t fran chising ag rem en ts w ould re fe r to ties b etw een sta te , co-operative, an d in d ividual (analogy w ith functions of an agent) economic subjects, and to dom estic com pa-nies op eratin g in th e c o u n try w ith in th e fra m ew o rk of in te rn a tio n a l fran chising chains. T he foreign tra d e sp h ere w ould encom pass P olish e n te rp rise s op eratin g in foreign m ark e ts on th e basis of fran chising ag reem ents.
3. IN TERN A L M ARKET
A w ide b ran c h scope of ties of franchising ty p e should not e n co u n ter an y difficulties in th e ir application in th e c e n tra lly p lan n ed econom y 10. F ran ch isin g seem s to be fulfilling th e re q u ire m e n t of optim al tec h n i-que for d istrib u tio n of services and products affording o p p o rtu n ities of sta n d a rd iz a tio n and larg e scale activities.
O rig in ality of franchising, unlike ag reem en ts of th e agency type, consists in organizing th e a c tiv ity of new economic u n its on th e basis of tested d istrib u tio n and organization techniques, and not in tu rn in g over to p riv a te econom ic u n its u n p ro fitab le u n its of th e netw ork. In the system of c e n tra lly p lan n ed econom y in w hich th e im portance of p r i-v ate ow nership of production m eans is lim ited, it can be expected th a t fran ch isin g ag reem en ts w ill concern, first of all, ties b etw een u n its of th e socialized economy, ties b etw een economic su bjects of co-operative ty p e as w ell as m ixed associations com prising th e above m entioned eco-nom ic u n its and those of p riv a te type. T here can be excluded a possi-b ility of estapossi-b lish in g franchising chains grouping exclusively p riv a te economic units, alth o u g h th is form of ties m ight find some degree of application in ag ricu ltu re.
In hom ogeneous and m ixed ties (according to a c riterio n of o w n eship of production m eans) th e function of a chain le a d e r w ould be p e form ed by a socialized unit. This u n it should base its a c tiv ity on m a
r-10 A full list of b ran c h ap p lica tio n s of fra n c h isin g in w estern c o u n tries in q u o te d in th e appendix.
keting principles and, in this w ay, possess a high innovation and ad ap -ta tio n capacity to en v iro n m en -tal conditions. A basis for organization of a ch ain is elab o ratio n of an original concept of th e p ro d u ct or a set of offered services by th e fran ch iser. It is im possible to in itia te a fra n c h i-sing ch ain w ith o u t o rig in a lity of solutions of th e fran ch iser. T he C e n tre should select leading com panies (possibly sm all and m edium -size), w hich could perfo rm functions of a chain lea d e r fo r d iffe re n t b ranches o r sets of services. C riteria to be adopted in this division should correspond
to division of th e m a rk e t (e.g. segm entation) and not to division of th e a d m in istra tiv e type. A basis for selection of a given com pany should be provided by m a rk e t research , and m ostly by analysis of th e com pany im age am ong consum ers as w ell as of dem and for a given pro d u ct or set of services. This rese a rc h could be carried out by specialist research in stitu tes, and it should be conducted re g u la rly in various branches. T he problem of selection of th e fra n c h ise -g iv e r is connected w ith a la te r po-licy of in v estm e n t outlays for a d efin ite chain of com panies. S im ilarly location and selection of fra n c h ise -ta k e rs should be preceded by d e-tailed m a rk e t analysis. L a te r on, this rese a rc h should be lau nched or com m issioned by th e chain le a d e r in line w ith decen tralized decisions on th e m icro-scale. S election of dynam ic econom ic u n its in th e system of c e n tra lly p lanned econom y seem s to rep re se n t a basic problem fo r realizatio n of th e concept as discussed by us. L ack of active, m a r-k etin g orien ted u n its w ith a big m a rr-k e t a d a p ta b ility a n d innovation capacities accom panied by insignificant m ark e t com petition and excessi-ve co n cen tratio n co n stitu te th e m ost im p o rta n t b a rrie r h ere, w hich can still be overcom e th ro u g h in tro d u c tio n of th e above m entioned directio n s of changes.
F u n c tio n of th e fran ch isin g chain lead er w ould im pose an obligation on th e leading com pany to conduct an active m ark e tin g stra te g y based on re g u la r m a rk e t rese a rc h and prom ote th e g ro u p ’s good public image. M oreover, in tro d u c tio n of fran ch isin g w ould consolidate the role of b ran d s and services in th e m ark e t, and also th ro u g h d iffe re n tia tio n and individualization of provided services it w ould prom ote m a rk e t d iv e r-sification and increased com petition. In a longer ru n , fran ch isin g ties u su ally lead to a m onopoly, b u t m onopolization in this case is q u a lita -tiv e ly d iffe re n t from th a t w hich is c re a te d th ro u g h th e a d m in istra -tiv e - d irectiv e system , and it rep re se n ts a consequence of effective m a rk e -tin g strateg y .
In associations of m ixed ty p e grouping socialized and p riv a te eco-nom ic units, a p riv a te u n it should be utilized to a bigger e x te n t th a n in th e case of agency agreem en ts along w ith its p ro p en sity to innovations, and developm ent of active form s of selling. The flow of inform ation
betw een th e fra n c h ise r and th e franchisee, d e te rm in in g a stra te g y of th e chain can play a v e ry im p o rta n t role here.
F rom th e legal v iew point th e fran ch isin g ag re e m e n t should be fo r-m ally co n stru cted w ith all terr-m s c a re fu lly stip u late d (rights and duties of both sides, and th e ir relationships). An original aspect of th e system in the m a rk e t econom y, w hich is eq u ally valid in th e c e n tra lly p lan n ed econom y, consists in th e fact th a t all com panies encom passed by th e a g re e m e n t re ta in legal independence (legal personality) w ith sim u lta
-neous economic dependence on th e fran ch ise-g iv er (definition aspect of th e c h a in ’s m ark e tin g stra te g y : product, prices, m ark e tin g channels and p rom otion elem ents and m ark e tin g control aspect in realizatio n of th e fo rm u la ted stra te g y by p a rtic u la r fran ch ise-tak ers). It seem s, how ever, th a t in th e c e n tra lly p lan n ed econom y ties of the franchising type w ill contain m an y sim ilarities w ith o p eration m echanism of th e b ran c h sy -stem (principles of su b o rd in atio n and m ark e tin g control) and few er sim ilarities w ith functio n in g of individual com panies being c h a ra c te ristic for th e m a rk e t econom y (although increased independence of com -panies should be also po stu lated — especially w hen d efining in d iv id u ali-zed m ark e tin g strategies).
L ast b u t not least ele m en t d e te rm in in g th e econom ic effectiveness of franchising is elab oration of an original system of se ttle m en ts betw een fra n c h ise -ta k e rs and fran ch ise-g iv er, w hich w ould stim u la te develop-m en t of th is ty p e of ties. Such a systedevelop-m should, to a bigger e x te n t, give p referen ce to com petitiveness of com panies a n d accuracy of th e ir production from th e point of view of ta rg e t m ark e t s e g m e n ts u .
A n o th e r fo rm of fran ch isin g application in c e n tra lly p lanned econom ies can be inclusion of dom estic com panies to in te rn a tio n a l fra n -chising chains. T his form of ties w as a lre a d y applied in some countries (Yugoslavia, H ungary) although not on a large scale. The agreem ents so fa r concluded in th is a re a provided m ostly for co n stru ctio n and e x -ploitation of hotels, to u rist faoilities, and production as w ell as d is tri-bution of soft d rin k s e.g. Coca-Cola, Pepsi-C ola 12.
An essential reason w h y th is ty p e of ties w as th e firs t and only one
11 O ne of th e m a rk e ts in w hich in te g ra tio n tie s of fra n c h is in g ty p e can be lau n ch e d is th e m a rk e t fo r ca te rin g services being c h a ra c te riz e d w ith d ev e-lo p m e n t d y nam ics a n d big po w er of ab so rp tio n . Specific fe a tu re s of services o ffe re d (especially re s ta u ra n ts a n d b a rs of „ F a st-F o o d ” type) allo w th e ir consi-d e ra b le sta n consi-d a rconsi-d iz a tio n , w h ich increases th e ir p ro fita b ility w h en a consi-d o p tin g so-lu tio n s of la rg e scale com panies.
i* E.g. in P oland fra n ch isin g ag re e m e n ts w e re concluded in th e field of hotel in d u stry (w ith N ovotel, In te rc o n tin e n ta l, an d H oliday In n -c h a in s, to u ris t se rv i-ces A vis, H ertz, R ent-A .C ar), an d Coca-Cola a n d P epsi-C ola com panies.
to be adopted in th e p lanned econom y system w as in ad e q u a te ad ap tatio n of th e m anagem ent system to re q u ire m e n ts posed by franchising. W ith absence of m ark etin g o rie n tatio n in th e dom estic m arket, considerable cen tralizatio n of th e decisional process, and lack of ow n, original p a tte rn s of franchising system s, it w as th e only applicable ty p e of ties in Polish conditions. A pplication of such ties was, m oreover, prom pted by a need for rapid developm ent of to u rist and hotel facilities connected w ith d e -velopm ent of d iffe re n t form s of co-operation w ith abroad as w ell as financial reasons discussed below. In th e case of Poland, inclusion of dom estic com panies in in te rn a tio n a l chains did not e n c o u n te r a n y ad d i-tional difficulties of legal n a tu re as all ag reem en ts w ere concluded in accordance w ith binding reg u latio n s of th e M inistry of F o reig n T rade and M arine Economy. Decisions concerning application of these ties w ere, m oreover, conditioned by m icro- and m acroeconom ic and social benefits, as p articip atio n in th e ex isting in te rn a tio n a l chains affords a chance of tra n s fe rrin g „into th e in te rn a l m a rk e t in a s h o rt tim e ” of tested, know n and w ell functioning m odels of foreign com panies. A gree-m ents of this type gree-m ay also progree-m ote bigger innovation p ro p en sity agree-m ong dom estic com panies, im p rovem ent of organization and fu n ctio n in g of econom ic u n its in d iffe re n t sectors of the econom y e.g. in tra d e , p ro -duction and services, and th e y m ay c o n trib u te to im proved q u a lity and expanded ran g e of offered services, m ainly th ro u g h utilizatio n of th e d em o n stratio n effect.
T here a re tw o m ain b a rrie rs w hich h a m p e r im p o rt of fran chising ag reem en ts in c e n tra lly p lanned econom ies an d w hich account fo r li-m ited application of franchising. The first and li-m ost essential one is th e financial system in socialist countries. A need of effecting se ttle -m ents in foreign curren cies acco-m panied by lack of c o n v e rtab ility of ow n cu rren cies into cu rrencies of cap italist co u n tries and prev ailin g d e-ficit of p ay m en ts balance w ith th ese co u n tries pose a huge obstacle here. In this situ a tio n fran chising deals a re applied in such sp h eres as hotel or to u rist in d u stry w h ere a t lea st a p a rt of p ay m en ts is effected by clients in co n vertible currencies. This factor, am ong others, w as of de-cisive im portance for predom inance of franchising ag reem en ts in the P olish hotel in dustry.
The o th er im p o rta n t b a rrie r is scarcity of capital. C om panies joining a given chain m u st m eet nu m ero u s req u irem en ts. B oth th e s ta n d a rd of e q u ip m en t and services as w ell as organization of com panies, m u st correspond to sim ilar u n its of the fran chising chain in o th e r countries. In th e case of P oland, w here am ong this form of ties prev ailed con-tra c ts in th e hotel in d u stry , in v estm e n t difficulties did not allow for expansion of the n u m b er of ag reem en ts in th is field. Too low sta n d a rd
of functioning hotels and lack of possibilities fo r th e ir ad ap ta tio n to norm s im posed by th e system (e.g. q u a lity and ran g e of provided s e r-vices, equipm ent, location) m ade in necessary to em ploy only this form of p articip a tio n in th e a lre ad y existing hotel chain, w hich provided not only for m an n e r of ex p lo itatio n b u t also for co n stru ctio n of hotels 13. In fu tu re , conclusion of agreem en ts concerning only th e w ay of fu n ctio -ning and e x p lo itatio n of th e chain lin k s w ith o u t a need of in c u rrin g larg e in v estm e n t o u tlay s m ay prom ote bigger ap p licab ility of th is form of fran ch isin g ties (e.g. in caterin g in d u stry or som e types of services).
F u r th e r increase of „ im p o rt” of fran chising ties w ill req u ire, how e-ver, some changes in dom estic m ark e ts of p a rtic u la r countries. T here p rim a rily arises a need for in trd u c tio n of th e m ark e tin g concept to the functioning system of th e econom y and creatio n of ap p ro p riate legal system reg u la tig various questions connected w ith conclusion and ex e-cution of agreem ents.
In te rn a tio n a l franchising chains sp ran g up and developed in condi-tions of cap italist economy. In o rd er to m axim ize effects (profits) th e ir a c tiv ity is elastically adapted to changing e n v iro n m en ta l conditions. T hese firm s em ploy p ro p er elem en ts of th e m ark e tin g m ix, th e y con-d uct com prehensive m a rk e t researches, m an ip u la te th e m a rk e t by m eans of prom otion, price, and product. In ou r conditions, lack of m ark e tin g o rien tatio n and m ark e t eq u ilib riu m often red u ce ad vantages produced by m em bership in a fran chising chain. A dvertising and o th e r form of prom otion are utilized to a sm aller e x te n t, and th e re is, m oreover, m issing com petition w hich la rg e ly stim u la te s th e m a rk e t a c tiv ity of a com pany.
Q uite often w hen concluding fran ch isin g ag reem en ts w e a re dealing only w ith application of th e tested system s p a tte rn s alone, w hile too little a tte n tio n is paid to th e problem of rig h t selection of th e chain according to en v iro n m en tal conditions. It can th u s h ap p en th a t e.g. due to psycho-logical, c u ltu ral, or cu sto m ary factors c h a ra c te ristic for a given segm ent it w ill be im possible to ap p ly a d efin ite form of franchising in a con-c re te m ark et. As an exam ple w e m ay quote h e re a failu re of th e A m e-rican franchising chain „K e n tu ck y F rie d C hicken”, w hich for these reasons w as not accepted in th e FR D m a r k e t 14.
is T h e re a r e essen tially tw o fo rm u las of a d m ittin g a new econom ic u n it to a n ex istin g hotel chain. T he f irs t one is to conclude a fra n ch isin g c o n tra c t for c o n stru c tio n an d e x p lo ita tio n of a hotel. T he o th e r one consists in inclusion of alre a d y ex istin g hotels to a hotel chain. In th e case of c e n tra lly p la n n ed econo-m y e.g. in P olan d , th e re w as used only th e f irs t forecono-m .
ч E. S k a u p y, L 'A lle m a g n e a l’h eure de la franchise, „C om m erce M oderne” 1972, No. 2, pp. 21—24.
Expansion of th e n u m b er of c o n tra cts and fields, in w hich fra n c h i-sing ag reem en ts w ill be em ployed, m ay give rise to d iffe re n t legal con-flicts in fu tu re. It th u s becom es necessary to d ra ft a p p ro p ria te legal regu latio n s w hich w ould define in d etail both th e form s of franchising co n tra cts and m ethods of solving all disputes, w hich can ap p e ar b etw e en both sides. A p a rt from th a t, it should be e x p lic itly stip u late d w ho is au thorized to conclude a g reem en ts of this ty p e on b eh alf of c e n tra lly planned economies. W ill it be in d ep e n d e n t dom estic com panies, or a u th o -rized rep re se n ta tiv e s as e.g. th e T ourist A gency „O rbis” in th e field of ho tel and caterin g in d u strie s in Poland? It seem s th a t w ith th e p re -sent lack of th e m ark etin g concept application and due to a d a n g e r of divergencies b etw een goals and m ethods of operation of com panies asso-ciated in in te rn atio n a l chains and c e n tral p lans in individual countries, th e re w ill dom inate for th e tim e being associations b etw een in te rn a tio -nal com panies and la rg e r econom ic u n its (e.g. unions of producers).
A fter elim ination of d iffe re n t factors h in d erin g d ev elopm ent of in te r-n atior-nal co-operatior-n ir-n th e form of frar-n chisir-ng associatior-n, th e re w ill still rem ain a sizable b a rrie r of finance. It can be ex p ected th a t in m an y cases these difficulties could be solved on th e w a y of b ila te ra l or in te rn a tio n a l agreem ents. T he adv an tag es afforded by franchising ties b etw een com panies m ake it highly probable th a t both this form of franchising ties and the idea of form ing ow n fran ch isin g chains w ill find w ide application in dom estic m a rk e ts of c e n tra lly p lan n e d econo-mies.
4. U SE O F FR A N C H ISIN G T IE S IN E X PO R T
A p a rt from application of fran ch isin g ties in dom estic m ark ets, it is also possible to ap p ly th em in in te rn a tio n a l trad e. This concept includes estab lish m en t of su p ra n a tio n a l franchising chains by com panies from c e n tra lly p lanned economies. In stitu tio n s o p erating in dom estic m ark e ts of th ese co u ntries w ould be in itia to rs and c re a to rs of such ties w ith foreign com panies assum ing th e role of fra n c h ise -ta k e rs. C hains of th is ty p e could be form ed both w ith in th e fram ew o rk of th e CMEA and in c a p italist countries.
Im p o rtan ce of fran ch isin g in com pany developm ent, n ot only on n atio n al b u t also in te rn a tio n a l scale, w as u n d e rlin ed by prof. J. P. S alle- nave 15. F ran ch isin g is to d ay qualified as one of fo u r p red o m in an t
ele“ In 1973 a t a co n fe re n ce on dev elo p m en t of C a n a d ia n fo re ig n tr a d e in T o -ro n to , p-rof. J. P. S alle n a v e f-ro m S h erb -ro o k e U n iv e rsity describ ed fra n c h isin g as one of fo u r elem e n ts d e te rm in in g com pany d ev e lo p m e n t on n a tio n a l a n d in te r -n a tio -n a l scale a f te r p ro d u ctio -n , fi-na-nce, a-n d m a rk e ti-n g . (See: L. W. S t e r -n ,
m en ts of th e com pany s tra te g y a fte r production, finance, and m a rk e -ting. This im p o rta n t position a ttrib u te d to fran ch isin g provides one m ore arg u m e n t ju stify in g a need for creatio n of su itab le conditions for its application. To conclude a fran chising a g re e m e n t th e fra n c h ise r m u st possess an original offer of goods o r services, and th e re m u st be w orked o u t a p ro p er system of financial se ttle m en ts on th e n ational scale, and norm s and reg u latio n s w ith reg a rd to form s of p a y m e n t in in te rn a tio -nal tra d e as w ell as ap plication (as m entioned above) of a d eq u ate m a r-k e tin g stra te g y .
In conditions of th e c e n tra lly p lan n ed econom y th e re has not been elab o rate d as y et its ow n fran chising system applicable in foreign m a r-kets. A bsence of original and teste d form of fran ch isin g ties op eratin g u n d e r a d e fin ite b ra n d and possessing a p ro p er im age, lim ited ap p lica-tion of th e m ark e tin g m ix elem ents, and d eficit of fin an cial resources necessary to in itia te a n y a c tiv ity in th ird m a rk e ts (first of a ll to launch expensive ad vertising and prom otional cam paings) — all m ake it im pos-sible for socialist com panies to p lay th e role of a fra n c h ise r in p rese n t situation. Som e solution here, w hich m ay u ltim a te ly lead to creation of a fran chising system , is estab lish m e n t of b ran c h com panies providing a d efin ite ty p e of services or selling e x p o rte r’s goods in foreign m ark ets, w hich on o b taining a high position in th e m a rk e t and gaining a ccep tan -ce of local b u y e rs could becom e in itia to rs of th e fran ch isin g system . Such a chance fo r P o land m ay be afforded by e.g. H o rtex com pany, offering a rich asso rtm e n t of processed fru it, p astries, and possessing a n u m b er of b ran c h stores in socialist co u n tries as w ell as C epelia com -pany. In a sim ilar w a y a tte m p ts can be m ade to launch an in te rn a tio n a l franchising system in such bran ch es as fu rn itu re , tex tiles, toys, le a th e r goods, footw ear and others.
F in a lly it is w o rth stressin g th e p ro fita b ility of ap p ly in g franchising ties in foreign m a rk e ts both in th e sp h ere of in d u stry , services and trade. A nalysis of ad vantages and risk of fran ch isin g in com parison w ith o th e r types of a g reem en ts and m ethods of e x p o rt o rganization is p re -sen ted in T able 1.
It ap p ears th a t only fran chising affords possibilities for perfo rm in g a stro n g m ark etin g control and e lab o ratin g q u ite long p lan n in g horizon of a c tiv ity of co n tractin g p a rtn e rs in a foreign m a rk e t w ith sim u lta -neous elim ination of a m inim um tra d e and financial risk resu ltin g am ong o th ers from a sm all degree of allocation of th e fra n c h ise r’s ow n capital.
T hus th e po stu lated em ploym ent of fran ch isin g in th ird m ark e ts
A. J. E l - A n s a r y , M a rketin g C hannels, P re n tic e -H a ll, E nglew ood Cliffs, N ew Y ork 1977, p. 117).
T a b l e 1 C om parison of b en e fits a n d risk s according to a selected d ev e lo p m e n t system
Selection criteria System s E x p o rt Licence In tern a tio nal fran -chising In dustrial fran ch i-sing Jo in t venture D irect in v est-m en t
Size o f investm ent sm all sm all sm all sm all change-able
high
C o n trol o f foreign activ ity
sm all sm all strong stro n g change-able
very high P lan n in g h o rizo n sh o rt sh o rt
change-able
long long very long R isk : trad e* financial** large sm all large sm all sm all sm all sm all sm all change-able ch an g e-able change-able change-able * T r a d e r i s k — r i s k o t r e m a i n i n g w i t h u n s o l d p r o d u c t c o n n e c t e d w i t h s m a l l c o n t r o l o f m a r k e t i n g a c t i v i t y a b r o a d . ** F i n a n c i a l r i s k — r i s k o f l o s i n g t h e i n v e s t e d c a p i t a l . S o u r c e : E u r a c (E P A C C a n a d a ) q u o t e d I n c o l l e c t i v e w o r k o f C h a m b r e N a t i o n a l e d e s C o n s e llle r s F i n a n c i e r s — T e c h n i q u e e t P r a c t l q u e d u F r a n c h is i n g (D u n o d E n t e r p r i s e ) , P a r i s — B o r d a s 1975, p . 121.
m ay co n stitu te a form of n o t on ly o rganization of a c tiv ity on an in te rn a -tio n a l scale b u t also of e x p o rt expansion and im p ro v em en t of its effec-tiveness. It rep re se n ts an im p o rta n t elem en t stim u la tin g acceleration of su p ra n a tio n a l d evelopm ent of en te rp rises, w hich from th e m acroeco-nom ic point of view in conditions of c e n tra lly p lan n ed ecoacroeco-nom y m ay especially c o n trib u te to acceleratio n of socio-econom ic g ro w th ra te in individual co u n tries and th u s to th e ir increased p a rtic ip a tio n in th e in te rn a tio n a l trade.
E lżbieta G uzek, T o m a sz D om a ń ski
M OŻLIW OŚCI ZA STOSOW ANIA FR A N C H ISIN G U W GOSPODARCE C EN TR A LN IE PLA N O W A N EJ — NA P R ZY K ŁA D ZIE PO L S K I
O pr aco w an ie dotyczy m ożliw ości a p lik a c ji fra n c h isin g u w sy stem ie gospo-d a rk i planow ej. A u to rzy sc h a ra k te ry z o w a li p ogospo-dstaw ow e zasagospo-dy tw o rz e n ia p o w iązań ty p u franchisingow ego, w sk az ali n a dotychczasow e fo rm y sto so w an ia f r a n -chisingu w gospodarce c e n tra ln ie p la n o w a n ej — szczególnie w P olsce — oraz
o k reślili w a ru n k i dalszego upo w szech n ien ia te j fo rm y zw iązków . O m ów ione zo-sta ły rów n ież k ie ru n k i i fo rm y a p lik a c ji fra n c h is in g u zaró w n o z p u n k tu w id ze-n ia ry ze-n k u w ew ze-n ętrzze-n eg o , ja k i działalze-ności w h a ze-n d lu zagraze-niczze-nym . W p rac y podk reślo n o ta k ż e o p łacalność ekonom iczną sto so w an ia fra n ch isin g o w ej fo rm y w iąz ań p rze d sięb io rstw z p u n k tu w id zen ia m ik ro - i m akroekonom icznego w po-ró w n a n iu z in n y m i ty p a m i um ów fo rm aln y ch , ja k np. licen cja, k oncesja, ag e n cja czy jo in tv e n tu re s. Do p rac y dołączona została lis ta b ra n ż o w a o b ejm u ją c a p o d sta -w o-w e k ie ru n k i zastoso-w ań fra n c h isin g u -w k r a ja c h zachodnich.
A p p e n d i x 1 B ran c h B re a k -u p of P re s e n t A pplicatio n of F ra n c h isin g A greem ents (based on „T echniques e t p ra c tiq u e d u fra n c h is in g ”, P a ris, B o rd as 1975)
In d u stry H otel an d C aterin g Industries
P roducers o f au to m o b ile spare p a rts D etergents C osm etics In d u strial suppliers E q u ip m en t a n d installation o f heatin g system s F o o d p ro d u cts fo r ind u stry Printing shops T oiletries H otels M otels
E x p lo itatio n o f cam ping a reas Sw im m ing-pools
O rg an izatio n o f congresses a n d sem inars D an cin g schools N ig h t C lubs H oliday reso rts R estau ran ts Plaza re stau ra n ts Snack-bars C offee-bars Tea-bouses M ilk-bars Pastry sho p s D rugstores Ice-cream sh o p s A griculture Protection o f trees A gricultural w ork H o rticu ltu re D istrib u tio n : T rad e
F a st-F o o d G ro cery retailin g
M ultiple stores S u p erm ark ets D isc o u n t stores C atalo g u e houses Specialist sto res: TV a n d ra d io articles G ra m o p h o n e reco rd s S o u v en ir stores A rticles fo r newly-weds A rticles fo r baby care A rticles fo r ch ild ren T extiles
C lothing Jew ellery
Specialist w holesale chains Suppliers fo r ships a n d planes
F ried chicken H am burgers D o n u ts R o a stb ee f sandw iches Pizzas C anteens
C hinese restau ran ts V arious Services
M aintenance services L au n d ry services S an itary services W indow -w ashing services R ep air services (rad io a n d TV ) G a rd en in g services
M edical an d C osm etic Services O ffice services B eauty p arlo u rs B arber shops N u rsin g services A m bulance P h o to co p y a n d xerox services In fo rm atio n an d co m p u te r services M ain ten an ce o f office eq u ip m en t P rofessional Services
A cco u n tin g services F inancial a n d legal experts M ark etin g services Salesm en train in g etc.
