Статья опубликована в рамках: Научного журнала «Студенческий» № 12(32)

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Библиографическое описание:
Ван Ж., Maksimova S.M. FRANCHISE AS A FORM OF INTERNATIONAL BUSINESS UNDER THE CONDITIONS OF THE RUSSIAN MARKET // Студенческий: электрон. научн. журн. 2018. № 12(32). URL: https://sibac.info/journal/student/32/111802 (дата обращения: 18.09.2019).

FRANCHISE AS A FORM OF INTERNATIONAL BUSINESS UNDER THE CONDITIONS OF THE RUSSIAN MARKET

Ван Жуньфэн

2-year student of the master's degree, business department RGU them. G.V. Plekhanov,

Russia, Moscow

Maksimova Svetlana Mikhailovna

Ph.D., associate professor of the Department of Entrepreneurship and Logistics REU. G.V. Plekhanov,

Russia, Moscow

Abstract. The article shows the trends in the formation of franchising as the locomotive of the modern Russian economy. The main franchising concepts are considered and the main directions of their development are suggested. The author outlined the main factors that stimulated the growth of the number of franchisees in Russia.

Keywords: economy of Russia, franchising, international business, franchising concept, legal regulation of franchising.

 

Introduction. The development of the Russian economy largely depends on the effectiveness of enterprise development. Franchising is one of the most progressive and effective mechanisms for the development of entrepreneurship. Franchising in Russia is a fairly new concept. It originated and came to us from America, where in all already had a large prevalence and popularity among companies from completely different spheres.

The first franchisor that came to the domestic market was PepsiCo in the eighties, which built several factories for the production of its products in the territory of the Soviet Union. Businessmen who carried out their activities in those days took as an example such a variant of doing business, and one of them acquired the rights of the company "Baskin Robbins" and opened an ice cream shop in Moscow in 1993. In the future, franchises of Russian companies have already appeared, merging into large branch networks. Among the most famous are Blue Crystals, Russian bistro cafe, Partner's baby food, and 1C software.

However, the 1998 default, led many franchise companies to collapse, which illustrated their poor adaptation to the realities of Russian business and the economy. Later, in the early 2000s, when the economy began to recover more or less from the crisis, it became increasingly popular to recruit courses and trainings to increase knowledge in the franchise business for those who decided to start a new type of business.

The noticeable acceleration of the development and popularity of franchising business began after the first international conference "Franchising in Russia", held in April 2001. During 2001, the enterprises of this kind was about 40, while in the 90s only about 20. Also, the expansion of the franchising business contributed to the organization of the Russian Franchise Association (RAF). The main objective of the RAF is to protect the interests and support of its members, as well as the development of a more favorable economic environment for the dissemination of franchising activities in Russia, the promotion of franchising. The Association is a member of the World Franchise Council (World Franchise Council). As part of the activities of the Council organizes and participates in conferences and exhibitions, regularly publishes guides on franchising, is the online catalog of franchises "Universe Franchise."

More and more franchise companies appear on the Russian market, which is not surprising, because the success rate of enterprises practicing this type of business reaches 75-95% depending on the scope of the enterprise. In addition, long-term practice of franchise business models in developed countries clearly illustrated and demonstrated the effectiveness of its business related to the replication of a particular technology proven business process practices. From the side of the company that has become a franchisor is a way of expanding business. For a freshly baked franchisee is a way to become a business owner.

Main part. For many companies, franchising has become a symbol of prosperity in business, because if the business model created by them works in the parent organization, then it will bring profit in the branches. Potential customers tend to appreciate the company, knowing that it obeys established and well-organized business processes and is forced to monitor the quality of its services to maintain reputation. At the moment, the largest franchise exhibition (on the territory of the CIS, the Baltic countries and Eastern Europe) for 13 consecutive years is the BuyBrand Expo, which is held annually in September in Moscow. In 2015, the brands from Russia, Great Britain, the United Arab Emirates, Germany, Italy, Moldova, Ukraine, the USA, Belarus, Austria, Spain and Belgium took part with an investment range of presented concepts from 0.6 to 800 million rubles.

 

Fig.1. Franchising concepts by sector,%

Constructed by the author on the basis of data [1]

 

The Horeca sector includes cafes, restaurants, bakeries and fast-food restaurants. The service sector is represented by medical, financial, legal and business services, as well as services in real estate, education, retail. The retail sector, which occupies the highest share, consists of companies operating in the areas of accessories, jewelry, furniture and decor, footwear and leather goods, clothing, food and children's goods. The B2B service sector is a company in the field of business support and supply of additional equipment. In addition to providing space for booths of newly arrived franchising organizations, BuyBrandExpo organizes International forums on doing business in Russia and entering foreign markets, for surviving in crisis periods of the economy, in which the speakers are general directors, top managers and lawyers of large franchise companies. Also the company conducts training trainings and meetings of franchisees.[9] For 13 years over 8950 franchised companies have opened with the help of BuyBrandExpo. The total investment potential of visitors in 2015 was 801400000 US dollars. 87 % of visitors are investors, potenitsialnye / operating franchisees and franchisers. Thus, it can be concluded that the franchise line of business is becoming more popular, which proves the data provided by the organizers of the exhibition.

The legal regulation of franchising in Russia began in 1996 by introducing the chapter 54 into the Civil Code and the concept of "commercial concession" [2]. This concept has much in common with franchising, despite the fact that the very use of such a term there is not. Thanks to this, it became possible to study and implement schemes close to franchising in practice. However, although the concept was introduced, it was very crude, and therefore not all rights holders - franchisors used this contract in their activities to form relationships with partners when using the concepts of franchising [3, p. 140].

Entrepreneurs developing a new type of business in Russia, faced with a lot of questions and problems of interpretation of the law, and as a result, with its application in practice:

  1. The concept of "commercial designation" and the questions related to it were not disclosed.
  2. Unequivocally, the legitimacy of the transfer of the corporate name and commercial designation under the contract was indicated.
  3. The terms of registration in the federal executive body were embarrassing for unreasonably long debts.
  4. The responsibility of the rightholder for the requirements imposed on the user is not clear.

The conditions for concluding a contract for a new term are ambiguous.

To date, the regulation in the field of franchising has moved to a much more progressive side. The above-named Russian Franchising Association is actively developing and improving this issue. With the help of the Private Law Research Center.

The President of the Russian Federation was thoroughly drafted a bill and submitted to the State Duma on June 17, 2010, and on July 6, 2011, The draft law was adopted by the State Duma, and already on July 18 the Federal Law No. 216-FZ was signed by the President of the Russian Federation DA. Medvedev [2].

The adoption of the Federal Law No. 216-FZ can be attributed to an important step towards the creation of a workable and balanced franchising system in Russia, and the rapid process of its adoption is a positive example of the state's concern for the development and dissemination of a new type of business, as well as the constructive interaction of numerous organizations and units. Clear structured requirements of the law will allow Russia to enter a new, more competitive level of business and use the opportunities of franchising much wider:

  1. the efficiency of small business will increase;
  2. help on an equal footing to compete with world and domestic large corporations;
  3. create additional jobs and provide competitive wages;
  4. will allow to withdraw a significant number of Russian trademarks and technologies at the federal and international levels;
  5. new technological developments will bring great benefits to the national economy if they are introduced through franchising organizations in close contact with the consumer on the ground.

Thus, franchising will act as a quick multiplier when introducing technologies, involving thousands of businessmen and tens of thousands of highly qualified specialists in high-tech business, providing the population with high-quality services.

So, the changes in the Civil Code, which were successfully developed and accepted for execution, are as follows:

  1. Franchais getting an initial payment, now compensate for the costs of working out a new contract, and also make sure the seriousness of the franchisee's intentions to carry out business activities strictly in accordance with the model of the franchisor. At the same time, regular payments will ensure the interest of the franchisor in the work of the franchisee and will be able to guarantee active support from the franchisor.
  2. The conditions for the protection of competition with the provisions of the law have been harmonized.
  3. The limitations of the rights holder's activity on the refusal to renew the contract with the user under the "former conditions" were abolished. This change can be attributed to the most important. restrictions of this kind significantly inhibited the development and wider dissemination of the franchise business model.

Now, with certain gross violations of technology or the quality of work on the part of the user of the franchise, the right holder is entitled to unilaterally refuse to execute the contract. A unilateral refusal is also possible, but only if the violation is not rectified within a reasonable time after the user receives a written warning.

The procedure for registering franchise agreements in Rospatent has not been changed, despite the fact that in today's conditions, long periods of state registration hamper the development of franchising in Russia. If to allocate in this situation the positive sides, the long registration process also hinders fraud and pseudo-entrepreneurship in the field of franchising, which is already in Russian practice. The weakening of the requirements for registration of intellectual property rights could conflict with the need to strengthen the protection of franchise business rights.

In addition to the regulatory framework, other, equally important areas are developing in creating a suitable climate for franchising business.

The Chamber of Commerce and Industry of the Russian Federation believes that in the regions of Russia there is very little objective information about the general problems, trends and prospects of franchising. Potential franchisees also lack information about successful regional brands that have prospects for development and promotion both within the territory of Russia and abroad. Therefore, the RF CCI offers its assistance in the information exchange of interested persons in the development of franchising in the regions of Russia [4, p. 69].

All incoming appeals, questions and proposals to the addresses of the RF CCI are considered, systematized, summarized, presented in the form of a general consultation or an analytical note, which can be viewed on the websites of executive authorities, chambers of commerce and public organizations. Also, with the support of the RF CCI, numerous forums are regularly held to support small and medium-sized businesses in the regions of Russia, including in the framework of franchising, a conference on the prospects for the development of franchising relationships. Within the framework of forums and conferences, specific issues related to brand licensing, protection, inventory and evaluation of intellectual property, etc. are also discussed. This allows to involve and popularize the franchising business model throughout the Russian Federation, to support the opening of new directions of development for small and medium-sized businesses in the Russian Federation.

The Russian Franchise Association implements large-scale projects in the development of franchising in various regions of Russia and the CIS. Within the framework of the regional program, forums are held all in a large number of cities. In 2015, 20 cities of Russia and the CIS were engaged in the forums, where local entrepreneurs get acquainted with the advantages of franchising, learn about the proposed concepts of the world's leading and Russian brands that have shown themselves to be the best in practice in terms of the quality of the services provided, and therefore branching of their networks. In total, about 18,000 registered users took part in the event in 2015 [5].

The RAF business community unites producers and service providers. They involve various commercial companies, develop projects and special offers, analyze information about franchising and conduct marketing research, provide consulting and methodological assistance to the members of the RAF.

RAF launched a new project based on partnership relations with "VEB-Leasing" [6]. It provides for the conclusion of an agreement for the acquisition of all necessary equipment for business in leasing. The franchisor informs the franchisee about this possibility, and if the franchisee agrees, all information about him is transferred to the leasing company for the subsequent conclusion of the contract, the financial guarantee is taken over by the franchisor or concludes with the lessor a repurchase agreement. Thus, risks are minimized, which makes it possible to create comfortable conditions for the early start of business. Five of the largest brands, such as Invitro, Tonus Club, Baskin Robbins, GMR. Planet of Hospitality "have already evaluated the new opportunity provided to franchisors. A lot of time has passed since the concept of franchising has appeared in Russia. From a new, unexplored way of doing business, it has become a popular model due to the success of enterprises operating under the careful guidance of a well-known brand. But for this, franchising has passed and is still moving along the thorny path. Like everything new, he met a lot of distrust from Russian entrepreneurship, but soon became a popular and widespread business model.

To date, most Russian franchisors are interested in the markets of Armenia, Azerbaijan and Georgia, and also continue to distribute their goods and services in the fast-growing market of Kazakhstan [1, p. 38].

As for the risks, here, as in the past, in 2016, a potential threat lies in currency hikes, a sharp fall in oil prices, politics and sanctions.

Low-quality franchise products that do not meet the expectations of the franchisee can reduce the general level of entrepreneurs' confidence in the Russian franchising market as a whole.

Let's consider in detail the rating of franchising companies by the size of investments in Table. 1 and 2.

Table 1.

TOP-5 franchise by industry for 2017.

Industry

1

2

3

4

5

1.Retail

Investments

Pyaterochka

7 000 000–

15 000 000 р

FixPrice

4 000 000–

6 000 000

Beans

3500000 р

ACCORD

400 000 р

 

220 Volt

1 600 000–

6 000 000 р

2. Cafes and restaurants

Investments

33 Penguin

690 000–

10 000 000 р

Dodo Pizza

4 500 000–

12 000 000 р

Chit

Potato

1800 000–

6500000 р

StarDog! S

400 000–

2 500 000 р

 

Papa Johns

10 000 000–

15 000 000 р

3. Children's franchises

Investments

Champion

220 000–

1 500 000 р

 

Orange

Elephant

270 000–

550 000 р

Sema

400 000–

2000000 р

Baby Club

2500000–

6000 000 р

Gulliver

2 200 000–

2900 000 р

4. Health and beauty

Investments

INVITRO

2 300 000–

4 900 000 р

Laboratory

Hemotest

1 600 000–

3 500 000р

Helix

800 000–

3 800 000 р

 

CMD-Center

molecular

Diagnostics

900 000–

2500000 р

Beauty Point

2 000 000 р

 

5. Services for the population

Investments

SDEC

300 000–

800 000 р

PickPoint

1 000 000 р

 

Тele 2

500 000 р

 

Miel-Nedvizh-

Durability

1 000 000–

2 500 000 р

Sletat.ru

100 000 р

 

6. clothing

Investments

TOM TAILOR

6 000 000–

10 000 000р

SELA

2 100 000 р

Glance

2500000–

3000 000 р

Pompa

1 490 000–3

900000 р

BAON

2 500 000–

5 500 000 р

7. Household products

Investments

Ascona

750 000–

14 000 000р

Rayon

600 000–

1 500 000 р

Hilding Anders

400 000–

4800000р

Eurochelle

1 500 000 р

 

Our Brand

400 000–

2000000р

Constructed by the author on the basis of data[6]

 

Table 2

Rating of franchises for investments for 2016-2017.

Size of investments

2016

2017

 

 

Less than 500 000 rubles

StarDog! S

Champion

Tele2

1C: BoucherService

Sema

StarDog! S

Orange elephant

Orange elephant

Fast&Shine

Sema

500 000–1 000 000 rubles

33pinguine

33pinguine

Invitro

Ascona

Ascona

Helix

Laboratory of Hemotest

CMD-Center for Molecular Diagnostics

Helix

Baskin-Robbins

1 000 000–5 000 000  rubles

FixPrice

Invitro

Baby Club

Laboratory of Hemotest

Subway

Dodo Pizza

Dodo Pizza

Little potatoes

Yves Rocher

FixPrice

More than 5 000 000 rubles

Pyaterochka

Pyaterochka

TOM TAILOR

Dodo Pizza

2 GIS

Papa Johns

TREATMENT

2 GIS

Papa Johns

Shashlikoff

Constructed by the author on the basis of data [5]

 

It can be seen that the size of investments in various industries ranges from hundreds of thousands to millions of rubles. It depends on the price of the franchise, the required investment and the payment of staff. The cheapest are the franchises of the service sector for the population, and expensive - the franchise in the sphere of household goods, cafes and restaurants.

The growth in the number of franchise organizations, according to experts, occurred for the following reasons, which are presented in Fig. 2.

In 2016, the National Agency for Financial Research (NAFI), with the support of the Russian Franchising Association (RAF), conducted an all-Russian study that was devoted to identifying the degree of awareness of entrepreneurs in the organization and conduct of business on a franchising scheme [8].

The study included a series of formalized telephone interviews with representatives of Russian business. The sample of the researched was 500 people: the leading employees of the enterprises that make financial decisions (general directors and their first deputies, commercial directors, financial directors, chief accountants, departmental and department heads).

 

IMG_256

Fig. 2. Factors that stimulated the growth of the number of franchisees in Russia

Constructed by the author on the basis of data [7]

 

The sample was based on Rosstat's data on the sectoral distribution of enterprises by region, and by size of business (two criteria were used - turnover and number of employees). The sampling error is not more than 4 % [8].

conclusions. Based on the results of this study, we will provide the main conclusions and provisions for the development of franchising in the Russian market.

1. Currently, the level of entrepreneurs' awareness of the Russian Franchising Association is very low: 5 % of entrepreneurs who understand what franchising is, are well aware, and another fifth of respondents in this group have heard something about him.

2. At the initial stage, more than half of the respondents were firmly convinced that they knew everything about franchising, but could not explain the essence of franchising. Nevertheless, after a brief description, it turned out that they are not very well versed in this issue. Another 25 % of the interviewed entrepreneurs claimed that they know well what franchising is, 2/3 of them could correctly describe the essence of doing business under this scheme. About 25 % assumed that franchising - is the opening of branches or network business, as well as the purchase of business or ideas.

3. Among the interviewed entrepreneurs who correctly understand what franchising is, half of them are engaged in wholesale and retail trade, almost a fifth are engaged in real estate or construction.

4. Franchising, first of all, among businessmen is associated with public catering, trade and services.

5. The smaller half of business representatives (45 %), who are aware of franchising, believe that it is profitable for entrepreneurs in Russia to work on a franchise.

6. The main prerogative of franchising business was the opportunity to work on behalf of a well-known brand and with the help of a well-developed business model, which was emphasized by every third entrepreneur.

7. Every fifth interviewed entrepreneur is interested in the potential acquisition of a franchise, but has faced difficulties or is looking for a suitable franchise.

The franchise model is comparatively more successful and financially stable even in crisis conditions. This means that franchising networks in Russia will continue to develop. Experts predict that today the main franchising segments, where there are certain prospects for development, may be those that produce products in the middle and lower price segment, do not require expensive foreign equipment, nominate starting investments in hryvnia and provide for long periods of their return. In the spheres of activity, the sphere of retail trade, the sphere of restaurant business and the provision of consumer services are traditionally the most promising, especially for children.

 

Reference:

  1. Sangotra D. Problems and perspectives of franchising development in Russia in crisis conditions // Property management: theory and practice, 2015. № 2 - P. 37-49.
  2. Federal Law of 18.07.2011 № 216-FZ "On Amending Part Two of the Civil Code of the Russian Federation"
  3. Konovalenko SV, Slatvitskaya I.I. Problems of franchising in Russia and ways to solve them // Theoretical and practical aspects of the development of scientific thought in the modern world: a collection of articles of the International Scientific and Practical Conference: in 2 parts. 2017. - P. 139-141.
  4. Kurkina N.V. Actual problems of franchising in Russia // Prospects of development of business in Russia the collection of scientific works of teachers, post-graduate students and students of the Department of Economics and Entrepreneurship of the Institute of Economics, Management and Law MGOU. Moscow, 2017. - P. 69-77.
  5. The Russian Franchise Association. - URL: http://www.rusfranch.ru.
  6. The European Franchise Federation. - URL: http://www.eff-franchise.com.
  7. Sotnikova SA, Ivanova NI Franchising business systems in foreign countries (by the example of France) // Science of the XXI century: actual directions of development. 2017. - No. 1-2. -FROM. 371-374.
  8. Awareness and attitude of Russian entrepreneurs to the franchising business system // National Agency for Financial Studies. - URL: http://nacfin.ru/wp-content/uploads/2014/04/NAFI-RAF_otchet1.pdf.
  9. Maksimova S.M. Cross-cultural resources of organizational development of international business structures // Bulletin of the Volga State Technological University. Series: Economics and Management. 2014. No. 5 (24). Pp. 45-53.

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