Franchising in an age of uncertainty
Mark Bhardwaj, Head of Partnership Growth in Australia for IWG, explores the aspects of franchising that make it a popular choice among entrepreneurs at a time of high global uncertainty.
We are more unsure of what the future holds than ever before. That’s according to figures taken from the Global Economic Policy Uncertainty Index (GEPU) in December of last year.
As nationalism and the political division continue to impact markets across the world, budding entrepreneurs looking to start a business would be right to be apprehensive about taking potentially the biggest financial risk of their lives.
However, recent statistics from the UK, US and China show that the number of entrepreneurs opening franchised establishments has continued to soar irrespective of the global shaky eco-political environment. In the UK, the Natwest Franchise Landscape Report 2018 showed that the number of franchise establishments has grown by 10 per cent since 2015 with 4,400 openings in that period. Statista also reports that in the US, the number of franchise establishments hit a three-year high in 2018 whilst figures from the Chinese Ministry of Commerce indicate that China has become one of the largest franchisers in the world, with an estimated 400,000 active establishments.
Franchising in Australia is among the most dynamic and progressive business sectors in the economy, so it's no surprise that it is a similar situation locally for our nation. With an average industry growth of 0.9 per cent (2014-2019), reported by IBIS World, revenue for the franchising industry is expected to rise at an annualised 0.6 per cent over the next five years. And the Franchise Council of Australia predicts that by 2020 there will be 1,344 franchise brands, compared to the 1,120 recorded in 2016.
Given that global uncertainty was at its highest going into 2019, why has franchising continued to gain popularity among those looking to start their own business?
When looking at the business environment, it’s important to remember that nobody knows where they’ll be 10 years from now, whether you’re an entrepreneur, small to medium size business or a multi-national corporation. One of the major pulls of franchising across the world is that it’s using an established, proven business model that’s already working and has a history of success.
A clear example of this is the restaurant industry in North America. 80% of independent restaurants fail within the first two years of operation. Franchises such as McDonald’s, which have a recognised brand, an established customer base, as well as products that are already loved, are far more likely to have longevity in success.
When opening a franchise, entrepreneurs also have a clearer idea of when they can start to enjoy the ‘good times’. If you’re operating under an established brand with a proven business model, the business can provide you with research on how long other franchisees took to begin generating a profit. This predictability is something that isn’t possible when you start a business on your own.
Franchising also offers security in the form of guidance and knowledge. Taking IWG as an example, a high level of expertise is offered to franchise partners, accrued over 30 years of running flexible workspaces. Resources, training materials and marketing collateral are provided to help partners build a successful business. We also offer continued one-to-one support throughout the journey, from selecting their first location, dealing with brokers and finding appropriate agreements, to deciding on office layout and design. Continued support is a common part of franchising agreements across all sectors and offers a crucial level of reassurance that you simply don’t get when building a business from scratch.
It’s important to highlight that franchising is not limited to individual entrepreneurs. Franchisors like IWG are also looking for existing businesses who want to expand their offering and add an additional revenue stream, as well as landlords and property owners who have space available in their buildings for one of IWG’s brands.
It’s difficult for a business starting out in any industry to ensure that they have the right amount of space from which to operate, they are catering for the right number of clients and that they are making the right service offerings to satisfy the needs of potential clients. One of the key benefits of opening a franchise with an established provider such as IWG is that the master brand places a lot of importance on ensuring that the same level of client experience is delivered consistently, and so it is as important to us that entrepreneurs get the right level of support as it is to them.
Franchising offers a more secure, proven business model for entrepreneurs looking to either develop their existing business model or start their own company when uncertainty is widespread.
Becoming self-employed is always a risk, but franchising reduces that risk by giving entrepreneurs a head start through expert support, market knowledge, an established brand and customer base upon which to build.
With an external environment that seems more turbulent every day, it is highly likely that franchising will continue to gain popularity as a business model for future generations.
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Comments attributed to Mark Bhardwaj, Head of Partnership Growth in Australia for IWG