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Franchise systems are equal entrepreneurs but unequal partners.

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OP-ED ARTICLE Bernie Ripoll MP

Federal Member for Oxley


President George W Bush infamously once stated that the problem with the French is they don’t have a word for entrepreneur.

Well the French in Australia can rest assured like all other Australians that we do recognise the entrepreneur and their collective contributions to the national economy.

What some fail to recognise however is that arguably none are more effective at entrepreneurialism than those in franchising.

Franchising has a unique and wonderful character. It is a hybrid of the master-servant relationship, the employee-employer contract and the entrepreneurial business developer. Yet intriguingly it is none of these and does not come without

complexity, risk, reward and effort. It is both a bargain of freedom with the shackles of risk.

In business there are many uncertainties including economic downturns, but what is certain is that franchising is growing and forms a significant section of our Gross Domestic Product as well as being a large employer. There is no questioning that franchising is uniquely characterised by the mum and dad investors’ right through to the large corporate organisations.

While franchising is strong and remains a great way to do business it is clear that there can be significant pitfalls along the way. For the most part franchisees and franchisors have their goals aligned through the concept of mutual dependence and benefit, but for a few it is more a one sided bargain based on the primary concept of selling the system rather than a product or service. It must also be stressed that you probably shouldn’t buy into franchising without a full understanding of what is required.

Hence, the alignment of purpose is always a critical factor in any business relationship particularly in the form of a contract. Working for shared goals is essential as is understanding that in franchising - unlike any other business relationship - the contract or initial bargain is only the starting point of a dependant relationship that is constantly changing.

But here we see a stark contrast to other forms of traditional business. Even though those involved in franchising play an equal and critical role in the success of the system its growth and development, they don’t share equal power.

The reality is that in a franchise agreement it is the franchisee that has the capital risk, up front costs, staff wages, stock purchase and so on and it is the franchisor

that collects the royalties and fees for the right to use the brand, system and experience of the organisation.

Whilst we must not forget that the unequal balance of power exists for a good reason - as to ensure that the brand, quality, image, reputation, system concept and integrity are retained in control by the franchisor - this is where it should end and it should be left to the franchisee to get on with the business of market development, growth, returning a profit, employing staff and building equity in the business.

The unfortunate truth is that with the rapid development in the past decade of franchise systems almost running parallel with global financial growth we have seen instances of some that have sought to exploit and abuse their market power, position, contract superiority and the regulatory system.

Our job and the collective responsibility of the franchise sector is to ensure that good franchise systems are supported, while those abusing the success of franchising as a form of business investment are sent the strongest of messages.

Bernie Ripoll MP is the Federal Member for Oxley and Chair of the Joint Standing Committee on Corporations and Financial Services.

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Media: Bernie Ripoll (0418 763 351)

Monday 20 October 2008