The concept of Franchising has developed over time as an efficient way to do business, using a successful business model that has already been proven in the market place, which is transferable and can be taught. In recent decades, the number of Franchises in the world has increased dramatically. Its success is manifested in the number of operating franchises, the number of brand names built through franchising; the millions of customers served every day, and the tremendous opportunity it represents to franchisees. The Franchising sector plays an extremely important role in many developed and developing countries, and has shown their ability to withstand tough economic conditions, especially during the last economic downturn. Some sources indicate that Franchising accounts for half of the United States retail sales.
On-going research and development is employed by Franchisors to improve the overall business models, products, and services, whilst exercising financial controls to ensure gross profit margins are optimised. Owning a franchise under an established brand offers the experience, credibility, support network, and structure of a proven business. This helps to overcome the uncertainties and difficulties commonly faced at the start-up stage. New businesses based on franchise concepts have a higher success rate than other start-up businesses that mitigates the risk of the Bank when lending into this sector. On average, new franchised outlets have a 20% failure rate, as against ordinary start-up ventures, which have up to an 80% failure rate within the first two years of trading. Provided that the Franchisor is committed to building a strong brand, has tested the franchise concept in the market, and provides good support to franchisees on a continuous basis, the franchise Brand has a good chance of long-term survival.
Franchised systems operating in South Africa continue to create sustainable employment contributing to the development of necessary skills. For this reason, Standard Bank Franchising and Enterprise Development units work closely together. The concept of a Franchising incubator aids in fast-tracking growth and success of new entrants to the Franchising sector. This involves formally structured support programmes and coaching to empower previously disadvantaged individuals.
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