Franchising in Chile

Franchising in Chile

Franchising. Background

Franchising, or the practice of using an established firm’s already successful business model, is widely used method for conducting business all over the world. Franchise owners exist in the gray area between working for a corporation and owning their own business. There are different types of franchises, but the primary and most common form is known as business format franchising, in which an individual or entity “purchases” the right to use a name, trademark, and/or business model to conduct operations. According to the International Franchise Association, "Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise system: 1) the franchisor, who lends his trademark or trade name and a business system; and 2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system." (1)

There are thousands of companies engaged in franchise operations across a variety of industries. Automobile makers, fast food restaurants, hotels, and real estate companies all engage in franchising to quickly expand their brand while minimizing their own investment of corporate funds required. Additional benefits to franchisors include opportunities to focus on R&D and quality instead of operations, and the ability to establish rules that must be followed by every franchisee, thereby maintaining a large degree of control over the way their brand is managed.

A typical franchisee will have access to corporate assistance and support, the use of a system that has already been shown to work, and many other benefits resulting in a significantly higher chance of success than a typical sole proprietorship start-up. As with every business there are also obstacles and challenges, from the large initial investment and often lengthy contract, to being subject to whichever direction corporate management wants to...