Reference No: KLL-FO-ACAD-000 | Effectivity Date: August 3, 2020 | Revisions No.

: 00

VISION MISSION
A center of human development committedto the pursuit of wisdom, truth, Establish and maintain anacademic environment promoting the pursuit of
justice, pride, dignity, and local/global competitiveness via a quality but excellence and the total development of its students as human beings,
affordable education for all qualified clients. with fear of God and love of country and fellowmen.

GOALS
Kolehiyo ng Lungsod ng Lipa aims to:
1. foster the spiritual, intellectual, social, moral, and creative life of its client via affordable but quality tertiary education;
2. provide the clients with reach and substantial, relevant, wide range of academic disciplines, expose them to varied curricular and co-curricular
experiences which nurture and enhance their personal dedications and commitments to social, moral, cultural, and economic transformations.
3. work with the government and the community and the pursuit of achieving national developmental goals; and
4. develop deserving and qualified clients with different skills of life existence and prepare them for local and global competitiveness

MODULE
SECOND Semester, AY 2020-2021

I. COURSE CODE/TITLE : MM102/ FRANCHISING

II. SUBJECT MATTER

TOPICS Time-Frame
1. Introduction to Franchising
1. What is a Franchise
2. Types of Franchise
3 .Types of Franchise Agreements March 1-31, 2021
4. Advantages and Disadvantages of Owning a
Franchise

III. COURSE OUTCOME

1. Students will be able to understand the different concepts in franchising.

2. Students will be able to identify the advantages and disadvantages of owning a franchise.
3. Inculcate in mind the types of franchise and franchise agreements.
4. Identify and explain the legal issues of franchising.
5. Understand the basics of franchising in preparation to further topics regarding the subject
matter.

IV. ENGAGEMENT
DIRECTIONS: Read and analyze the following text.
INTRODUCTION TO FRANCHISING

Franchising is not a new concept. However, its origins are a matter of much debate and discussion.
Some authors would have readers believe that it is a wholly American concept, devised in the mid-
1800’s to help American business establish an efficient distributor network. The concept franchising
was undoubtedly in existence considerably earlier than when Christopher Columbus first set foot in the
American continent.

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 The foundation of the franchising system probably lies closer to the Roman Empire as it existed in
the early years of the New Testament than the commercial empires of businesses that have utilized
this phenomenally successful business development model. Even the word franchise has its roots in
the languages of central Europe, rather than the English language, though its precise origins are
unclear.

Franchising in Early Years

In ancient times, there was a Germanic tribe called the Franks, who derived their name from their
weapon of choice a spear. These Germanic warriors were given their name by their immediate
neighbours, because this tribe was renowned for standing up for its rights in a vigorous, because this
tribe was renowned for standing up for its rights in a vigorous manner (usually in battle and using their
trusty spears) so their name came to mean “free” or the defenders of freedom’, from which we get the
phrase ‘to speak frankly, or freely”. The country name France comes from the same root, meaning the
place where one can be free. Indeed, prior to the French Revolution, the currency of France was the
‘ecu d’ or in Louis IX’s time (ecu means “shield”, which featured coins, bearing a coat of arms, though it
may be a reason why the French were firmly in favour of calling the currency called ‘the euro’, the
European Currency Unit, or ecu for short), or the Louis d’or, which was first minted in 1640 during Louis
XIII’s time. In 1795, having removed the aristocracy, the French Revolutionary Council introduced the
silver decimal franc, meaning ‘free money’ or coinage minted after freedom from the oppressive
monarchy.

In the Middle Ages in England, the word franchise had come to be associated with citizenship and
the freedoms that being a citizen brought, specifically the right to vote, and this is where the word
disenfranchised enters the language, meaning those who have lost their citizenship rights, particularly
the right to vote. Therefore, some would argue that, in deriving from the old French word ‘franc’
meaning “free”, we can assume that the original concept of franchising is the granting of certain rights
to those who deserve (or can afford) a specific right to be granted, which in a positive sense is
precisely what franchising does; the word franchise means freeness.

Nevertheless if one goes back to early Roman Empire, where the lingua franca was Latin, there
was the verb ‘frango’ meaning to ‘break into pieces’, and it may be that the roots of the word ‘franchise’
can be traced back to here.

Originally, when the legions of Rome colonized what has become known as the continent of
Europe, the senate appointed a Governor to control the newly acquired settlement. The Governor had
the responsibility of protecting the land and the people that inhabited it, to introduce Roman law, and to
establish a level of governance that was intended to establish both freedom and a level of authority in
the conquered land.

The cost of establishing a protectorate was to be met by the impression of taxes, which were
collected by the Governor from the inhabitants of the state. Any expenses were deducted from the
taxes collected, including a percentage where the Governor retained as his remuneration, and the
balance was sent to Rome to swell the Roman treasury. So we can see that Roma Empire was

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comprised of many semi-autonomous states, each holding allegiance to Rome, and controlled by an
appointee of Senate in Rome, and controlled by an appointee of Senate in Rome, whose task was to
gather revenue (taxes) from the populace and after defraying costs of providing services (governance)
would send to balance to the Rome.

When transposed over the business format model, we can many similarities: the Roman Senate
(franchisor) appoints a Governor (franchisee) to a dependent state (territory) where his task is to
maximize potential revenue and after deducting his expenses, submit balance to the Roman treasury
(fees). Consequently, the concept of franchising potentially has its roots more in task of collecting taxes
than in any commercial enterprise, but the step forward to a mercantile arrangement was both simple
and rational.

THE BREWING CONNECTION

Moving forward to the early part of the 19 th century, we find ourselves in the time when alcohol was
starting to play an increasingly significant role in the lives of the Britons and European States.

It has been suggested that business format franchising was originally conceived by the German
brewer, Spaten, who gave the rights to sell their beers to certain taverns, but the emergence of a single
German brewer in the field alongside a number of British brewers who at the same time used this
approach, might suggest that this form of franchising originated in Britain rather than in Germany, but
there is a little to support this hypothesis other than quantity issue.

Wherever it started, at this time the manufacture of ale was very much a more local affair than it is
today; most hostelries made their own ale, and ale houses were spreading throughout the country.
These ale houses brought social problems and it soon become clear that some sort of regulation was
needed. The government of that time decided that the taxation of ale must manufacture would
significantly reduce the number of ale houses, and consequently inherent problems associated with
them. Faced with financial ruin, however, the proprietors of these ale houses joined together and
formed breweries, where the ale could be brewed centrally and distributed to ale houses.

The higher level of the franchising concept survives to this day one will often hear, it said that the
government has awarded the franchise to do something to a particular company. In effect, charging a
commercial operation for the right to carry out task in exchange for revenue or tax paid to the Treasury.
This notion is at odds with the definition of business format franchising, as we shall see, but within the
general definition of franchising, and certainly within the general definition of franchising, and certainly
within the guidelines of the original understanding of franchising, it is legitimate.

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 Timeline of Franchising

DEFINING FRANCHISING

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The Four Cornerstone of Franchising

The European Definition

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The American Definition

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What Is a Franchise?

 A franchise is a type of license that grants a franchisee access to a franchisor's

proprietary business knowledge, processes and trademarks, thus allowing the
franchisee to sell a product or service under the franchisor's business name. In
exchange for acquiring a franchise, the franchisee usually pays the franchisor an initial
start-up fee and annual licensing fees.

 A franchise (or franchising) is a method of distributing products or services involving a

franchisor, who establishes the brand’s trademark or trade name and a business
system, and a franchisee, who pays a royalty and often an initial fee for the right to do
business under the franchisor's name and system. Technically, the contract binding the
two parties is the “franchise,” but that term more commonly refers to the actual business
that the franchisee operates. The practice of creating and distributing the brand and
franchise system is most often referred to as franchising.
There are two different types of franchising relationships. Business Format Franchising is the
type most identifiable. In a business format franchise, the franchisor provides to the franchisee
not just its trade name, products and services, but an entire system for operating the business.
The franchisee generally receives site selection and development support, operating manuals,
training, brand standards, quality control, a marketing strategy and business advisory support
from the franchisor. While less identified with franchising, traditional or product distribution
franchising is larger in total sales than business format franchising. Examples of traditional or
product distribution franchising can be found in the bottling, gasoline, automotive and other
manufacturing industries.

The Idea of Franchising is all About..

 Franchising Is About Relationships: franchising is about the franchisor’s brand value,
how the franchisor supports its franchisees, how the franchisee meets its obligations to
deliver the products and services to the system’s brand standards and most importantly
franchising is about the relationship that the franchisor has with its franchisees
 Franchising Is About Brands: A franchisor’s brand is its most valuable asset and
consumers decide which business to shop at and how often to frequent that business
based on what they know, or think they know, about the brand.
 Franchising Is About Systems and Support: Great franchisors provide systems, tools
and support so that their franchisees have the ability to live up to the system’s brand
standards and ensure customer satisfaction. And, franchisors and all of the other
franchisees expect that you will independently manage the day-to-day operation of your
businesses so that you will enhance the reputation of the company in your market area.

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  Franchising Is also a Contractual Relationship: Franchising is a contractual
relationship between a licensor (franchisor) and a licensee (franchisee) that allows the
business owner to use the licensor’s brand and method of doing business to distribute
products or services to consumers. While every franchise is a license, not every license is
a franchise under the law.
 The Myth of Guaranteed Success: No business method or industry sector can
guarantee success, and franchising is no exception. If a franchise system has a proven
product or service with a well-recognized brand combined with hard-working, well-financed
franchisees, the chances of success are very high but never a 100 percent given. If, on the
other hand, the franchise system is under-funded with an ill-conceived business plan that
has not been tested properly, and franchisees have been poorly recruited or trained,
failure is likely.
 Individual franchises are part of a brand’s ecosystem, a network that is a pooling of
resources and capabilities. In a franchise business setup, the franchisees of a brand gain
access to the franchisor’s know-how and experience of its business system in exchange for their
money and personal labor. This way, franchisees who want to own a business can shorten the
learning curve that comes with starting a business. It’s also a way for franchisees to avoid
spending a significant portion of the time and money that typically comes along with developing a
business idea.
On the other end of the deal, by licensing out its business methods and pledging support
to franchisees, the franchisor allows itself the opportunity to expand into areas it may have
had difficulty expanding to without the extra money and manpower.

There are three main types of franchises.

• Most franchises fall under the business format type where the franchisor licenses a
business format, operating system, and trademark rights to its franchisees.

• The second type of franchise is product distribution, which is more of a supplier-dealer

setup. The franchisor grants the franchisee permission to sell or distribute a product using
their logo, trademarks and trade name, but typically does not provide an operating system
to run the business with.

• The third is manufacturing, where the franchisor permits the franchisee to manufacture
their products (ex. clothing) and sell them under its trademarks.
When the purchase of a franchise is made, the franchisee is required to comply with strict
guidelines and rules regarding the operation of the business. These guidelines are in place to
maintain brand consistency.

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What are the Benefits of Franchising?

Lower Capital – the capital requirements are usually lower than that of a new business concept
since you’re starting an established business and location can be of your choice wherein you can
look for a space with a lower rent.

Speed of Growth – franchisors usually provide support to its franchisees in terms of product
development, marketing and research, advertisement and promotion, and continuous training to
employees.

Effective Management – when starting a franchise you can micro manage your business
together with your employees that leads to higher motivation and effectiveness which can turn
into higher sales and profit.

Lower Risk and Higher Viability – getting a franchise offers lower risk since most businesses
that are available for franchise are already established and that’s one reason they are offered to
public. One thing is for sure, an established business will be able to survive for long term if you
can manage it well and you can get a support from other people with the same business idea and
that’s what franchising give.

Reduced Involvement in Daily Operations – as soon as your franchised business can sustain
its operations with the help of your managers and employees, you can focus yourself in other
things that may help your business grow or maybe start a new one.

What are the Disadvantages of Franchising?

At first, it might seem that franchising has only benefits, however, there are some downsides to
be considered as well.

Management Difficulty – at start developing a franchised business can be difficult and

expensive, in terms of management time and initial capital outlay and on how to run the business
specially if it’s not your field of expertise, however in the long run you can get over with it through
the help of your franchisor and other franchisees as well, besides there are no easy start for
newbies in the field of business.

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Continuous Royalties – at some point royalty fees can be a problem especially at the
beginning, however you’ll soon realize that it’s worth it because of the help and support you can
get from your franchisor and you don’t have to think of promotion and advertisement with
sometimes are costly.

Strict Operational Guidelines - owning a franchise does not offer the same freedoms as
starting a company of your own. Each franchise gives franchisees a set of guidelines they have
to follow. The guidelines include how to manage, market and operate the business. If a
franchisee does something outside of what the guidelines state, he could face severe
consequences, which might include losing the right to operate.

Risk Reputation - as a franchise owner, you reap the rewards of operating a business with an
established brand that already has an active customer base. While there's a benefit to running a
business that's visible in the market, it can be problematic if the business has a bad reputation
because of other locations. Also, if an issue occurs at one location either locally or far away, your
franchise automatically is associated with any negative media coverage.

There are certain risks involved at each stage of franchising; therefore, developing a successful
franchise requires careful planning, continuous monitoring and support from professionals.

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 V. ACTIVITIES

A. Essay: Output must be written in a yellow paper or in MS Word with font style Times New Roman,
margins 1.5”’ left, the rest is 1’”. Write your complete name on the left side, year and section on the
right corner. Title must be centered and the body must be justified, use only bold letters to the title
and major topics. Do not write anything on this module.
Activity can be found in the assignment section.
B. Application Activity. Activity can be found in the assignment section.

1. What type of relationship that exist between a franchisor and a franchisee considering the
franchise agreement?
2. Is a franchised business a better option than a start-up business? Why or why not?
3. How did the business franchise industry revolutionize the Philippine economy?
4. Does a franchised business have more advantages than that of a regular start-up? Discuss
your answer,
5. What particular era did the franchise business formally start? Consider the challenges on
that particular era and compare it with the present set-up of franchising in the modern
world.
6. What are the things to consider in buying a franchise?
7. Explain; a franchised business with a long history of operations is generally considered a
good franchise.
8. Discuss the similarities and differences between the European and American definition of
franchising.
C. Quiz. Quiz can be found in the assignment section of the LMS on the given time and date.

VI. OUTPUT (RESULT)

1. Submit your output on or before April 2, 2021 @ larryjrkll@gmail.com. You may also hand in your
output to the assignment section of our LMS.

VII. EVALUATION

Your work will be evaluated using the following criteria:

Originality …………………………………………………..15 pts

Organization ……………………………………………… 10 pts
Timeliness ………………………………………………… 10 pts
Clarity ……………………………………………………… 15 pts
Total ----------------------------------------------------- 50 pts

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Prepared by:

LARRY F. FRONDA JR, LPT

Instructor I

MALOU D. SUELLO, LPT

Instrutor 1

Checked by:

Department Module Editing Committee

Approved by:

BIBIANA JOCELYN D. CUASAY, Ph.D.

Module Editing Chair

AQUILINO D. ARELLANO, Ph.D., Ed.D.

Vice President for Academic Affairs and Research

Noted by:

MARIO CARMELO A. PESA, CPA

College Administrator

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