O Abordare Teoretica Si Practica Asupra Francizei
A THEORETICAL AND PRACTICAL APPROACH ON FRANCHISING
O ABORDARE TEORETICĂ ȘI PRACTICĂ ASUPRA FRANCIZEI
-TABLE OF CONTENTS-
INTRODUCTION
I. FRANCHISING – THEORETICAL APPROACH
The Concept of Franchising – Legal and Economic Definitions
The History and the Evolution of Franchising
Advantages and Disadvantages of Franchising in the Contemporary Context
The Use of Franchising Today. The Extent of the Franchising Phenomena
II. THE CONSTITUTIVE ELEMENTS OF THE FRANCHISING CONTRACT
1. The Stakeholders Involved in the Contract
2. Basic Types of Franchise; Comparative Analysis
III. FRANCHISING ON THE ROMANIAN MARKET
1. MOL Franchise
2. MOL Romania
3. The Importance of Training Programs in Franchising
CONCLUSIONS
APPENDICES
BIBLIOGRAPHY
WEBLIOGRAPHY
INTRODUCTION
The paper A Theoretical and Practical Approach on Franchising proposes to offer the readers a guide, especially to people interested in finding out more about entrepreneurship, business, and more exactly in developing franchising businesses. This will be possible because of its organized structure, which could respond to the ones who studied in the economic field or to the ones who have a particular curiosity, not only for those who want to study but also for those who want to open such a business. This could offer a view and proper information on the subject to specialized or less specialized people in every domain.
The idea of doing my dissertation thesis on Franchising came out after discussing with a lot of people who were interesting in opening such a business. I had this possibility to work in an evironment where I have contact with clients every day, this wasn’t the only opportunity for me. The company I work for is actually a franchising business dealing with a line of discount food and non-food stores in Italy. Beside this activity which the company develops there are also other projects that they develop, like the online tour operator system.
Therefore, the real thing that motivated me in choosing the topic of this thesis, were the clients who wanted more and more to become partners of the company in order to develop more easily and to grow faster, being helped not only in receiving a part of the money they will need to invest in order to open the business, or the advices and trainings offered by the franchisor, but they will also be more successful because people will easily recognise the brand, and the company will offer them an already existing Customer’s Portfolio.
I think the great businesses in the world are those in franchising system because this kind of business brought millions of euro to those that chose maybe on their own risk, to invest in such a business.
There are a lot of advantages investing in this type of business like the fact that the business potential remains high. Even though the idea it’s not really that innovative, the investment is considerably low and the profit comes faster than in an owned business. Of course there are also some risks that need more attention.
The best example I could give right now is McDonald's through which one can have access at an already existing success model, then there are a lot of new things to learn at a total different level and why not, the profit it can be also really generous.
The reason why I chose another company instead the one I’m working for right now was only because the line of franchise stores it hold hasn’t yet expanded in Romania, and I wanted to do a comparative analysis between the Romanian market and the franchise Group’s country.
Anyway, I therefore compared the situation between the franchise filling stations that MOL Group holds at the moment, especially between the parent company in Hungary and MOL Romania. This way, I analyse their current economical situations, and explained the relation between the franchisor from Hungary and the Romanian franchisees. What I wanted to highlight within my research proposal was the importance of training programs in the franchising sector were I explained how things are actually done in Romania although the situation should be otherwise, especially when talking about the agreements between the franchisor and the franchisee, and of course the effects of their actions.
I. FRANCHISING – THEORETICAL APPROACH
1. The Concept of Franchising – Legal and Economic Definitions
Nowadays franchising is an important business scheme. Comparring to other enterprises, franchising enterprises are managed and organized in a totally different way.
Franchising is a peculiar organizational form. Economically speaking franchising is a hybrid type of organization. There is an uncertainty to independent firms to act in association because they need to invest time in relationship specific assets and also to carry out oordinated routine business every time. The economical definition of franchising is „a business that can be purchased for a fee and continued payment of royalties to the parent company.”
There are franchises very well known and other less known. Who can tell never heard of McDonalds or Body Shop? A franchise comes with a brand name, with policies already established, along with their operations and procedures and of course a franchise entreprise can have a national or even regional popularity.
A franchise form of business can allow to an entrepreneur a very important opportunity, meaning one can run his or her own business without having to invest a lot of money and time like when starting a new business from the start. Also, the franchisor is very likely to serve as a consultant and to offer advice, promotional assistance, and financing for the franchisee. Legally, franchising is a right granted by law. One can have the right, of course, only under a licensing agreement to use a trademark and also to distribute trademarked products or services in a certain area.
One of the methods to entry in a business is the franchising method. Meaning, one can buy an already existing business through concession. This represents a business opportunity through which the owner of a service or registered product guarantees exclusive rights to a person in order to distribute or sell on the local market the service or product, agreeing to respect all standards of quality in response to a billing or due notice. The legal agreement between the two parts its called franchising contract.
2. The History and the Evolution of Franchising
Of course, franchising is also known for its success. As a marketing channel, it rises in North America and Europe and is emerging in many nonwestern economies. Studies show that over 40% of retail sales in the US are using franchised operations and some observers state that the number will soon exceed 50%. After a long period of time, franchising surged even in Europe. Indeed, it is really obvious that franchising as an organizational form is flourishing all over the world.
It is outstanding that specialized people in franchising have succeeded in doing an amazing progress in the last few decades in order to understand franchising. Anyway, there were some important theoretical and also empirical studies that provided well-founded explanations about the existence of franchised marketing channels and in order to understand the conditions that promote the existence of franchising. In addition, there made some few other studies that could enlighten our understanding of various points of franchising especially when we talk about the fundamental economic organization, the choice between franchised and non-franchised channels, the choice between company-owed and franchisee-owned units, about the structure of franchise contracts, the things that determins the franchise fees and royalties, the nature of ending procedures and the role of capital structure.
Even though there are a lot of studies regarding franchising, there are some important gaps in order for us to understand this type of organizational form. In addition, there are increasing markets that every time create new challenges to understand franchised marketing channels. One important gap is that an institution of developing franchised arrangements represents the nature of franchise system governance. Although there has been made some progress in this domain, governance is still needing more franchise studies.
Anyway, there is no consolidate structure in order to analyze the authority of this kind of systems. Besides this, we need to explore the other alternatives of franchising to understand the structure effects, we also need to understand how the evolution of the individual franchise systems lead to innovations.
This is very important especially for trying to recognize that even though authority problems are often part of the ownership, these are not identical. We have to take into consideration the largely owned corporation all over the world. Ownership rights related to income are representative for the shareholders, although altogether the authority rests with the directors and managers. In franchised agreements, ownership and authority often apply for franchisees but there are also a lot of decision rights that affect franchisees and that are taken strictly by the franchisors. This way we can state that the problems of who has the real authority is much wider than the determinants of the ownership problem.
3. Advantages and Disadvantages of Franchising in the Contemporary Context
Here I’ve done the SWOT analysis in order to determine the advantages and disadvantages of franchising I compared them. (See Table no. 1)
Table no. 1. SWOT Analysis of Franchising
Source: Author
After doing the SWOT analysis I was able to determine the advantages of the franchising system.
Nowadays, franchising is the most favourite business model because of its satisfactory circumstances to the franchisors. I think franchising has some real benefits like advertising, training, networking, technical support, and other business support services that many one-man operations cannot afford, or simply do not have the expertise in. The best known advantages are:
Branding is a very powerful component in business. In order to open a franchise one needs to find a brand which is already established and people are familiar with.
The most important thing for entrepreneurs to enter in an industry is the lower risk for failure. There is a big difference in failure rates for entering in a new market and entering in a known market. Statistics reveal that franchisor-franchisee failure rates are substantially below the failure rates for new business in general.
One of the most challenging things for entrepreneurs about entering in a new market is how to build. Franchising eliminate this problem because they often provide easy setup for franchisors. Actually the franchisee gets its entire business format from its franchisor; this includes marketing strategy and plan, operating manuals and standards, quality control and continuing two-way communications.
In franchising, the most important thing is the comfort of knowing that they will have the same customer portfolio and this means that the customers will know that they can find the same quality and same service of the product or service. Most of the franchise business’ customers are known as loyal customers. Loyal customer is the most valuable capital for businesses. The most important thing is to pay attention to the costumers and try as better as possible to never lose their confidence.
Banks and similar institutions provide convenience to the franchises in oreder to get funding and financing more easier because it is known that there is a low failure risk rate in franchising. Banks will prefer to finance a known business model than a new business.
Although franchising has some advantages, buying a franchise has some major drawbacks faced by a franchisor and these are reppresented like I mentioned in the SWOT analysis mainly through anchise business’ customers are known as loyal customers. Loyal customer is the most valuable capital for businesses. The most important thing is to pay attention to the costumers and try as better as possible to never lose their confidence.
Banks and similar institutions provide convenience to the franchises in oreder to get funding and financing more easier because it is known that there is a low failure risk rate in franchising. Banks will prefer to finance a known business model than a new business.
Although franchising has some advantages, buying a franchise has some major drawbacks faced by a franchisor and these are reppresented like I mentioned in the SWOT analysis mainly through the high costs. Buying a franchise has some costs such as start-up expenses, utilities, rent, franchising fees, employees and taxes. These costs divide into initial and on-going costs. The initial cost refers to non-refundable initial franchise fee. Franchisees pay the franchisor a one-time fee upon joining the system and subsequently pay a percentage of their gross sales as royalties.
Franchisees have some other expenses except initial payment like rent royalties, advertising fees, equipment maintenance, employees, insurance and inventory, a percentage of the gross sales to the franchisor. The percentage of gross sales are generally between 3 o 10 percent of the gross sales and this payments like rent, which means fixed and made by each month.
Another problem is the fact that franchisees have their own business but the franchisors have their own business independently. Franchisors obtain money from franchisees, some of which translates into profits from the franchising activity itself, and also indirectly obtain expansion capital which is at the sole liability of the franchisees. Franchisors want to follow franchisees because franchisees want to convert their investments to the profit and franchisor wants to be a part of the profit.
The other problem is represented by the strict rules, and this means franchisees have an own business but it is governed by franchisor. Franchisor gives a long list of guidelines to the franchisees and franchisees have to follow these rules. Franchisees have to serve the same service to the customers and use same materials and equipments. Most franchise agreements provide the franchisor with extensive controls in this regard and are devoid of impediments to franchisor discretion, such as binding arbitration.
So, we could observe the fact that entering to a new business or to a known business can both have difficulties and easiness. But it’s important to now how to choose the most profitable way. First of all, franchising is usually easy to recognize as a brand and this represents a very important thing for customers and buyers. Another important aspect is that entering in an already known business doesn’t offer a high failure risk to the franchisee.
This kind of business can also provide to entrepreneurs easy setup which is also one of the most important things when entering in a business. If there are entrepreneurs who don’t have enough capital to buy a franchise, it is easier to find financial support for franchising. To enter a new business is always a good thing, but buying a franchising can become a real opportunity. This doesn’t mean that franchising doesn’t have any disadvantages. We already know that there are also few disadvantages like high costs, but people can easily find financial support, then the fact that an entrepreneur will always depend on the franchisor shouldn’t be known as bad especially because when people depend on somebody or something, it means they don’t share the risk alone. The other disadvantage is the fact that entering a franchising also suppose that there will be some strict rules to follow. People sometimes get nervous about rules but without rules there shouldn’t be any arrangement and companies shouldn’t grow like today.
Therefore, franchising offers brand recognition, lower risk rate for failure, easy to find financial support and easy set up in a business. On the other hand, franchising has also some difficulties which are high costs, strict rules and dependency. When these are taken into consideration, franchising looks to have more advantages.
4. The Use of Franchising Today. The Extent of the Franchising Phenomena
Nowadays, business models are increasing. One of the most known business model is franchising. When there is owner of national or regional chain company and a person who wants to operate one of their companies, they make a contract. This contract enables a certain person to operate one of their outlets. These outlets must be the same with the original company; using same furniture, equipment, having same service and taste. These contracts show differences according to the owners, it can be based on initial payment or a percentage of gross sales. To sign a contract in order to be a part of a known business is called as franchising. Franchising has been providing business opportunities for over 150 years.
It is believed that franchising comes from the middle 1800s. The earliest franchising was done by Singer Sewing Machine in the United States in 1851. Coca-Cola started to franchise in 1899, then, oil refineries and auto manufacturers began to franchise to distribute their products in different parts of the country.
After that, America wanted to improve their restaurant chains and Kentucky Fried Chicken started in 1930, Dunkin Donuts started in 1950 and McDonalds which is the most successful franchise in the world started to franchise in 1955.
According to Franchise Facts 2011, today, franchising is big business, and there are over 3000 franchise systems in the USA. Franchising is an entrepreneurial activity that plays a crucial role in the creation of new jobs and economic development. In addition to this, Franchising is a prominent part of the economy and a central phenomenon in entrepreneurship. Practitioners often recommend franchising as a method that entrepreneurs can use to assemble resources to create large chains rapidly. In addition to this, it is a method recommended especially for entrepreneurs who can create large chains with franchising. In return, the franchisee pays an up-front fee and ongoing royalties to the chain operator.
A franchise is an agreement granting a person or group of individuals (the franchisee) the right to market a product or service using the brand name and operating methods of a business (the franchisor) in exchange for a fee (typically an up-front fee plus recurring royalties on sales).
In addition, franchising has literally reshaped the retail landscape since its infancy in the 1950s. By most estimates, franchising now accounts for $1 trillion in annual retail sales from approximately 320.000 businesses in 75 industries and employs more than 8 million people.
In franchising, a chain operator–entrepreneur collaborates with a franchisee–entrepreneur to create economic value. Specifically, the franchisee obtains from the chain operator the right to market goods or services under its brand name and to use its business practices. In the global market, franchising adds value by enhancing the understandings of local culture, customs, and values.
According to IFA Educational Foundation, 2005, franchise businesses are important to the overall economy, generating over $1 trillion in annual sales—representing 17% of the U.S. Gross Domestic Product—and averaging 300 new franchise start-ups each year. There are approximately 901.093 franchisees and they are employing approximately 18 million people, in turn generating an economic output of over $2.1 trillion which equals about 40.9% of the U.S. retailing sector.
II. THE CONSTITUTIVE ELEMENTS OF THE FRANCHISING CONTRACT
1. The Stakeholders Involved in the Contract
The franchisor is the person who grants a franchise. To be more specific, the franchisor owns the overall rights and trademarks of the company and allows its franchisees to use these rights and trademarks to do business. The franchisor usually charges the franchisee an upfront franchise fee for the rights to do business under the franchise name. In addition, the franchisor usually collects an ongoing franchise royalty fee from the franchisee.
A franchisor is faced with the unique opportunity of entrepreneurs management, dealing with franchisees who are business owners in their own right, rather than employee management.The franchisors’ obligations became even more relevant than before once the hole indutry of franchising became really well-known especially because technology is making a big difference across the market segments, then once the geographical boundaries became redundant more and more people tried to enter this kind of business.
This way, the franchisor has to make sure that the controls are appropriate and that there are very well-defined operational procedures in order to achieve his business and the organizational goals. In addition, the franchisor needs to plan very well his business vision through specialized roadmap of milestones and benchmarks.Thus, the franchisor's obligation comes out of his commitment towards his own long-term business goal he needs to meet the requirements the best he can. There are a variety of means that he provides in order to manage his objectives on the long-term and are related to the brand, to the franchisee, to the society and last but not least to the economy.
A brand is actually what franchise is all about. The franchisor’s business advantages, his synergies on the market, but also the associate pulling strength are all determined by the power of the respective brand. I should say that there are certainly some real challenges for the franchisor like the creativity, the fact that is really hard to maintain,to grow and to a brand. This needs a really complicated execution plan that is not only requiring special branding exercises but also some wide quality controls in order to sustain the initial wave and to justify the branding costs.
First I should say that promotions at a large scale may help to create an awsome brand awareness among the clients. Even so, the fact that franchising represents a kind of an unusual business, I should say that it will be needed to pay more attention to the clients and on their needs or requests rather than to the transaction-based-marketing strategies. There is also needed to endure the brand awareness on the long-term and to try to convert this to brand loyalty which would come aut if the brand generate satisfaction on the long term. Of course, altoghether I should say that it’s very important to protect each and every inch of the brand if we want to remain on the market on the long term, thing that will certainly need frequent quality checks and intense and frequent periods of training and orientations, and of course, if necessary, even the elimination of the undesired elements from the systems, with strong and lethal legal infrastructure. There are also some important factors in supporting altogether the brand management like the skills, the vision, the personal intelligence, and of course the technical expertise and innovative attitude of management of the franchisor organization.
The franchisor always needs to remember that he has to be grateful to the franchisee because the franchisor growth depends on the franchisees' success. About the franchisee one can say that he is the real connection with the customers through wich they get an idea about the franchisor’s brand. Despite the franchisor's actual image, the more clear and perfect the connection through the franchisee is the better is viewed the brand. There are two important aspects that franchisor must evaluate in order to take control of the respective situation. The first one is refering to the product or to the service and the second aspect is represented by the delivery.
I think it’s really necessary to understand the markets and this because there are different kind of markets all over the world. Even so these markets could be at different stages from the development point of view. It’s very important for the franchisor to know what kind of product is he offering to the franchisee in order to take into consideration the peculiar market even though those are the most qualitative products or services hec an offer. It might be possible that a certain product or service to have a grate success on a certain market but to require some changes in order to have success to a very diffrent market even though at the same quality. So, I think the products or services should be adapted to all kind of markets in order to develop a franchisee network of success.
Moreover, the franchisor must make sure that the franchisee doesn’t have another solution to its problems apart of the franchisor itsfelf, meaning that every time the franchisee has a problem he has to contact the franchisor fro solutions. This only options does not stand only by the contract they agreed to but also and especially to the way delivery of the products is made, meaning it shouldn’t be diffrent from outlet to outlet and more exactly it shoul be at the same standards from all poits of view in terms of quality, trening, marketing or promotions prices, training, effective supply chain management, competition strategies and so on.
The society represents the reflection of economic and cultural state of affairs. Each part of the society has different expectations from each and every business. All this because each business drives its activities within the society. Therefore, within the society the franchisor succeeds through his hard work and receive his fruits, so he needs to properly develop it. This kind of business can contribute more equal distribution of income than any other business types. This kind of business provides a real opportunity to entrepreneurs and it also brings an international experience at local levels, it offers skills, know-how, orientation with high business standards, operational experience and ethics. All this is provided by the franchisor to the franchisee. Above all these already mentioned things, the franchisor should make sure tha the advantage is passed on to the the costumer, who should derive the maximum benefit especially because of the existing global brands by monitoring the pricing policies of the location. However, all this has for sure a valuable impact on the life quality.
From the economical point of view franchising is a relative new type of business in countries all over the world and it’s compared to other business models. The inherent advantages of risk and cost optimization, and the phenomenal growth it has achieved in the Western countries, especially the US, makes it more remunerative in terms of what can be rather than what it is. This issue present the fact that growth prospects are extremly big. In order to grow by rapid production and to make profit for the humanity, there is no better model than franchising.
The franchisor has also certain advantages like for example, being a franchisor one can expand its business much more rapidly than if he tries to grow only through company owned outlets. Because the franchisees contribute to an advertising fund, which the franchisor controls, he can expand brand awareness without financial commitment on his part. The franchisees provide the capital for expansion, which allows the franchisor a high degree of financial leverage. Because expansion at the unit level is financed by the franchisee, the franchisor’s company takes minimal risk. Franchisees are far more motivated to maximize sales and profits than salaried branch managers. Franchisees are also more responsive to local markets than salaried managers, and typically can more readily achieve local public awareness of the business. Finally, franchisees are an important source of new marketing and product concepts, which can benefit the entire franchise network and increase the royalties the franchisor receive.
Just as franchisors must respect the rights of franchisees, so the franchisor rights are carefully protected. Franchisors have the right to vote out their Divisional Franchisors if they are not satisfied with the service they receive, and also the Administration Center which takes and distributes the leads in their local area. An elected Advisory Committee has a powerful and effective voice in setting group policy. Franchisors, like franchisees, have an automatic right to renew their contract if compliant. Even if a franchisor is voted out by their franchisees, they have the right to sell their business at a fair market price.
The franchisee is one who purchases a franchise. The franchisee then runs that location of the purchased business. He or she is responsible for certain decisions, but many other decisions (such as the look, name, and products) are already determined by the franchisor and must be kept the same by the franchisee. The franchisee will pay the franchisor under the terms of the agreement, usually either a flat fee or a percentage of the revenues or profits, from the sales transacted at that location. Once a person becomes a franchisee and part of a franchise organization there are roles and responsibilities to take into account.
The first function a franchisee has in the new endeavor is as an investor into the business. The franchisee will need to invest financially with an initial franchising fee, but also be prepared to pay any additional costs that might be necessary to get the business up and running such as equipment costs. Also, there will be ongoing royalty fees that he or she will need to be aware of.
Secondly, a franchisee will need to be sure that he or she can invest an adequate amount of time in the business. Although the system is basically set up in franchising, the franchisee will still need to initially spend extra time learning how the system works. The franchisor usually offers training and continuous support, hence the ongoing royalty payments. Like anything else, once the franchisee gets to know the ins and outs of the system, the time investment decreases somewhat.
One of the most important skills a franchisee will need to possess as a franchisee is the ability to be pro-active and take initiative. He or she should be able to easily assume a leadership role. The franchisee needs to be certain that he or she understands how the entire system works and not be afraid to ask the franchisor questions. It is especially important to communicate with the franchisor anything that he or she will notice that doesn't seem right to him/her.
After all, a franchisee is basically assuming a partnership role with the franchisor. Therefore, he/she should be able to work together, share ideas, and resolve issues together. The franchisee may notice something that the franchisor was not aware of since the franchisee is much closer to the business. The franchisor would probably appreciate the franchisee bringing concerns or discrepancies to the table, especially if he/she offers possible solutions.
With all of the responsibilities that the franchisee holds, communication and organizational skills are key skills to possess as a franchisee. As mentioned, it is important to keep in close communication with the franchisor. In addition, the franchisee will need to be able to communicate effectively with his customers, employees, vendors, and other business contacts. Furthermore, it can be quite beneficial to team up with other franchisees on a regular basis. It can help the franchisee run his business more smoothly if he/she shares ideas and solutions to problems experienced with others in the same capacity.
The role of a franchisee, ist o be prepared to wear many hats. In operating the business, he will most likely have to manage all the daily operations involved in operating a business, including ordering supplies, meeting with customers and vendors, preparing payroll, resolving discrepancies, etc. These are just a few of the franchisee sub-roles depending on the type of business he is running. It is essential to be able to organize all of his responsibilities so that everything gets done accurately and in a timely manner. Therefore, as long as the franchisee understands his role and makes every effort to carry it out thoroughly, he/she should be able to manage a successful franchise.
Franchisees who invest in publicly held companies should have a line of communications with the investors in their system that is uninterrupted by corporate management. Franchisees in publicly held brands should develop the philosophy that the corporate people (who are temporary employees) don't own the company. The only significant investors in the brand are franchisees and shareholders – two entities that should be in constant communication.
According to Freeman, stakeholder theory is about „…how people create value for each other”. Stakeholder theory considers the context in which a business operates and recognizes that a firm’s customers, suppliers, franchisees, investors, shareholders, employees, government agencies, and more all represent stakeholder group of the firm, At its core, stakeholder theory recognizes that business decisions are likely to affect one or more of its stakeholder groups, and thus a key assumption of stakeholder theory ist hat values are necessarily and explicitly part of doing business.
2. Basic Types of Franchise; Comparative Analysis
Franchising represents a known term nowadays, within the business discourse, and the law. However, this term is used in different contexts and with diffrent meanings. For example the EU identifies three features of franchising. The first one represents a common name or sign with a uniform presentation of the premises, the second referres to the communication of know-how from franchisor to franchisee, and the third one represents the continuing provision of commercial or technical services by the franchisor to the franchisee.
Franchising has been associated with a variety of institutional arrangements. In US business history, franchising has been declared form of distribution in numerous prominent industries, for example: automobiles, farm equipment, and sewing machines. I think that everyone could noticed that in the moment when franchising is conceived more broadly than the EU description, the border between franchising and other marketing channels is not really clear.
Although there can be noticed a certain ambiguity, researchers have developed taxonomies for franchising. Some of the taxonomies are focusing on the type of business like the accounting and tax services, ice-cream stores and vending machines. Other taxonomies focus their attention on a contractual feature-leasing, co-ownership and even co-management. For tractability there was provided a simple, workable, dichotomy-authorized franchised systems and business format franchising.
a) The territorial franchise
An opportunity to enter franchising is that of giving some exclusive rights to an independent person to develop more franchising units for a certain territory and for a certain period of time. The franchisee will receive from the franchisor the one thing known as the Contract for Area Developer and the franchisee will pay to the franchisor a fee for the right of developing a certain number of franchising units in a certain territory, through the agreed period of time. Paying the development fee assures the franchisee the exclusivity for e agreed period of time, to develop all the units in the given territory. With each and every open unit, the franchisor will give to the franchisee an individual franchising contract. It is expected that the franchisee to held all or a certain percent of the developed units in the given territory. The problem of the territorial developing contract it’s represented by the obligation of respecting the planning in order to open a unit because if the franchisee doesn’t respect the planning the exclusive rights that were given to him are being cancelled.
b) The operating franchise
An operating franchise company is a company that makes a good or provides a service that it then sells to customers or clients. An operating company contrasts with a holding company whose main function is to own other companies.
At a certain moment in time, every franchisor is facing a certain problem. There is often a doubt regarding the fact that whether running a mix of franchised and company run operations is or not a good idea, and most of the times this thing happens in the first stages of the development.
The franchisor has an original model of business which he wishes to replicate and to grow its business through franchising. The question of whether how much company operations to keep is another known issue for the franchisor and is surely need well managed debates.
If the franchisor’s budget allows it, we can observe that in the conventional retail model there can be opened even another outlet and it can be runned under staff before franchising it off. In the case the budget do not allow this thing, the franchisor has to think quickly and to take the decision whether if he should franchise its existing model, or he should keep it.
There can be observed also some other cases. One of them is when the franchisor hold a larger number of outlets and in this case it could not be a real problem, meaning one of the outlets can be franchised without affecting too much the franchisor's income from the group. Most of the times, the franchisor can be forced to keep the cash cow, meaning, its best store or territory, and this only for financial reasons. Of course, this can bring its some other problems duet o the fact that it can be interpreted by franchisees that the franchisor is only franchising the less profitable, or even problem outlets, and is keeping the best for himself. This idea is not helpful to strong franchising and will not be stopped until a franchisee will not gain the same level of success, or even better, from a new outlet. This way it’s really normal to consider franchising the best choice of outlet and which precede the income. Further on, a certain franchisee will be successful for sure and it will result the best possible option in order to assign potential franchisee.
For a service style franchisor it is most of the times really difficult to sell the originating territory as it is, especially when this is their only source of income. Practically, franchisors are facing new territories instead of the existing model. Some say it is very important for a sevice franchisor to do demographic research in such situations.
Of course there are usually given solutions depending on the situations and on the development stage. It can be a problem a more developed system, taking into consideration the situation the doubt of a franchisor regarding how many company operations to run, if there is any. There are some general recognised advantages of having franchisor operations alongside those of franchisees. The first advantage is that the franchisor has the opportunity to try new products which decrease the danger of giving back dud products on the franchise system. Also, the franchisor can try new systems and procedures before introducing them to the system. On the one hand, the company operated salons can be a distraction but on the other hand it can make a person understand the business. It’s important for the companies operated stores to enable someone to try out the new ideas before launching them to the network.
A very important advantage of having company owned outlets is to enable someone else to try new procedures and systems. This way the company can always work in order to improve the way they do things and to make sure that all issues are solved before roll it out to the franchisees.
The operations of a franchisor can offer good conditions to generate an area for franchisor staff in order to grow and also to develop into massive knowledgeable support staff for the franchisees. Usually the franchisor has an already prepared school specialized in training the new franchisees.
This way the franchisor can always have an income from the company operations so they can receive also another source of income besides the franchise fees alone.
A operations company can offer the franchisor the possibility to grow its assets that can be franchised with a strong amount of value component attached. Of course, there can be also another reason why the franchising is that powerful and I can state that while a certain company owned clubs really profitable, generally franchised clubs are generating even more profit than the company owned clubs. And this thing has been proven through a lot of franchising activities till now. For example one can sell a company owned club to an already existing manager without having to change the management, the staff or even without having to change the location. Therefore one can observe an immediate increase in both the turnover and profitability. So we have to agree with the fact that the franchise model brings even more profit for an owner operator than a corporate store to its franchisor.
I should also mention that the problems or the experiences encountered by the franchisor every dal are also the same for the franchises. Moreover, this kind of situations offer the franchisor the possibility to try fix the issues before damaging the system and have an impact on franchisees. The same happens in the moment when the franchisee says that a certain thing or situation cannot be solved or that a certain action doesn’t work, meaning even in this case it’s the franchisor that has the ability to show him how the work cand be done and not accepting the franchisee excuses. Even so, I should add that there can be encountered such situations, especially when the franchisees want to do things in other manners and to work outside the system.
It seems a company stores allow a franchisor to have the capacity of controlling the situation and to have profit from a successful concept. They can offer cash flow and also a training facility to both the market and other franchisees. Of course, there are also some disadvantages that can keep the franchisor operations running in parallel with the franchisees. In this case, assuming the fact that the franchisor is not paying enough attention, franchisees may complain that the franchisor is actually competing with its own franchisees. The capital used in franchisor operations can be tied up just to make sure there is a certain balance, otherwise it may be used for the system growth and its development.
It’s surely needed a high resource in the case a franchisor is running its own operations. So it’s a little hard tor un the franchisor operations at the same time with the franchisees business because it requests a lot of money. I can actually say that this situation is pretty much like running two systems instead of one.
There are also a lot of issues encountered by the staff in the situation of running company operations. A lot of franchisors started at the beginning doing franchising in order to decrease or to eliminate this kind of issues the best way they could. So, I can say that the staff may cause, in general the majority of a franchisor running a company operations. Even so, I think this burden can be necessary especially because it represents a real problem that the franchisees face every day.
c) The mobile franchise
There are various types of mobile franchise like lawn care, home improvement and repairs, plumbing, pet-care. Mobile franchises are taking off, allowing franchisees to buy into a system and grow, without the cost of maintaining a traditional storefront.
This diverse sector of franchising offers two things: a low initial investment and also much needed products and services. Mobile franchises offers in the first place a fairly low investment, then it does not require real estate, and third would not require a lot of employees. This kind of franchise offers these three opprtunities plus a service that can help busy consumers with the one thing that they crave like the case of convenience. Today, more and more mobile franchise concepts are popping up, and I see this trend continuing.
d) The distributorship
The ditributorship franchise is the business where suppliers who sign selling contracts with dealers for buying or selling certain products or lines of products. This type of franchise is frequently met in the case of automobile industry dealers, the case of beverages bottlers and that of the gas stations. In this case, the dealer buys the brand and/or the product from the supplier and uses the name of the supplier with its line of products. So, a distributorship is a franchise granted by a manufacturer or company to market its goods especially at wholesale in a particular area.
III. FRANCHISING ON THE ROMANIAN MARKET
In Romania, an important role in helping to grow the franchise system was the fact that the private sector started to become extremely important, as well as the fact that investments are ecouraged. Due to the fact that the Romanian economy is aiming for the economical standards of the European Union there are certainly a lot of possibilities for this type of business to grow.
Regarding the regulatory part of the Romanian government, I can say that it made some steps towards legislation onto the franchising system. Actually, there was also approved a Government Ordinance no 52/1997 by Parliament through the Law no 79/1998, that refers strictly to the law of franchising system. This Law explain the fundamental principles of a franchise contract as being a constant intercommunication between persons or organizations through which the franchisor guarantees to a franchisee the right to exploit or develop a peculiar know-how or intellectual property right. The law concedes for a major contractual independence among the parts regarding to the effects of the franchise contracts and which provide the fundamental things to follow obsolete agreement, offering this way, the needed information to a member about the basic principles that need to be followed.
In the Romanian legislation we can find the franchise network as a contract which is based on business relationships between a franchisor and its beneficiaries in order to promote a certain technology, a product or services, as well as to develop the production and distribution of a product or a service.
This type of business has been a real success in Romania even from the beginning. There are a lot of well-known brand that have huge sales as McDonald’s, Pizza Hut, Body Shop, Mango, or even Marks & Spencer and so on, and I should say that these are through the most extended western franchises in Romania. The already existing networks are covering the food sector, the clothing retail one or even industrial products sector. We can observe high amount of demands for franchising networks in the services sector. Also, noticed, especially after the research that there is a huge potential for franchising and this is increasing every year. I should say that there is also a problem annd this would be the fact that there is an obvious lack of the commercial galleries.
More and more entrepreneurs are choosing to develop their businesses in this kind of system although the number of brands which are developed in Romania is still low if we were to compare it to the economical potential of the country or to Central and Western Europe countries.their businesses in franchise system. For example only in the last two years there was recorded a growth with more than 50%, and out of the total amount of franchised brands, over 60 have shown up.
At the beginning of the year 2002 there were 30 franchise chains in Romania, and today the number has reached 170 franchised brands and over 1300 operators. The total business of the operators is worthing around € 900 millions.
Of course even Romanian brands were franchised, and here we can talk about fast food restaurants, hotel chains, English schools, but also advertising and real estate agencies and consulting companies. Recently, Petrom Oil company made the decision to offer some private operators the administration of some filling stations in the franchise system and Starbucks is one of the companies that would like to get the first in the top of the Romanian coffee shop network. This kind of activity tends to become one of the best and exclusive investments in Romania.
1. MOL Franchise
The MOL Group represents an international leader that is integrated as an oil and gas company in Hungary, which has over 75 years’ of known experience and also an already confirmed past of its activity. Moreover, besides the fact that the company has a strong refinery and also a commercial position in the CEE region, they now try to focus more also to its exploration and production assets, being actually already present in this sector for over 20 years.
The Group is, like I said before, a leading integrated Central & East European oil and gas corporation which is developing at the time few important protfolios. It has actually an extensive international Upstream portfolio.
At the end of 2013 the market capitalization resulted over $ 6.8 bn and the company’s shares are also listed on the Budapest, Luxembourg and Warsaw Stock Exchanges.
This way, MOL grants to try as best as it cant o improve efficiency further on, it has also to exploit potential on the market and last but not least to do its best in its social and environmental performance and its active portfolio management.
MOL Group’s activity is represented by three important projects through which the company tries to develop the goals and to bring benefits. These projects are called: The Upstream, The Downstream and The Gas Midstream.
The Upstream segment it’s a portfolio that takes into consideration the activities present in 13 countries which refer to oil and gas exploration and which it takes also in consideration 8 countries’ valuable producing assets. The company traditionally developed its activities in the Central-East European region, like I said before with over 75 years of experience in the oi land gas industry but it also tried to focus its attention on the international asstes for already 2 decades now. They delivering their activities through their diversified portfolio all over the world, even in regions that are really known as oil land gas regions like the Kurdistan Region of Iraq, the Commonwealth of Independent States countries, as well as in Pakistan and the North Sea. Also, at the end of 2013, the company’s hydrocarbon production increased to 104 mboepd (Thousand Barrels of Oil Equivalents Per Day) while SPE 2P (Society of Petroleum Engineers) reserves reached 576 MMboe (Million Barrels of Oil Equivalent). Now, their poject continues.
Now, regarding the Downstream segment, I should say within this one operates 4 refineries, 2 petrochemicals units and a state-of-the-art retail filling station network supplied by a wide regional logistic system, where there are all improved by really effective supply chain management. Although in the last years the Downstream industrial ladscape was highly unfavourable which were characterised by high prices, volatile refinery and petrochemicals margins, low demand levels and increasing operating costs, there was launched a new comprehensive Downstream-level program in the year 2012 in order to improve the company’s Downstream profitability by $ 500-550 mil. in EBITDA (Earnings Before Interest, Taxes and Depreciation, Depletion and Amortization) improvements. Just like they were planning, they were able to improve their internal performance if the situation ist o be compared to the one in 2011 and then reaching a total of $ 400 mil. in CCS EBITDA improvements in 2013. The two most complex refineries, of the group present in Slovakia and Hungary, had few advantages as their strong, complex asset structure and, as a result of their important efforts, the Downstream performance also improved. In order to keep their efficient and also profitable operations in Italy, the company annonced in October 2013 the transformation of its Mantova refinery into a logistics hub, starting with January 2014.
Regarding the Gas Midstream I should mention that FGSZ Ltd is currently the only company in Hungary that holds a natural gas transmission system operator’s license. Moreover, the company owns the entire domestic high-pressure pipeline system, and at the same time it’s also responsible for its operation. Beside the activity of domestic natural gas transmission, FGSZ performs also some transit activities for Serbia, Bosnia-Herzegovina, as well as cross border deliveries towards Romania and Croatia and the Ukraine if required so.
As an effect of the company’s long-term strategic efforts, MOL Group has established a diversified, Upstream-driven portfolio which consists in oil and gas exploration and production assets in 13 countries and valuable production activity in 8 countries.In order to expand its international activity, the company is determined to continue organic and inorganic growth through acquisition. The company is continually taking advantage of their regional and also local experience and operational hnow-how, sold also some Russian assets and having an active portfolio management approach the company continued to achieve new assets in Pakistan where they already had a well-known presence. As an essential inorganic action the MOL Group entered into the North Sea. This acquisition it’s partly a strategic value since the company desiders to improve its offshore experience and to achieve also further growth in that region. The company had also a series of successful long-term tests in Bakrman discovery where they declared the commerciality of their Akri-Bijeel asset in Kurdistan Region of Iraq, which could deliver sizeable reserve addition and production growth on the midterm. Anyway, Central and Eastern Europe, including Hungary and Croatia, are still the core MOL Group strategic regions where majority of the company’s result is generated. The Group is actually aiming to exploit all the available hydrocarbon resource potential in the region broadly focusing on Efficiency Improvement actions in order to grow the production of matured fields and to reduce production unit operating costs. Moreover, in the past year there could be noticed significant organisational improvements that were put in place and that are still on-going.
The company’s objectives for 2014 show that they try to remain focus for the future in order to make the company grow. The Group also established a first objective through which they want to achieve a 100% growth target for the next few years that should come from both, organic and inorganic segments. They also aiming to have a strong presence in the CEE region with an excellent cash-flow generation. Then the Group wants to stay focus on diversified portfolio delivers presence in the world’s important oil and gas regions such as the Kurdistan Region of Iraq, CIS countries, Pakistan, and North Sea. MOL also wants to make a second commercial discovery in the Akri-Bijeel Block in the Kurdistan Region of Iraq, as well as to plan a strategic entry into the North Sea region and to launch a comprehensive program in order to improve internal efficiency and to increase their production.
Being integrated oil and gas company, the Group has numbered more than 75 years of mainly onshore production experience, being at the same time also actively working on expanding its portfolio to include more offshore activities. Moreover, the company is exploring new onshore opportunities in important countries such as the Kurdistan Region of Iraq, Kazakhstan, Russia and Pakistan, in addition to the North Sea explorations.The company presents a well-established activity and also thriving partnerships in the CIS region, the Middle East and Africa. The group has production activities in 8 countries which are complemented with the exploration and appraisal portfolio ensuring this way, 30% organic production growth for the future years. The Kurdistan Region of Iraq offers a variety if really promising projects that are already in the early development phase while Pakistan is offering big opportunities from exploration to field development. In Kazakhstan, the company has a large gas condensate discovery under appraisal. There is also an important potential for them in Russia. Moreover, the Group is now able to produce future results on the international level, building further, based on deep experience gained in Hungary and Croatia. The CEE region remains MOL Group’s core area and will continue to be the predominant part of our Upstream strategy for the next five-ten years because is achieving significant cash flow for future growth. I should say that the company was the first player through the ones in Central Europe that moves into unconventional exploration, evaluation and production and today is proud of its 6 years’ noticeable experience gained in this field. There is also an important aspect that should be discussed and that is the fact that the company has important relationships in the industry and with local communities, governments and business partners that haven’t only led to production cooperation in the oil and gas business but have also ensured the fulfilment of the company’s mission.
Further on we can see MOL Group financial results stated for the first quarter of 2013 and also for the last quarter of 2013 and of course for the current year, 2014. (See Table no.2)
Table no. 2. MOL Group’s Balance Sheet
EARNINGS PER SHARE
INDEPTEDNESS
EARNINGS PER SHARE
Source: http://www.mol.hu/ [Accessed 10.05.2014]
As I could find out after the research, the officials of the company think that both environments like the regulatory one and the macroeconomic one passed through some difficult times during the first quarter of the year. Anyway, they are confident that the company will get through the challenges and that the year 2014 will become a successful one for the Group.
In order to return in growing the Upstream production by the end of this year, the company tried last year to establish some fundamental personal and structural changes. It’s because of this thng that the contribution of the Kurdistan Region of Iraq will be really important and the company already booked the first barrels from this region at the beginning of this year. Anyway, the majority of the established targets are still ahead. Now, the Group seems to be ready to accelerate the work program in line with the recently development plan from the Akri-Bijeel block Field. The company already ended the North Sea transaction and now they seem to be prepared in order to start the work on their new portfolio, which will represent an important activity of the company results by the second quarter of 2014. Even though, the company has already all this activities they are still looking for attractive chances in order to achieve a step change in Upstream, this year.
With all these efforts I noticed that the refining macro conditions remained tough for the Downstream portfolio. Even so, there seems to be more encouraging the demand recovery in their core markets. From this point of view, it is extremely satisfactory the fact that they succeed in strengthening their positions and captive markets across the CEE region even more. There were actually some Eni assets that seemed to fit extremely well with their present portfolio, like the ones achieved in the Czech Republic, Slovakia and Romania, significantly reinforcing the company’s retail positions within these countries.
We can notice the fact that for the first quarter of this year the Group provided a clean CCS EBITDA of HUF 105 billion lower than in the last quarter of 2013 by 15% which came as a result of the low figures in Upstream and also because of the losses in Croatia.
This losses within the Upstream portfolio could be due to the fact that the results of the last quarter of 2013 were actually pushed by important condition review for field abandonment prices and and by releasing the provisions related to Hungarian fields, things that weren’t present in the last quarter of 2013. Anyway, the company reported higher production and there was also possible to work in a more favourable environment. Now, regarding the Downstream clean CCS-based EBITDA we can observe it remained quite the same compared to the prior quarter. Even though there were also some positive effects of a wider Brent-Ural spread, unfortunately due to the use of the favourable petrochemicals margins these effects were easy consumed by seasonally lower sales volumes, shrinking diesel margins as well as unplanned shutdowns. There seemed to be also a Gas Midstream loss because of the forced sale of Croatian gas inventory and because of the related write-downs. At the end of 2013 the Hungarian storage business was destroyed and the domestic gas transmission business was very affected by the lower returns and also because of the mild weather and therefore as a quarterly comparison there were recorded lower results.
It seems that the EBITDA group, excluding special items, increased to HUF 102 billion. This figures show that there’s only a decrease of 8% just comparing the results to the prior quarter. The first quarter of this year shows that clean CCS adjustments inceased positively to HUF 3 billion at a group level in comparison with the positive adjustments that were of a total HUF 13billion in the last quarter of 2013. The company observed that it had gained a tota of HUF 12.7billion from the divesture of its 49% stake in Russian Baitex LLC, which was presented as a special item.
If we were to compare the results for every year, we can notice that the indicator of clean CCS EBITDA is showing a decrease of 26%. Regarding the Upstream portfolio, there was the profit drawback a little because of the fact that there was a low contribution from CEE gas fields and this happened because of the natural decline and the lower natural gas prices. Moreover, the Russian ZMB field was destroyed during the third quarter of 2013. The performance of the Downstream portfolio was determined by a visible deterioration in external conditions which could only be partly offset by improving sales volumes in CEE countries and by the achievements of the efficiency improvement program. In Gas Midstream, value adjustments on inventories in Croatia, divesture of MMBF as well as milder weather conditions negatively impacted actual performance.
Operating cash-flow before working capital changes amounted to HUF 100 billion in the first quarter of 2014 which is a 5% drop in comparison to the last quarter and 32% lower than a year ago. On the other hand one could see unfavourable movements in working capital lines mostly related to the noteworthy decrease in trade payables which resulted in HUF 12 billion operating cash-flow after working capital changes which represent an 80% decline in a year on year comparison.
Source: http://www.mol.hu/ [Accessed 10.05.2014]
In the above table we can see the results for each implemented project.
In the case of The Upstream the EBITDA before special items decreased to HUF 78 billion in the first quarter of this years, 25% lower in comparison to the first quarter of the last year. On one hand, performance was negatively affected by a drop in average hydrocarbon prices (down by 7%), mainly attributable to a decline in natural gas prices in Hungary and Croatia – while on the other hand, MOL Group also faced shrinking natural gas production in the CEE region. In addition, MOL divested its Russian ZMB production field in August 2013, excluding that effect MOL’s production declined by 4% YoY. Moreover, Q1 2013 was increased by HUF 8 billion non-recurring revenue related to an inventory transfer to the Croatian Sisak refinery.
Regarding The Downstream, clean CCS-based EBITDA amounted to HUF 22 billion, which is a HUF 20 billion decrease in comparison with the first quarter of 2013. The significant drop is attributable to heavily deteriorating macro conditions, such as massively shrinking gasoline and gasoil cracks and a 0.4 USD/bbl tighter Brent-Ural spread. Furthermore sales decreased by 7% as sales in Italy dropped by 38% due to commencement of the Mantova conversion. The negative factors above were partially offset by energy cost reduction.
In the case of Gas Midstream we can see that EBITDA, excluding special items, decreased by HUF 21billion compared to the base period which is mainly attributable to forced sale of Croatian Prirodni Plin’s gas inventory, the effect of which is already booked in the first quarter as value adjustment on its inventories. Furthermore, Hungarian storage business, MMBF, was divested in 2013. Finally, domestic gas transmission business was adversely impacted by further cuts in regulated returns in November 2013 as well as by mild weather conditions in the quarter just passed.
In the first quarter of 2014, net financial expense of HUF 20.2 billion was recognized mainly as a result of a net interest expense on borrowings.
Also, CAPEX spending stood at HUF 147 billion in 2014 first quarter. Out of the total 65% or HUF 96 billion went to inorganic investments while HUF 51billion was aimed at organic projects. With HUF 34 billion Upstream represents 67% of total Group organic CAPEX, while Downstream accounts for 11% or HUF 16 billion.
Officials say that Operating cash flow before working capital changes amounted to HUF 100 billion in the first quarter of 2014 which is a 5% drop in comparison to the last quarter and 32% lower than a year ago. On the other hand one could see unfavourable movements in working capital lines mostly related to the noteworthy decrease in trade payables which resulted in HUF 12 billion operating cash-flow after working capital changes which represent an 80% decline in a year on year comparison.
Last but not least, indebtedness ratios remained well below the comfort zone with a net gearing ratio at 18% and a net debt to EBITDA ratio at 1.0x. The slight increase in these ratios compared to the year-end levels was mainly attributable to the closing of the North Sea acquisition.
Like every other respected company MOL Group established some visions, missions ad values.
The vision of MOL Group keeps people moving ahead by discovering new ways of serving their energy needs better and creating value for generations to come.
Regarding the mission, the company is operating across and from Central Europe, MOL Group will systematically overcome all frontiers, inspired by its management and relying on the expertise of its people.
And finally the company’s values are: success and growth by moving ahead, courage and decisiveness by acting without fear and overcome frontiers, teamwork and partnership by staying together and leaving no one behind and last but least the values of expertise and responsibility by succeeding through more intelligent solutions.
The sustainability performance of MOL Group is very important for the company in order to succeed and to have more clients.
Sustainability is considered to be a fundamental criterion of business success by the largest companies and an increasing number of shareholders. To address this expectation MOL Group has defined its general long-term sustainable development target as: “Achieve and maintain an internationally-acknowledged leading position (in the top 20%) in sustainability performance”.
As a key performance indicator (KPI) the company uses the total score awarded to them by the Dow Jones Sustainability Index. According to this Index, MOL Group in 2013 was not selected as one of the top 10% most sustainable companies (unlike in 2010 and 2011). However, there can be seen some important progress made in 10 areas and their performance is considerably higher than the industry average.
The threshold for inclusion in the Index in 2013 was 69% – MOL Group scored 66%. The topics in which MOL Group achieved the highest scores were ‘Social Impact on Communities’ (93%), ‘Risk and Crisis Management’ (93%), ‘Codes of Conduct/Compliance/ Corruption & Bribery’ (92%) and ‘Stakeholder engagement’ (90%).
MOL Group’s non-financial performance is driven by the company’s sustainability performance management framework. This is designed to incorporate all the measures necessary to ensure that relevant problems are addressed with specific plans of action, thereby resulting in better non-financial performance, from group-level target setting to operational level implementation.
Sustainable development is very important for us, in order to increase population but also to manage the resources available on our planet. Also, this kind of development is necessary in order to improve our living conditions. It’s not only an duty at an institutional level but also of every mankind. So it’s important to convince all people to make contributions in order tos ave the planet. This kind of contribution can be a very important as it can assure the company’s framework in their activities. This way the company has to take into consideration the challenges of the environmental protection or even the effect it might generate at a social level. These kind of activities shoul help the company during its operations even on a long term.
The company that I present in the dissertation thesis is a major petroleum company, and this fact has an important role at social and economical level. As a company it can offer people lots of benefits. For example it has the posibility of contributing to energy generation, or even feedstock for the plastic industry. Morover it can provide an efficient traffic and it has the possibility to be involved in the transportation of goods. Even so, the company’s activity can affect a lot the environment, through its high risk business.
Anyway, the company has been really involved in applying the sustainability in operations, and tried event o offer available information to its stakeholders and of course to the society. In June 2006 the Sustainable Development Committee of MOL Board of Directors was established in order that SD can receive the highest-level support. During the same year we developed the processes that can enable MOL to further improve and develop its operations in conformity with the best international practice and on the basis of regular measurement and evaluation also in the area of sustainability.
In the Sustainable Development strategy development, the company objectives for the period 2011-2015 are grouped under six focus areas: climate change, environment, health and safety, communities, human capital and economic sustainability.
In 2010, the seven SD strategic initiatives for the period 2006-2010 were reviewed and updated. After a series of discussions and workshops, six SD focus areas were defined for the period 2011-2015: climate change, environment, health and safety, communities, human capital and economic sustainability. The six focus areas cover 20 topics, all of them considered essential to the successful management of the long-term economic, social and environmental challenges MOL Group faces in the future.
The strategic objectives have been broken down to business division and country/company level.The main objective at the Group level is to “achieve and maintain an internationally acknowledged leading position (top 20%) in sustainability performance.”
The six focus areas are the following:
1. Climate Change: „Manage risks and opportunities related to climate change”;
2. Environment: „Reduce environmental footprint”;
3. Health and Safety: „Ensure operational HSE excellence”;
4. Communities: „Enhance trust and credibility among stakeholders”;
5. Human Capital: „Capitalise on human resources”;
6. Economic sustainability: „Focus on responsible operations and long-term economic development”.
2. MOL Romania
Regarding the activity of the company in Romania I should say that MOL is a multinational company and its prior area of activity is the distribution of oil and gas. In 1993 the managerial team decides the regional expansion, including Romania. In 1995 the company opens the first filling station in a franchise system. In the year 2000, the central office of the company in Romania gets transferred to Cluj-Napoca. Nowadays, MOL Romania system includes 189 filling stations.
Although it’s a development-oriented company, MOL also developed and is still does social responsability programs, being one of the most involved companies in such actions and programs.
MOL Romania signed a contract of sponsorization with Fundația Pentru Comunitate. According to this contract the company is financing the activity of the foundation in a lot of domains like the cultural one, the educational, social, recreative ones and also in the sport activities. The activities that have priority are those that support the talented children and those that have certain problems, and especially those programs that promote the cooperation across the coutry from the Central Europe and the East one, as well as the cultural heritage preservation of this region.
Through this collaboration MOL Romania developed campaigns like: The Programm for Promoting the Talents, The Mentoring Award, and the program for children’s health.
MOL Romania became a very involved and consistent promoter of the sustainable development values. Also, MOL Romania became an important supporter of the activities that focus on the environment protection. This way the company launched with the support of a foundation called Fundația pentru Parteneriat Miercurea Ciuc, the campaign called Spații Verzi. For six years through this program financed projects made to promote the protected natural areas from Romania and made also to regenerate the urban green fields. In 2011 there were financed projects with costs of € 150.000.
The obtained results from these campaigns of social responsability were presented in a series of publications, developed under the program Implicare în comunitate.
MOL România is also the company which initiated the program Campanie pentru siguranța în benzinării, under which it has launched the educational campaign „5 secunde pentru siguranța dumneavoastră”. The company’s clients were informed of some important rules which have to be respected in order to avoid some accidents at the filling stations, as well as some practical advice which will help them to manage efficiently their oil or gas consumption.
The entire MOL activity defines a structured company through the modern, efficient, flexible management principles and specific to the activity area requests.
3. The Importance of Training Programs in Franchising
Even though, the company is so involved in CSR, I noticed that still the company has some issues. Especially after talking to some responsibles of some filling station in Romania, and also and really important for the aspect I will discuss it further on a part of the employees.
I tried to do my research the best I could and the interviews were held most of the part in Bucharest and Ilfov County.
After the research I decided to highlight the real issues of the franchise MOL Group as a hole and I designed a SWOT analysis below. (See Table no. 4)
Table no. 4. The SWOT Analysis for the Franchise MOL Group
Source: Author
One of the issues that seemed important to me and especially for the company’s good functioning is the fact that there are a lot of differences between countries regarding filling stations by training the personnel.
So, in order to explain better the situation I should beggin with the fact that knowledge it represents an information that is provided by the individuals’ beliefs and their commitment for what they do.
The experts agree that, knowledge can be classified into two types. There is a certain knowledge that it can be vvery easy identified and transferred between people or institutions.There are a lot of means that provide the codifying and transferring of knowledge like procedures manuals, articles, electronic communication and books.
The tacit knowledge can be achieved through the proffessional experience of people and it can be also very difficult to transfer it or to codify it. The thing is that these two dimensions can offer the franchise sytem the possibility to work.
When the franchisees buy the franchise idea, the franchisor provide them marketing procedures, plans, operating manuals. Then they are receing training in order to know how to approach the new business and to implement it appropriately. Therefore, there’s need of a well-managed franchise brand as well as the well-trained personnel and very well-defined procedures.
This kind of education it has to be continuously supported and no matter what the problems are there is always the need of receiving advices. All these things can be achieved within seminars, electronic communications, and most important, through meetings.
It’s very important to have access to resouces and strategies in real time. This way, the franchisors can offer marketing support, training and support in order to succeed in the respective activity. There are also some important aspects at the relational level. There’s always need to provide trust, autonomy and reliance, this way the tranfer of information is always appropriate.
It’s really important to provide the new franchisee the time and the appropriate trening before starting the activity, especially because lots of them don’t have experience in the field. Even though, the training provided initially has a really important role, there is also very important to provide support continuously in order to have an effective system and I think this is what really happend on the Romanian market for MOL filling stations. Even though the franchisee and his employees received the initial data and instructions, they lost contact with the parent company for a while and they changed their approach especially towards the client.
In general, franchisers provide free initial training courses lasting from seven days to four weeks, focusing on all aspects of the business. These are followed by several visits of area managers and in store training of personnel in the first days of the opening of the filling station. They offer similar training possibilities for the franchisee's staff and continuous availability of follow up training.
How I said it first, in reality, training isn’t always provided. Franchisers give advice and guidance on stock control and on matters such as re-order levels and new item prices. All other functions are thought to be a responsibility of the franchisees.
I chosed to expose this problem in order to fiind solutions because I think although sustainability is a very important aspect in order for a company to succeed, the training period is extremely important, as it is the basis to instill the franchisee's confidence in the franchiser. An effective educational program should be tailored to the new franchisee's specific needs, rather than being a comprehensive introduction to business.
All these, lead to the next hypothesis: The existence of previous professional experience in franchising, is not correlated with the fact that franchisors inform franchisees on their goals.
Franchisees need to be informed on new and updated procedures, on up-to-date pricing and on product information. There is a need for regular and frequent information exchange within the franchise system.
This continual requirement for information exchange underlines the need for constant communication and trust.
Ongoing support helps achieve a deep understanding of the business culture and values, enhances the cooperation of franchisee and franchisor, promotes the brand name and improves the sharing of information.
Well, i’m not saying that MOL Group didn’t exposed their intentions and their new projects on the market to the franchisees from the other countries like Romania’s case, but they lately seem to forget that it’s also important to know how to communicate the new information in order to adapt it on the market the franchisee is part of and it is also important to try to pay attention to the cultural aspects and to the client’s requests at that moment.
Although failure may occur due to poor management from the part of the franchisee, it is uncommon to result due to the lack of the franchisor’s business support. Ongoing service means sufficient and accurate contact and continuous business assistance. And I think communication plays an important role in promoting and sharing strategies as well as in the overall mission. A positive relationship, enforced by continuous training, minimizes conflicts of interest and maximizes operational profits.
Knowledge seems to have an important contribution in the sustainability and competitiveness of a franchise system. Training programs help the franchisor obtain the required information regarding the desirable locations, sources of labor, managerial techniques and practices, operational procedures, accounting methods, the organizational culture, the goals of the franchisee, the skills and experience needed. They are very important, as they combine everything, from developing, perfecting, disseminating and improving to implementing the right business concept. They involve intellectual capital development, which refers to the intangible assets (knowledge resources, information, experiences, skills, structures and relationships of a company) which collectively can create wealth [54] and the development of the human capital, that refers to the incorporation and application of the skills, experiences, attitudes, ideas, values and competencies from all the employees of the firm.
Education facilitates information transfer from the franchisor to the franchisee and vice versa.Well–trained franchisees are more efficient and can inspire loyalty and trust to the customers.
For example, one needs to pay attention especially to the improper employee behaviour. One of MOL Group’s employees was not willing to identify himself when a security guard asked him to do so. He used vulgar and offensive words and hit the guard’s arm. His behaviour clearly breached the Code of Ethics that states: “As a MOL Group employee you must never engage in behaviour that could be characterised as offensive, intimidating, malicious or insulting”, and “you must never humiliate or injure another person.” Since security rules were violated, the Ethics Council recommended taking measures related to labour law. In addition, the Council proposed the publication of the incident at meetings and via Intranet, and the taking of proper measures in order to prevent similar situations from the occurring in the future.
Effective training can make a difference in the development and relative success of the franchisees, as it is positively related to innovation and competitive advantage. Some problems related to the franchisee training and development process are: the dissatisfaction of franchisees when they are unable to achieve their profit expectations and the lack of agreement on who is responsible to provide the necessary training and development.
I also think that active training doesn’t mean effective training. Some usual deficiencies include: lack of discrimination between different franchisees of the same franchisor, absence of adjustment in the trening program in order to meet the requirements of each franchisee and relatively low range of methods used (interactive video, e-training) according to the geographical dispersion of franchisees.
The employees I talked to said there is certainly a correlation between training and satisfaction.It seems that strategic intent and motives, organizational capabilities, partner selection and trust lead to creation and innovation and affect knowledge transfer, which is a dynamic learning process, through people and their skills, technical tools, routines and systems. Its success depends on the level of commitment and satisfaction between the parties. Individuals develop knowledge commitment to the extent they see the value of knowledge, develop competence in using the knowledge, maintain a working relationship or interaction with the knowledge and are willing to put in extra effort to work with the knowledge. Satisfaction is important because it can motivate franchisees to perform better. If the franchisee is satisfied, then he is agreeing even more to share information. Also, continuous support services enhance franchisee satisfaction.
The last two hypotheses I should bring is that the more regular the education the franchisee attends, the more well trained he will be and the better he will perform, and of course, the more education the franchisee accepts, the greater the possibility of being well – satisfied..
To obtain an overview of Romanian MOL franchise I used a series of interviews as a data collection tool. The interviews were randomly taken from the persons in charge and some employees of the filling stations especially from Bucharest and also from the Ilfov County. Unfortunately the personnel wasn’t really pleased of giving interviews and they felt a little bit not in their mood, and the responsibles didn’ t show themselves really available, but eventually I succeded to end, at least from this approach. Lastly, 10 franchise filling stations in Bucharest and Ilfov County participated in this study.
For reaching the goals, regarding the regional development and not only, MOL needs a well trained and performance-oriented personnel. The key to success of MOL corporation is represented by the honour of the employees’ contribution and the development of their skills to succeed responding the future challenges, in order to make it to the environmental changes and costumers’ needs.
MOL company tries to create a correlation between its objectives and those of their employees in order top revent some eventual conflicts of financial interests and the position thei have in the company. This way, MOL expects that its personnel to work in the most efficient way using its entire capabilities, further on receiving from the company important remuneration packages, a challenging job, modern conditions of work, opportunities of developing their carreers, and an international work environment. The efficient use of human resurses needs the assurance and respect of certain conditions which are influencing directly the human activity.
The factors that the company take into consideration in order to its employees to efficiently develop their activities are: proffessional studies, practical and theoretical knowledge, work experience, creativity, innovation.
There are also some important factors which depend on the company like the motivation policy, work conditions, the facilities offered to the employees, the organizational culture as well as the organizational behaviour.
There is an essential need for MOL Romania to create some efficient way in order to develop the human resourses department through special trening programmes although MOL Group implemented along the years a variety of special programs and anso various systems of evaluation of its employees performances, even since 1997.
The company and especially the franchise system present in Romania needs a training sistem with the help of specialists in order to create a joint system of values that will for sure help the organizational success.
During the research I found out that employees are not really satisfied with their work. They say they weren’t trained since they were hired, and there’s certainly a lack of interest from both parts, from the persons in charge with the franchise but also from the employees. Then they say also the remuneration is very scarce and not adapted to the work they do. So they don’ t feel very motivated but they need a job and and try to work hard every time.
The employees of MOL Romania say that they are once in a while informed of the newly arrived projects, especially about promotions and green projects, but they are not properly instructed although the expectances to bring profit are high.
So, there must be implemented some special projects that should mainly come from the part of the franchisor, because the MOL Group from Hugary certainly does a good job in this way outside Romania, but they either forget to pay attention to their franchisee, either the information is lost before getting to the employees of the filling station in Romania.
MOL needs to continue to invest in human resources through creating and offering specialized trening programmes, based on itranet applications in order to offer its employees the opportunity of achieving knowledge and skills needed in their everyday work. The company needs to make real efforts to communicate the new strategies and decisions of MOL Group to the employees in order to prevent their leaving from the company and also to involve them in the regional development of the organization.
In 2002, MOL Group from Hungary improved its management system and brought new informational technologies in order to have a better selection, revision and trening of the personnel. The training is done for the existent personnel of the company as well as for the graduates of certain colleges and universities, this way MOL can have new potential qualified managers. The thing is that not every MOL franchising, like these in Romania benefits of this kind of programmes. And that’s why they need to focus more on this problem and to try to find solutions.
What I propose is to fiind why there are these lacks and differences between countries and especially from a filling station to another and also why the franchisees aren’t involved in trening the personnel the same way the franchisors are in their own country. How can a franchising MOL survive on the market without trying to offer the best quality in all they do and without motivating its personnel?
The aim of the corporation it’s o become the main company of oi land gas from Central Europe. And for succeeding in doing so MOL has to create an organizational culture and a structure able to facilitate the dinamic development of the organization. It needs to implement a policy of human resources and to use the best practices in their relations with their clients, their business partners, with their personnel, with the society and with the environment in general.
For this I propose to maintain a continually monitoring and to try to reconsider their strategies.
Each and every person is unique and that’s why every manager, without exeption need to offer flexibility and understanding regarding the aspirations and the needs of every subordinate.
I noticed when talking to the persons in charge of the MOL Romania filling stations that they are opened to innovations and have a flexible attitude to change trying to work as efficiently as they could and trying to take in consideration all the advantages they have in this domain.
The reason I propose to implement some specific strategies in order to have a better trained personnel is the fact that the oil and gas market in Romania could suffer because of this fact especially for the MOL Group taking into consideration also the competition.
Further on I am going to make a comparative analysis on the Romanian oi land gas market.
After analysing some studies on the oil and gas market I could notice that the Romanian oil and gas market was around € 9 billion in 2010, the consumption per capita of gasoline in Romania was around 79 litres and that of diesel fuel was around 140 litres, all this being comparred with the oi land gas market from Hungary, where it has arrived at € 5 billion., the gasoline consumption was around 147 litres per capita and the diesal fuel consumption was around 164 litres per capita.
Although Romania’s consumption in 2007 was around 3 million tones of gasoline and nearly 4 million tones of diesel fuel and there was also a forecast with powerful results for the next years due to the suto park development, this thing was never achieved because the auto market decrease from 2009 which had negative influence in the fuel retail market.The didtribution companies have reported with only one exception a decrease in the first nine months of 5%-8% from the gasoline and diesel salesand therefore, Petrom, being the leader of the Romanian market at that time has recorded a 19% growth because of the expansion and the innovation on the market. The internal distribution network of the company grew this year with 12 units, having right now 562 filling stations.
The petroleum industry competition has a special particularity because this industry faces with a series of challenges like: big volatility of oi land petrochemical products, the currency fluctuations on international markets, geopolitic events at global level, also because of the structural changes in adjacent sectors and regarding the global climatic phenomena, more demanding requirements on the environment and other.
The market leader in Romania is at the moment OMV Petrom, whish holds 545 filling stations, 386 under the Petrom brand and other 159 known as OMV brand, followed by Rompetrol, with almost 450 filling stations and Lukoil with 300 stations. On the forth place this year is the MOL Group with 189 filling stations, followed by Azer with no more than 27 stations, meanwhile Gazprom could operate with a similar number of stations.
On the retail market segment the competition is really high, and each company tries to earn a bigger part of the market.
MOL Group officials stated that MOL Romania needs to open more filling stations, this being actually a strategy of the Group in order to increase its cotation on the market, especially in the South of Romania.
MOL Romania was always an organisation that tried to increase its business model through its clients, and the team seems decided to use again this opportunity, giving the clients a to their partners high quality products and services, recognised under MOL brand within a larger network of filling stations.
Therefore, the company will continue to grow its efforts, through the high standards of performance that the company provides. In the Czech Rpublic, for example, the average of sales in the filling stations is positioning the MOL Group in the first three retailers in the petroleum industry. Moreover, MOL Group, will be holding soon the second greatest filling stations network in the Czech republic.In Romania MOL is expandind more and more its activity and makes a step towards the perspective of brand in Slovakia. The tranzaction proposes to follow the angro sales operations and the undertaking of the local entities.
In order to offer relevant information regarding the financial aspects of the petroleum sector I designed a comparative report. (See Table no. )
Table no. Benchmarking report-Financial information and indicators
Source: http://www.doingbusiness.ro/financiar/ [Accessed 15 April 2014]
CONCLUSIONS
Although across the years there were a lot of researches made by people interested in this domain, there are still some lacks which should be filled through new studies.
Through this research I’ve done I wanted to find which are the differences between the parent companny and the one in franchise system. I’ve been able to dignose some issues at the informational level between those two, especially with direct effects on the customers and the employees. Last, but not least, the issue of transferring appropriate information has effects on both, the franchisor and the franchisee and their turnover.
In order to do this paper, which I think it should help more the people interested in doing or analysing this type of business i’ve done a qulitative research in the field. So beside the specialized documents and articles i’ve done also a number of 20 interviews with the managers and the employees of some filling stations in Bucharest and Ilfov County and I tried to observe closely the behaviour of the employees when developping their activities. I was also interested in observing their approach to the customers the ways they tried to solve issues. Another source that helped me do complete my research was the internet which helped me actually with more information about the parent MOL Group, because unfortunately the time didn’t offered me the opportunity do continue the research outside the borders. The used webliography were actually specialized sites designed by specialists in the sector of some research institutions but also the officials sites of the MOL Group were they are exposing their activities.
I have to recognize the fact that I encountered also some difficulties in doing the research because the managers weren’t always available. And also I found it difficult to fiind information related to the types of franchising, which weren’t very clearly exposed.
BIBLIOGRAPHY
Adam, K. (2004). Solving Tough Problems: An Open Way of Talking, Listening, and Creating New Realities. San Francisco: Barrett‐Koehler Publishers Inc.
Barthélemy, J. (2011). Agency and Institutional Influences on Franchising Decisions. Journal of Business Venturing
Bohi, H. (2010). Time To Buy A Franchise. Alaska Business Monthly
Combs et al. (2004). Franchising: A review and Avenues to Greater Theoretical Diversity, Journal of Management, Volume 30, pp. 907-931
Combs, J. G., KetchenJr., D. J., Hoover, V. L. (2004), A Strategic Groups Approach to the Franchising-performance Relationship, Journal of Business Venturing, Volume 19, Issue 6, , pp. 887-897
Coughlan et al. (2003). Marketing Channels, New York: Prentice Hall
Dant, R.P., Grünhagen, M. and Windsperger, J. (2011) Franchising Research Frontiers fort he Twenty-First Century, Journal of Retailing, Volume 87, Issue 3, pp. 253-268
Dant, R. P. and Kaufmann, P. J. (2003). Structural and Strategic Dynamics In Franchising. Journal of Retailing.
David, F.R. (2007). Strategic Management Concepts and Cases, New York: 11th ed. Prentice Hall
Michael, S. C. (2003). First Mover Advantage Through Franchising. Journal of Business Venturing
Nair, S. K., Tikoo, S., and Liu, S. (2009) Valuing Exclusively from Encroachment in Franchising, Journal of Retailing, Volume 85, Issue 2, pp 206-210
Cummings, J., Sheng, T., (2003), “Transferring R&D knowledge: the key factors affecting knowledge transfer success”, Journal of Engineering and Technology Management, Vol. 20, pp. 39–68.
WEBLIOGRAPHY
MOL Group. (2010). Susteinability-Non-Financial Performace. Available on:
http://www.mol.hu/annualreport2010/sustainability/social-performance/ethics [Accessed: 30 November 2013]
MOL Group. (2012). MOL Group Annual Reporting. Available on:
http://www.mol.hu/annualreport2012/uploads/file/pdf/2012/annual-report-printer-friendly.pdf [Accessed: 4 March, 2014]
BIBLIOGRAPHY
Adam, K. (2004). Solving Tough Problems: An Open Way of Talking, Listening, and Creating New Realities. San Francisco: Barrett‐Koehler Publishers Inc.
Barthélemy, J. (2011). Agency and Institutional Influences on Franchising Decisions. Journal of Business Venturing
Bohi, H. (2010). Time To Buy A Franchise. Alaska Business Monthly
Combs et al. (2004). Franchising: A review and Avenues to Greater Theoretical Diversity, Journal of Management, Volume 30, pp. 907-931
Combs, J. G., KetchenJr., D. J., Hoover, V. L. (2004), A Strategic Groups Approach to the Franchising-performance Relationship, Journal of Business Venturing, Volume 19, Issue 6, , pp. 887-897
Coughlan et al. (2003). Marketing Channels, New York: Prentice Hall
Dant, R.P., Grünhagen, M. and Windsperger, J. (2011) Franchising Research Frontiers fort he Twenty-First Century, Journal of Retailing, Volume 87, Issue 3, pp. 253-268
Dant, R. P. and Kaufmann, P. J. (2003). Structural and Strategic Dynamics In Franchising. Journal of Retailing.
David, F.R. (2007). Strategic Management Concepts and Cases, New York: 11th ed. Prentice Hall
Michael, S. C. (2003). First Mover Advantage Through Franchising. Journal of Business Venturing
Nair, S. K., Tikoo, S., and Liu, S. (2009) Valuing Exclusively from Encroachment in Franchising, Journal of Retailing, Volume 85, Issue 2, pp 206-210
Cummings, J., Sheng, T., (2003), “Transferring R&D knowledge: the key factors affecting knowledge transfer success”, Journal of Engineering and Technology Management, Vol. 20, pp. 39–68.
WEBLIOGRAPHY
MOL Group. (2010). Susteinability-Non-Financial Performace. Available on:
http://www.mol.hu/annualreport2010/sustainability/social-performance/ethics [Accessed: 30 November 2013]
MOL Group. (2012). MOL Group Annual Reporting. Available on:
http://www.mol.hu/annualreport2012/uploads/file/pdf/2012/annual-report-printer-friendly.pdf [Accessed: 4 March, 2014]
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