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  • Peter Kam Fai Cheung SBS

Digitizing Franchise

To expand business operations, one option is to invest in brick and mortar and hire employees to deliver value, assuming the risk and liability. An alternative is to franchise the business model and brand for a period of time or in perpetuity. The success of many household names evidences the success of the franchisees and therefore the franchise.

In a franchise, a franchisor licenses a franchisee to use the franchisor's trademarks and other proprietary knowledge for an annual franchising fee and a portion of the franchisee's profits. By providing the knowhow, the franchisor sets the look-and-feel standards as well as the quality of the goods or services. Franchising secures a franchisee's exclusivity of the franchise in a locality and enhances the franchisee's general competition.

Care should be taken when a traditional franchisor transforms itself as an e-commerce one. Commercially, a franchisor's e-commerce operations impact on the franchisees's business in their allocated localities. Legally, a franchisor can only do that if it has reserved the right of e-commerce in existing franchising agreements.

If the right has been reserved or there is a clean slate, a franchisor can digitize franchise by controlling exclusively its e-commerce marketing channel with comparatively less investment and risk than brick-and-mortar operations. Franchisees can be a franchisor's outlets at the local level. As a customer, I often rent cars via branded e-commerce car rental marketing channels, getting the services in any locality, and pondering over their commercial and legal considerations!

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