It has been 10 years since I went out into the world carrying the Japanese franchise business. I have had many experiences in various countries around the world. While I believe that Japanese franchises can still compete and expand globally, I am beginning to notice a peculiar image of franchises in Japan and a bad relationship between headquarters and franchisees. I can say with certainty that if this situation continues, Japanese franchises will not be able to expand globally. This is because of the following reasons. The relationship between headquarters and franchisees needs to be resolved.
Who is in charge of the relationship between the headquarters and the franchisees and when did this happen? Headquarters is the parent and franchisees are the children. Japan is probably the only country that explains this kind of relationship as a franchise scheme. The relationship between headquarters and franchisees is one of equals. This is what a franchise is. I paid the franchise fee, but the headquarters does nothing for me".... This is a common complaint by franchisees in Japan. This is unthinkable in the United States. The head office structures the know-how it has accumulated and transfers it to the franchisees. The franchisees look at the headquarter themselves, select it, and sign a contract, as if they were buying time, for early success.
This headquarters has no structure," he said. If you decide that "this headquarters does not have a system, and the franchisees are not succeeding," then you simply do not sign the contract. Don't just take the head office's word for it; see, visit, and judge for yourself, and sign the contract at your own risk. This is important. It is better not to sign a contract with a company that you cannot judge for yourself. The head office needs to make sure that the franchisees understand this.
The wrong way to choose overseas franchisees. They are under the misconception that their business is so great that they are receiving inquiries from all over the world. The U.S. franchise headquarters receives a mountain of such inquiries. We must not get carried away by such a small thing, but must keep our feet on the ground and promote the development of franchises. What can you learn from two or three interviews? There was a franchise headquarter that was very concerned about the size of the other company. They only sign contracts with conglomerates, and they have received inquiries from major foreign conglomerates. In many cases such contracts end in failure. We have seen many failures. In cases like this, there is no way to succeed because the contract is between the headquarters and the franchisees, who basically do not understand the true nature of franchising. Most of the people who bring in business deals saying, "It's a major conglomerate, so it must be good," are probably from major trading companies or banks. They have overseas networks (but they are not franchise professionals and cannot select companies), so they introduce you to a zaibatsu for the time being. In the end, even if you partner with such a conglomerate, their franchise business is a snob scale compared to the size of their business. Who would want to plunge in talented people to make that business a success? That is not how to choose a true overseas franchise partner. Who do you sign a contract with? This is the most important.
The headquarter's risk, the franchisee's riskThe franchisee pays the franchise fee and develops the business, so there is a financial risk if it fails. Many people involved seem to think that there is no risk at all for the headquarters. When signing a franchise agreement, there is even more risk for the headquarters than there is for the franchisee. I don't think many franchisees, much less headquarters, understand this. The biggest risk for the headquarters is reputation risk. If a franchisee opens a restaurant in a certain area or country, either in Japan or overseas, and it does not do well and closes soon after, its image will remain forever with customers in that area. Also overseas, the image of the failure of that business in that country will remain, and it will be rare that a company will want the master rights to that business in that country afterwards, or want to develop the business. There is no greater risk than this. The brand value of the franchise business is deteriorating rapidly. If the country had been directly managed, it would have been a huge success and there would have been a steady stream of companies wanting to join the franchise. The big risk is the loss of "credibility," which is the most important factor in developing a franchise business. There was a franchise headquarters that wanted to sell out overseas while their business was still in season and asked for help. Would a franchise business based on such a headquarters' idea be successful? The people who would bite on such a business are the sons and daughters of rich, meek people who think that anything that is a thriving restaurant will catch on in their own country, and it is a business for fun. As expected, they are bored with the business at once, and the overseas expansion is converging. We must make it a long-lasting business. That is the franchise business. Some headquarter companies want to develop through licensing because franchising is too cumbersome and they lack confidence. The concept is completely opposite. Have there ever been any successful overseas restaurant businesses through licensing? They have changed everything to their own style, lost their identity, and have reached the end of their lifespan. →Why is it that licensing is not successful? I will write more about this later.
That is why, as long as they are developing franchises, the headquarters should choose their franchisees carefully. How do you judge a partner before you marry them?" Is it like that? Now, how do you judge a franchisee to be your partner? Assentia Holdings, Inc. has its own criteria for judging a merchant.
Akira Tsuchiya, AssentiaHoldings, Inc.
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