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Franchising counteracts the loss of innovation in companies

Companies in the 21st century are often led to defensive-cautious market behavior in the face of globalization, digitization and the resulting growing competition. Often there is a return to the respective core business, investments and expansion plans are postponed in favor of economic security. However, this is counterproductive for companies' progress and sustainability in the long term. One solution to this problem can be franchising. Engel & Völkers describes the situations in which franchisees can drive the innovation process of companies, and why franchise concepts often have the advantage over other spin-off models.

The problem: The investment foundation for development is missing

The experience of recent years shows that companies, whether in production, raw material extraction or service industries, tend to have rather restrictive market behavior despite supposedly positive sales figures. In the course of such a corporate philosophy, much value is often placed on maintaining the profitability of the core business. At the same time, budgets for new developments and innovations are being cut. The application of alternative forms of work organization or expansion to new locations may also be affected. Investments in these essential areas are therefore no longer possible without further ado. In doing so, the technical, work-organizational and growth-specific progress of companies, which want to maintain their competitiveness in the future, should represent an essential position in their financial planning. If this aspect is not taken into account, market share losses are far from the only threat. Even internally, a defensive, overly cautious management style quickly leads to dissatisfaction among the workforce. Lack of motivation, decreasing self-initiative and decreasing identification with company and management can follow.

One way to avoid this misery while retaining the company's defensive stance is through the hive-off from franchises and spin-offs.

Subsidiaries enable investments thanks to transparency and independence

Setting up an economically independent company that is independent of the operations of the parent company in order to drive and test innovation there usually has two major benefits: First, the processes and structures at parent company remain unaffected, even in the event of failure of the spin-off, the core business can be continued despite financial loss. Secondly, the necessary amount of investment within the subsidiary receives a clear destination and, thanks to the resulting transparency, the investor does not run the risk that part of the amount will be used for other business areas.

However, start-ups of subsidiaries often bring with them new challenges: getting a new company property, setting up a new workforce and structuring a whole new company are just a few examples.

By contrast, if the company intends to use franchising to further its development, many of these problems can be excluded.

Franchising: The royal road for spin-off companies

Some situations, especially in the context of site expansion, make it possible for a company's development projects to be outsourced in the form of franchise concepts. In such a case, the parent company acts as a franchisor and the franchisee is entrusted with the implementation of the specific project. The general chances of success are great:

The concept of franchising has now proved its efficiency not only in the US, but also in Europe and other regions of the world. According to studies, 92% of all franchise start-ups are successful after the fifth year and the annual growth in franchising is about 20% across all industries. As a result, franchisees are often granted venture capital rather than centrally managed expansion projects.

Also the variety of applications, in which franchising is common today, certifies that it is the organizational form of the future. In addition to traditional distribution, such as food, consumer goods or real estate, franchising has meanwhile also found its way into production, telecommunications and service sectors.

By implementing a franchise concept, the franchisor transfers most of the responsibility to the franchisee. The procurement of investment capital, personnel management and profitability are disconnected from the franchisor by the franchisee. - For him, the costs are low. On the other hand, the franchisee profits from the brand strength and the adaptation of proven strategies of the franchisor, as well as the great entrepreneurial freedom. In this way a symbiotic system is created, which allows constant progress with calculable risk.

Engel & Völkers sees itself as a pioneer of the modern real estate franchise. Our global prestige is combined with world-class franchisee support and a valuable network of contacts that promise our licensing partners a fast and successful market entry. Are you also interested in a franchise partnership with Engel & Völkers? Click the link below so you can find out more!

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