The franchise formula

Franchise promotes the enterprise and the initiative spirit and encourages the work independence. The validity of this formula for excellence for the national and global economy is confirmed by the official data for 2008: the franchise network’s turnover was of 21 billion and 419 millions of euro, 1,40% more than the previous year, with a total of 182.215 employed persons.

Franchising is defined as: ".... a form of continuous collaboration for the distribution of goods or services between an entrepreneur (the franchisor) and one or more entrepreneurs (franchisees or affiliates), legally and economically independent from each other, who enter into a special contract by which:

a) the franchisor grants the franchisee the use of its business method, including the right to exploit its know-how and its own brands, along with other services and assistance enabling the franchisee to manage his business with the same image of the franchisor;

b) the franchisee is committed to undertake the trade policy and the franchisor image, for the mutual benefit of both parties and of the ultimate consumer, in compliance with the contract terms freely agreed too.

In Italy the franchise is ruled by the Act 6 May 2004, n. 129

The franchisor
The entrepreneur, who designed a system and, giving his expertise to other persons, undertakes the task of checking and coordinating the functioning of the system.

The franchisee

The franchisee or affiliate is the entrepreneur who, through a contract, agrees to the franchise system, committing himself to managing his own point of sale under precise clauses.

The different kinds of franchise

In the wide field of products/services handed out through the franchise system, we individuate three different main franchise forms, which differentiate from each other depending on the object.

The distribution franchise regards the products sale and it can have two forms: the first is that in which the franchisor is the person who makes the products for the affiliate and then to the final consumer, avoiding in this way all the traditional distribution chain (wholesalers, agents, sub-agents, retailers). The other form is that in which the franchisor selects the products, when he plays the role both of central purchasing and of reference one.

The services franchise regards the sale of services’ performances as hairdressers, hotels, real estate agencies, etc.

The industrial franchise regards the manufacturing of goods and represents a mixed industrial/commercial formula, in which the affiliate is given both the expertise for the production of goods (manufacturing systems, patent use, etc.), and the commercial expertise for their distribution.