Franchising Council of Australia chief executive Steve Wright has defended the franchising sector, saying it is a viable alternative to normal small business development, in a response to a survey highlighting distrust within the industry.
The survey, undertaken by the Griffith University’s Asia-Pacific Centre for Franchising Excellence and the ACCC, found that 28% of franchisees disagreed with the statement that their franchisor could be counted on to be honest in business dealings.
Additionally, the survey also found that 30% could not rely on franchisors to keep promises, with 30% also saying they could not trust their franchisee to do “what is right”.
Wright says the finding was a surprise, and highlights the need for due diligence before entering a franchise system, but also says the results could have been skewed due to the nature of the industry.
“I think there is probably an underlying questionable attitude that is quite common among Australians that might be underneath all this, and I think if you were to ask whether that mistrust prevents you from doing business the answer might well be “no, it doesn’t”.”
“I also think that if you applied that same question to the small business community in general, I think you would get similar answers, and potentially more incidents of that kind of questioning.”
Wright says the overall franchising system is extremely strong, and even though individual franchisors may have an issue of trust with their colleagues, they are still likely to continue doing business and that is an issue for the individual system.
“If you go to a car dealership, do you trust the car dealer to be 100% truthful all of the time? Most people would say no, but that isn’t going to stop them doing business. It’s just a cynicism that you take into that relationship, and it’s all about being aware and protecting yourself.”
“I also think franchises are better off in terms of that scenario, and are better than small businesses generally when it comes to that trust issue. The big lesson is that you just can’t take anything for granted, and all franchise systems need to ask this same question regularly to make sure they find a good balance between healthy cynicism against an unhealthy mistrust.”
Nevertheless, Wright says there are definitely lessons to be learned from the survey. He points to results showing that 20% of respondents said they had “no idea” of what they were getting into when they bought the franchise, suggesting investigation is critically important.”
“I’m assuming, and this could well be wrong, that it has a lot to do with the complexity of regulation and therefore contractual agreements. That is undoubtedly a big burden beyond the realm of most small business people, and that is why we say people should get good quality advice before they enter the sector.”
Wright also said the survey doesn’t necessarily represent the level of growth being recorded in the $125 billion sector. He says the country is one of the most heavily-franchised in the world, and says this wouldn’t be the case if business owners were harbouring unhealthy mistrust.
“We had over 4,000 people turn up to the Sydney expo three weeks ago, and that is a 25% increase from the attendance last year. And we had an increase in that year as well. What that tells us is that despite the financial crisis, franchising is continuing to appeal to people as a method to get into the business – I don’t know if you’d have that attendance result for any other sector.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
