Arab Franchise Association الجمعية العربية لترخيص الامتياز

1. LAU Lecture The Franchise Cycle: The Process and the steps to becoming a FranchisorInclusive of the relationship between the Franchisor & the Franchisee. Presented by Dr. KhaledA.Taki, President of the Arab Franchise Association Founder and Senior Consultant Franchise Business Consultants - Beirut Lebanon Friday the 10th of May 2013 at 11:00 am Arab Franchise Association الجمعية العربية لترخيص الامتياز

2. Good morning First let me start by saying that it is a pleasure to be here today and that we had had several of the LAU Business school graduates do their internship at our FBC offices and we were very pleased in deed. So it is great to be able to come and address you all today. Arab Franchise Association الجمعية العربية لترخيص الامتياز

3. Let me start by posing the question …Franchising………..what is it? My own definition based on my experience is that Franchising “ is the ability to duplicate exactly an existing successful business which has a unique concept and a proven success track record,  but not only to duplicate it physically , but also to 1. Have a system which ensures that the duplicate branch is run properly , (using manuals) Arab Franchise Association الجمعية العربية لترخيص الامتياز

4. 2. The people in it are trained as to how to run the branch properly and have a manual to do so 3. Last but not least , the product or service which the business is offering is assembled  and delivered to the clients properly in a professional way and is exactly the same as that being offered  at any of the branches . Arab Franchise Association الجمعية العربية لترخيص الامتياز

5. Example,  when you go to have a McDonalds Big Mac in Paris, London, New York or Beirut , the big Mac tastes the same and the branches are all duplicates of one another. This leads to you being able to identity with the business brand and come again and again knowing that you will get the same and you will become a loyal client. Now that we have established what franchising is, who are the main players in franchising? Frankly there are many players involved in the process of duplicating the successful business, but the key players are two: Arab Franchise Association الجمعية العربية لترخيص الامتياز

6. The first is the Franchisor, who is the person or company that own the existing business, and therefore have build over the years the “KNOW HOW” , reputation, and are ready to start duplicating it. The second is the Franchise, who is the person or company that wants to share the success of the Franchisor by applying to open a duplicate of the successful business and avoid any risks of failure. Arab Franchise Association الجمعية العربية لترخيص الامتياز

7. The Franchisor will grant a Franchisee licensee and sign a franchise agreement with the Franchisee so that the franchisee can go ahead and establish the exact duplicate branch in a certain territoryand be supported by the Franchisor to ensure success. Now having presented the basics of Franchising let me start the lecture of today which is entitled The Franchise cycle, the process, and the steps to becoming a franchisor. And of course the relationship between the Franchisor and the Franchisee. Arab Franchise Association الجمعية العربية لترخيص الامتياز

8. INTRODUCTION So once again , I am delighted to be able to present to you our understanding of the Franchise process, the steps and documents that are required for a company to become a Franchisor, and also highlight the relationshipbetweenthe Franchisor and the Franchisee and their mutual obligations. Arab Franchise Association الجمعية العربية لترخيص الامتياز

9. FRANCHISING History in brief • Franchising began in the west in the past century, in the United States and the United Kingdom, where a successful , call it magic formula, for a product and/or service was founded and in turn it could be easily duplicated in one or more locations. • Examples Subway as a restaurant , and other industries and services, such as clothing, retailing, etc Arab Franchise Association الجمعية العربية لترخيص الامتياز

10. FRANCHISING History in brief • In the past most Arabs followed the trend which calls for acquiring an Exclusive Representation for a product and service, (Wikalahasriyeh). • However, this is now changing and although Franchising is a relative new concept to the Arab world and the Middle East, it is fast becoming the most popular system for the expansion of a growing business, with minimum investment. Arab Franchise Association الجمعية العربية لترخيص الامتياز

11. So, what does the Franchising process involved? • The Franchise Process: involves two parties, • One being the Franchisor, who has a proven successful business, a magic formula, based on his own concept, and • The other a Franchisee, who is eager and willing to pay the Franchisor for the right to duplicate the concept and wishes to run it as his own self employed business. Arab Franchise Association الجمعية العربية لترخيص الامتياز

12. So, what does the Franchising process involved? • In many ways, it is similar to a marriage between two people, except that it follows the catholic rules where there is no divorce, at least not for the period of the franchisee agreement which runs for 10 years and can be renewed for ten more or even indefinitely. Arab Franchise Association الجمعية العربية لترخيص الامتياز

13. When does the Franchise process begin? The Franchise process begins, when a company, makes the decision to become a franchisor, which will take a considerable amount of commitment, effort and internal organization. Arab Franchise Association الجمعية العربية لترخيص الامتياز

14. So, How does a company become a Franchisor? • First, the company should start by establishing a Franchise International Division, to be run by a Head designated to handle and follow up all potential inquiries. New letter head, envelopes and business cards can add to the Franchise Division credibility and provide clarity in all future communications. Arab Franchise Association الجمعية العربية لترخيص الامتياز

15. So, How does a company become a Franchisor? • Next the company must set up the Franchise process in motion, by developing its own Franchise Development Package, which consists of letters, documents, legal contracts and manuals, all of which will be essential tools in the implementation of a successful franchise operation. Arab Franchise Association الجمعية العربية لترخيص الامتياز

16. The contents of the Franchise Development package contains 7 documents and is divided into three parts. • Part I ,contains a letter of response (FDP 1) to any inquiry, the Franchisors criteria for granting a Franchise ( FDP 2) and the Master Franchise Price listed (FDP 3 ) for each country • Part II contains the legal documents involved such as the Franchisor Uniform Franchise Offer Circular UFOC(FDP 4 ) , the MOU an the Franchise agreement (FDP 5) • Part IIIcontains the Operations (FDP 6), Training (FDP 7) and Product Assembly preparation manuals (FDP 7a). Arab Franchise Association الجمعية العربية لترخيص الامتياز

17. Part I – Theinternal-external examination of the Franchisor • FDP- 1 - Letter of Response to any inquiry by a potential franchise. The letter acknowledges the inquiry, introduces the Franchisor’s complete history, expertise, and requests a company profile of the potential Franchisee for evaluation and proposed sites where the Franchise branch is to be open Arab Franchise Association الجمعية العربية لترخيص الامتياز

18. Part I – Theinternal-external examination of the Franchisor • FDP-2 - Franchisor’s Concept and Criteria for granting a FranchiseIt includes the module sizes, location, personnel required and a brief analysis of the investment required and return, and availability of manuals and on site training. Arab Franchise Association الجمعية العربية لترخيص الامتياز

19. Part I – Theinternal-external examination of the Franchisor • FDP-3 The Franchise Master Fee Price List per country. This is a difficult task; it takes into consideration the Franchisors history as goodwill, reputation, performance, financial success based on turnover, and a projected profit and loss analysis for the Franchise to justify the projected potential investment. Arab Franchise Association الجمعية العربية لترخيص الامتياز

20. Part II - The Legal Aspects of Franchising • FDP- 4 -The Uniform Franchise Offering Circular (UFOC) which is used in the west, states clearly the responsibilities of the Franchisor and Franchise and covering s most of the basic legal aspects which have been agreed upon at least 15 days prior to the Franchise Agreement being signed. Once the offer has been agreed then legal council for both parties take over for review, consultation and implementation. Arab Franchise Association الجمعية العربية لترخيص الامتياز

21. Part II - The Legal Aspects of Franchising • FDP- 4 -The Memorandum of understanding MOU is used in the Arab world and the middle east instead of the Uniform Franchise Offering Circular (UFOC)and it serves the exact same purpose . Because locations are hard to find in our region , a Franchisee may choose to reserve the territory by signing the MOU and once the location has been found and approved then move on to the Franchisee agreement being signed and implementation. Arab Franchise Association الجمعية العربية لترخيص الامتياز

22. Part II - The Legal Aspects of Franchising • FDP- 5 The Franchise Agreement which states all responsibilities of the Franchisor and Franchise, without exception, it follows matters agreed in the UFOC and expands further into all relevant areas and is approximately 95 pages, any violation by the Franchisee can result in the cancellation of the Franchise by the Franchisor. Arab Franchise Association الجمعية العربية لترخيص الامتياز

23. Part III – The preparation of a set of three ‘tailor made’ manuals essential to all Franchisors • FDP-6 - The Operations Manual which covers in detail all aspects of the new Franchise and serves as a guide on how to run the identical branch, 120 to 150 pages long and follows an international content format. Arab Franchise Association الجمعية العربية لترخيص الامتياز

24. Part III – The preparation of a set of three ‘tailor made’ manuals essential to all Franchisors • FDP – 7 - The “Step-by-Step” Training Manual which covers in detail how to train those who will run the Franchise branch, using the “ T TT - Train the Trainer ” method, and requires either 4 or 6 weeks. Arab Franchise Association الجمعية العربية لترخيص الامتياز

25. Part III : Continued FDP- 7a (Applicable to all F&Bs) – The Menu Preparation Manual is required which covers in detail the preparation of all items inclusive of ingredients, weights and methods. Now let us assume that the Franchisor and the Franchisee have agreed, the lawyers have completed all formalities, the Franchise agreement has been signed, the two parties are married, and it is time to get the new home ready. Arab Franchise Association الجمعية العربية لترخيص الامتياز

26. The Implementation process now begins, a 120 day-period, a critical stage as it will determine the success or failure of the Franchise. The Franchisor’s International Division is to implementa duplicate branch of the prototype franchise module, within a Time Frame plan of 4 months The Franchisor’s International Division appoints a Project Manager, with experience, to supervising over the implementation process from start to finish, including the Grand Opening of the Franchise. Arab Franchise Association الجمعية العربية لترخيص الامتياز

27. The Implementation process now begins, a 120 day-period, a critical stage as it will determine the success or failure of the Franchise. The Franchisee in turn will nominate a Branch Manager to be trained by the Franchisor for 6 weeks and to then assist the Project manager during the implementation process until the Grand Opening. Preparing for the Grand Opening the International Division along with the Franchisee plan for the Grand Opening festivities, assisted by a Marketing Advertising firm to insure success. Arab Franchise Association الجمعية العربية لترخيص الامتياز

28. The Implementation process now begins, a 120 day-period, a critical stage as it will determine the success or failure of the Franchise. The Grand Opening day completesthe implementation processand the Project manager turns over the new Franchise to the Branch manager. Now the company can claim to be a franchisor, having granted and successfully implemented the first Franchise, and is ready to continue along the path of Franchising. Arab Franchise Association الجمعية العربية لترخيص الامتياز

29. Follow up, now the Franchisor will continue to provide support, collect the royalties, as stipulated in the agreement with periodic visit to the Franchise for the duration of the franchise agreement, or shall we say for the duration of a very successful marriage lasting ten to twenty years at least. • FBC hopes that the information we have presented explained clearly the Franchise cycle process.   Arab Franchise Association الجمعية العربية لترخيص الامتياز

30. We encourage all companies to look into this important sector, for it has and will continue to provide Lebanon with many wonderful opportunities. • At FBC we can also provide you with other services and look forward to being of services in the near future and always ready to answer any of your questions For further information please do contact us at any time. Arab Franchise Association الجمعية العربية لترخيص الامتياز

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33. Thank you Arab Franchise Association الجمعية العربية لترخيص الامتياز