Given the generic nature of this article it is very important that I make a few disclaimers
Disclaimer# 1: Every strategic alliance is different hence depending upon the risk taking appetite of the parties involved, the nuances of the strategic alliance will change.
Disclaimer #2: Depending on one’s perspective some of the “Merit” may be “Demerit” and the reverse might also be true.
Disclaimer #3: It is important to think of this as a starting point in one’s assessment of strategic alliance with a franchise partner.
Disclaimer #4: These “Merits” & “Demerits” are by no means exhaustive and one must make an independent effort to conduct a due diligence of the strategic alliance opportunity.
Merits of the Strategic Alliance
Learning Curve Advantage: Experience and that too relevant experience will always have value. The franchiser has lots of it. A strategic alliance with a franchiser will also result in consulting readily available from the alliance partner. Hence one will get a learning curve advantage. Thus trouble shooting becomes easy.
Mitigation of Risk: The single most important advantage of strategic alliance with franchise partner is that one works with someone who has done the work before and has been successful at it.
End to End Solution: No need for reinventing the wheel on processes, procedures or procurement. The strategic partner has built the system, has tested it, has tweaked the bugs (or most of them) and has established the business by demonstrating success.
Global Marketing: The brand, the image, the marketing, the customer recall…et al is established and is already out there. One need not be chasing those one-off reviewer(s) on social media to get the name out or burn hard cash just to publicize that one’s business even exists
Tested & Standardized Systems: Back-end ops, accounting, IT and various other processes / systems already in place so one isn’t spending time implementing systems by trial and error.
Buying / Selling power: Strategic alliance brings the advantages of scales. As part of a larger network, one can get the benefit of volume buying & selling.
Financial Assistance: Some strategic alliance partners are willing to help with funding in high capital projects but obviously a lot of factors go into that funding. They may offer concessional funding options to promote their own brand. It is therefore important to seek support from a consultant with prior knowledge of such opportunities.
Demerits of the Strategic Alliance
Interdependent Relationship: This is the most obvious one but more often than not the parties involved in a strategic alliance do not make the effort to do a background check of one another. The performance, the reputation, the efficiency, market reputation…etc of one alliance partner will impact the other as well.
Skewed Nature of Contract: Depending on the final negotiations, most strategic alliance contract with a franchise partner, are tilted toward the franchiser. Given the viral nature of social media, the global nature of the branding business and to maintain reputation the franchiser will insist on certain clauses / SOP / conditions, as they would need to protect themselves from adverse impact.
Less Freedom / Inflexible Systems: One gets bound to the franchiser. The alliance partner will put in place a lot of legal framework for almost every aspect. Depending on the flexibility or lack thereof, the detailing or lack thereof and the discipline or lack thereof, to follow the SOPs (Standard Operating Procedures) freedom to act as an independent business might get compromised.
Royalty Payments: As a franchisee one will be paying for all the support the franchiser offers. Royalty range could by anything between 2-7% depending on the final negotiated contract and the nature of the business.
Costs: In general & depending on the nature of business, strategic alliance with a franchise partner involves high capital and operating costs. However, these can be mitigated if the franchiser and franchisee work diligently. They will spiral out of control if either of the parties loses focus.
Lack of Support: If any of the parties involved in the strategic alliance stops offering support one may end up looking at a failed strategic alliance/business. It is important for the parties involved in the strategic alliance to have regular reviews and share detailed feedback.