Franchising in Eastern Europe – Yesterday, Today, Tomorrow

Although roots of franchising can be found in the 10th century (King Edgar and beer places) and in the first half of the 19th century in Germany, the first representatives of modern franchising can be found in the USA in the second part of the 19th century (Singer Sewing Center, General Motors and Coca-Cola) (Erceg, 2017). In the second part of the 20th century, there was a new phase of franchising development – business format franchise, which was introduced by McDonald's and Ray Kroc. Business format franchising gained popularity and was spread worldwide by American fast food restaurants (McDonald's, Subway, Dunkin Donuts, etc.). These fast food restaurant franchisors demonstrated to other service industries how to standardize and replicate successful business systems (Alon, 2014). Franchising entered countries in Eastern Europe at the end of 1980s and the beginning of 1990s when those countries switched to a market economy and allowed entrance of foreign companies and capital. It was then that the franchising revolution started, mainly by foreign franchisors entering the country, thus initiating actions of local entrepreneurs who started using franchising as a growth strategy as well.

Book Franchising in Eastern Europe – Yesterday, Today, Tomorrow is the result of cooperation between several researchers from different countries whose main research interest is franchising, who covered different aspects of franchising and different countries. After publishing the first book about franchising in Croatian language, the next question arose: What does the situation look like in neighbouring countries that changed their economic systems at the end of the 1980s and the beginning of the 1990s? Franchising is in different stages of development in countries covered in this book, but there is still a lot of room for improvement. The book is organized into eight chapters. In the first two chapters, authors give a literature review of franchising as one of the most important ways of starting new ventures or growing a business and present the latest changes in franchising regulations worldwide. The following chapters present the franchising situation in Croatia, Poland, Hungary, Slovenia, Serbia and Macedonia. At the end of the book, we have included the European Code of Ethics for Franchising, which we find essential for the further development of franchising business in Eastern Europe.

In the chapter Franchising, Mirela Alpeza, Ph.D. introduces franchising. Franchising is a business model that applies to starting-up and growing a business venture. The franchise relationship connects two parties: the franchisor and the franchisee, where the franchisor is a company that has, thanks to the experience of doing business in an industry, developed a successful business model and a recognisable brand and wants to expand the business to other geographical areas. Franchisee is most often an entrepreneur who is just starting out in an industry and sees an opportunity in implementing the franchisor's successful business model in their local area. The key theories that explain the reasons for applying the franchise business model are resource scarcity theory and agency theory. Both theories point to the challenges faced by franchisors when applying this model as a business growth strategy, and the possible answers. There are many types of franchises, but by their application, two basic models described in this chapter stand out: product distribution franchise and business format franchise. In academic discussions related to franchising, debates about the assessment of the entrepreneurial capacity of franchisees are the most frequent. This chapter highlights arguments that affirmatively evaluate the entrepreneurial behaviour of franchisees, emphasizing the necessity of franchisees' entrepreneurial behaviour in identifying business opportunities, team selection and taking risk in the form of financial investment required to join a franchise network. Finally, this chapter highlights that implementation of franchising as a strategy of starting-up or growing a business requires careful preparation and analysis to avoid negative experiences of franchisors and franchisees whose cause mainly lies in unrealistic expectations and erroneous assessment of the role of each of the parties in this relationship in achieving synergistic effects.

In the chapter Complex nature of franchising and new challenges for development, Ljiljana Kukec, M.Sc. gives an overview of the complex nature of the franchising business model and writes about challenges franchising is facing in further development. Franchising is, according to Ljiljana Kukec, facing significant challenges worldwide in relation to its legal regulation. These challenges are caused by certain changes in the USA regarding franchisees' employees. This has resulted in creation of several initiatives from the World Franchise Council and other international and national associations. Because of these changes, the European Franchise Federation has created a new Code of Ethics, which serves as regulatory framework. The author also gives an overview of activities at the level of national franchise associations in the region.

Chapter Franchising in Croatia – yesterday, today and tomorrow considers the current state of franchising in Croatia: number of systems, number of locations, shares in various sectors, and various factors that are slowing its growth. Although franchises have operated in the country since the mid-1960s, the economic and political system in the former Yugoslavia impeded their development. The author gives an insight into legal regulation of the franchising sector in Croatia. The franchising sector grew following Croatian independence, but there is room for expansion, particularly for domestic franchise chains. The author argues that the sector requires strong support from the Croatian Franchising Association.

In the chapter Franchising in Poland – past, present, future, Marta Ziółkowska presents the current state of franchising in Poland. The chapter presents stages of development of franchising relationship in Poland in the last 30 years and gives information about the current franchising situation: number of franchising systems, number of people employed, etc. The author looks at the legal framework which regulates franchising in Poland and cites several laws that provide a constitutive basis for franchising in Poland. Several potential exemptions regarding franchising contracts are presented. She gives her vision of the future franchising potential in Poland based on the current situation, and she concludes that the Polish market is reaching maturity and, consequently, there will be several domestic franchising systems that will decide to expand abroad.

In the chapter Franchising in Hungary – the beginning, the present and the future, Katalin Mandel introduces the past, the present and the future of Hungarian franchising. The chapter gives information about the start of franchising in Hungary after the political transition at the beginning of the 1990s. The author presents the current situation in franchising in Hungary by providing information about several international and domestic franchising networks, industrial sectors in which franchising is present, and Hungarian franchising networks that have expanded abroad. The chapter gives information about the legal regulation of franchising in Hungary and about the Hungarian Franchising Association's activities. These activities are aimed towards current and potential franchisors and franchisees in order to give them more information about franchising and to increase the importance of franchising for the Hungarian economy. The author gives several examples of successful Hungarian franchising systems through short case studies. She gives a prediction for the future development of franchising in Hungary and sees an opportunity for further growth of the number of franchisors and franchisees in Hungary.

In the chapter Franchising in Slovenia – ieri, oggi & domani, Igor Pavlin gave an excellent overview of franchising in Slovenia from its start to the current situation. Igor Pavlin follows the timeline of franchise development since the early steps in the 1980s until today. He gives an overview of the Slovenian Franchise Association's activities, as well as of his role during the early stages of franchise development in Slovenia. The author gives a special overview of the so-called soft-franchising and talks about success and failure of franchise systems in Slovenia. The role of franchising consultants and their connection with the Slovenian Franchise Association are examined as well. Instead of a conclusion, Igor Pavlin asks several questions, which can create ideas for surmounting current difficulties for franchising in Slovenia.

In the chapter Development of franchising in Serbia, Marica Vidanović, B.Sc. and Tamara Milenković Kerković, Ph.D. gave an analysis of the current situation of franchising in Serbia from two standpoints – legal and economic. Marica Vidanović presents the development of franchising in Serbia, from the first American companies that entered the market, to the development of domestic franchising networks whose number has recently been increasing significantly. The role of the Center for Franchising at the Serbian Chamber of Commerce, which plays an important part in the development of franchising in Serbia, is presented. The authors present activities conducted by the Center for Franchising to promote further expansion of the franchising business model and ways in which it can help current and potential franchisors and franchisees. Tamara Milenković-Kerković presents the current legal regulative of franchising in Serbia and the activities that are being carried out to help parties involved with the franchising business model. A complete overview of legal regulations related to franchising is given, together with all the necessary information that a potential franchisor or franchisee need to have in mind.

In the chapter Franchising business model in the Macedonian economy, Jovanka Damoska Sekuloska makes the first insight into franchising situation in Macedonia. The main purpose of the text is to analyse and consider the perspective of implementation of the franchising business model through the practice of a small-sized economy, such as the Macedonian economy. Analysing the actual experience with the franchising business model as an opportunity for internationalization of the economy on the one hand, and as a tool for boosting entrepreneurial activities and capacities on the other, it can be noted that this is still an unexploited concept in the Macedonian economy. The conducted research identified a set of factors, establishing poor attractiveness of the economy for implementation of the franchising business model. Unfavourable franchising environment encompasses poor economic attributes, inappropriate demographic and market characteristics, and lack of institutional and governmental support for the promotion of the franchising business model. The process of scanning the franchising environment detected the reasons for the actual level of implementation of the franchising business model in the Macedonian economy, but at the same time, it suggests activities and measures that should contribute towards improvement of the franchising environment. The chapter suggests the creation of the so-called "franchising cluster", a network of parties which will provide regulative, institutional, financial and knowledge support and contribution to the process of higher implementation of the franchising business model, as one of the models of development of the Macedonian economy.

Aleksandar Erceg, Ph.D., J. J. Strossmayer University of Osijek, Faculty of Economics in Osijek