Franchising – new opportunities

Jargal Defacto
Jargal Defacto 3.3k Views
7 Min Read

These days, entrepreneurs around the world are turning to franchising. It is a business in which third party retail owners (franchisee) buy the rights to present internationally renowned brands and introduce products and services into local markets which turns out to be a comparatively secure and cost-effective way of doing business. Reducing the risk allows for a stable business development, hence allowing economic growth. Moreover, it is an excellent chance to branch out without making debts and additional investments. Apart from providing the opportunity to branch out, franchisors also advance the required investment. Thus, franchising presents a marvelous chance for growing your business suing someone else’s capital.

Essentially, franchising allows customers to use familiar products and services of international standards in every part of the world. Franchisors decrease the risks of a business expansion and are obliged only to oversee and adjust the know-how and standards of their brand. On the other hand, a franchisee eliminates risks by relying not only on reputation of the trademark, but also on its experience and achievements. The franchising business is based on effective cooperation between the franchisee and the franchisor and only when the whole business is running successfully, both sides receive the profit.


Nowadays, in times of globalisation, the franchise business is one major engine of economic growth for most countries. In 2016, the franchise business accounted for 10% of the total private sector in the US, the largest economy in the world. With $1.2 trillion, 7.4% of the GDP came from franchise business.

New Zealand, with a population close to ours (4.7 million), is the world leader in franchising per capita. As of 2017, there are 631 different franchises for 37000 businesses, with a total of 124000 people employed. The trade turnover in this sector has grown from $15 billion to $27.6 billion within five years, accounting for 11% of the GDP.

The basic model of franchising is to test a business idea in one of the world‘s markets and duplicate the proven standard in another market. In the Middle Ages, royals and noblemen granted a right to certain individuals or groups to collect taxes and build roads; the French called these rights franche.

The Mongolian private sector 

As our economy grows, more and more trade and service outlets with foreign brand names and labels are emerging. In the Mongolian society, which is relatively open and quick to adapt to new things, and with two-thirds of the population under the age of 35, the number of international franchises recently increased. Especially, since the introduction of the fast food chain KFC, Mongolians have gained a better understanding of this concept. Franchising successfully penetrates the Mongolian market, meeting the needs of the young population and influencing their lifestyle. For instance, the Korean retail store CU (formerly Family Mart’s branch in Japan) has opened 55 branches in Ulaanbaatar in just one year, brought a fresh approach to the retail industry. In partnership with small grocery store owners, CU will offer franchise programs over the next three years, aiming to add 300 branches, create 3000 workplace and modern services. Our small and medium businesses also have the opportunity to sell their products not only in CU Mongolia, but also in its international branches. This is a golden chance for any manufacturer to export their products to the international markets.

Other countries’ experience illustrates that working with world-renowned brands allows to raise funds and get loans easier because their operations and market are already respected and transparent. Furthermore, it opens up the opportunity for the franchisee to get business advises and grow along with the franchisor. Franchising will bring real economic value as our small and medium entrepreneurs mitigate their risks and thus, achieve sustainable growth.

In the non-profit sector

Recently, the concept of social franchising has been widely discussed. This is a franchise for international lending, assistance and volunteerism. For instance, the non-profit organization World Health Partners, established in 2008, has successfully introduced social franchising in India and provides medical services to low-income families.

The goal of social franchising is not to gain profit but to help more people, especially locally, to solve specific social problems. Social franchising will enable the non-profit organizations in Ulaanbaatar in their pursuit to reach out to a wider community in the countryside.

In order to accomplish this, we need implementable legal regulations that enable franchising opportunities to operate with less risk. Countries around the world also provide specific laws based on and in compliance with free competition, international trade, investment, and other business-related laws for governing franchise relations. Although this type of regulation is to be found in the Mongolian civil law, it does not cover regulations on franchising, especially not the aforementioned social franchising.

From an investor‘s point of view, franchising is an opportunity to running a business with a considerable income and consistent profit due to the reduced risk. As franchising develops, the competition in the Mongolian retail industry will intensify, as the service quality improves, and eventually the customers will benefit from this in all aspects. By enabling the retail industry to use the franchising concept to its full potential, the Mongolian free market will reach the next level of development.


Trans. by Riya.T and Sungerel.U

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