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Apr 23

DTI ISSUES WARNING ON FRANCHISING SCAMS

Joel T. Fagsao, MBA

Artwork by William Rancudo

Those fish ball, barbecue stands have gone a notch higher when innovative businesses started offering a complete business set-up called a franchise.  Notwithstanding legitimate businesses who offer food carts be it fish balls, shawarma and others on a franchise scheme, crooks in the business have joined the bandwagon.  A franchise scheme is defined by Encarta dictionary as an agreement or license to sell a company’s products exclusively in a particular area or to operate a business that carries that company’s name.  In the franchise agreement, the franchisor provides training, equipment, the business process and raw materials or supplies.  The franchisee (who is the investor) pays for the franchise fee ranging from fifty thousand to several millions of pesos depending on how popular the business is.  Part of the franchise agreement may require the franchisee to set aside a certain percentage of the sales revenue to support a national advertising campaign. 

So what’s in it for the franchisee?  The franchisee is guaranteed a package of assistance/support from the franchisor.  A franchise is supposed to be a kind of business that is guaranteed not to fail considering that the franchisor before considering the business to be franchised already has the extensive experience.  Ideally a franchise is good for those with limited experience in running a business but would still want to invest in a good business.  

The thing is businesses every Juan and Juaning have joined the franchising bandwagon.  If you are offered a franchised business, there are many things to consider.  First, if the franchise being offered has more franchised businesses than company owned ones, then something might be wrong here.  Think twice, could it be that the company is only after the franchise fee?  Most probably this could be true.  Second, consider the uniqueness of the product or service.  Does it stand out from the rest of similar businesses?  For example, is the fish ball business being offered as franchises have an edge over your neighborhood fish ball vendor?  If the only difference is the fancy cart that could set you back by fifty thousand then perhaps, you can just walk over to your local talyer and have them construct a similar cart.  Giant fast food chains and other progressive businesses that are being offered for franchises are usually copies of existing businesses.  The thing that sets them apart is their innovation and skill in capturing the preferences of the market.

Worse, the franchising scams have reached Filipinos working overseas.  For this the Department of Trade and Industry (DTI) head office has issued an advisory to alert DTI provincial offices and the public of franchising scam activities of the following companies:  1.  Fran.com Franchise Marketing and Consultancy, Inc.  2.  Hamoraon Business Specialist Inc.  3.  Michelle Ann Pacubas-Chan (Single Proprietor).   The DTI has issued the above warning after receiving complaints from several individuals (including OFWs) who for one, paid as much as P700,000  in franchising fees for a food cart franchised business. After investing money, the victim is given the run around and has yet to receive the promised equipment. 

If you have relatives abroad who have been offered franchised business packages from any of the above companies or are in doubt of the legitimacy of the company offering the business, you can send your complaints by calling DTI-Mountain Province’s number at (074) 602 1047 or send an e-mail to dtimountain@yahoo.com.  You can also call the Philippine Franchising Association, Ms. Elizabeth Pardo Orbeta at (02) 687-0365 or send a query mail to membership@pfa.org.ph.