An investigation into the franchising option for SMES in Malta

Abstract

In today’s world business have evolved from being large companies employing a large number of people to small companies which can be made up of just one person (i.e. the owner himself), where such businesses are known as small to medium enterprises (SMEs). An entrepreneur, as the owner of the business, constantly strives to expand his businesses in order to increase revenue and tries to expand his customer reach, while at the same time increasing the chance of making higher profits. One way how an entrepreneur can engage in business is by setting up a businesses under his own brand, while on the other hand an entrepreneur could opt for franchising where he is provided with; an existing business framework that works, good quality well-known products and services and an existing customer base. The purpose of this dissertation is to study the awareness of the franchising option by SMEs in Malta as a way of starting/expanding their businesses. Additionally the study will look at the customer’s perspective in buying from a franchise versus buying from a sole trader operating under his own brand. Therefore one can conclude what’s best for an SME in Malta to pursue in order to have a successful business, i.e. either operate under own brand or under a franchising agreement. Firstly the author looked into the different literature pertaining a franchise system along with the advantages and disadvantages of operating under a franchising agreement for both the franchisor and franchisee. Following this, the author carried out a quantitative analysis which highlighted that the majority of SMEs in Malta prefer to operate under their own brand, even though the majority of customers prefer buying products/services under a franchised brand. But as SMEs would be operating under a well-known brand name selling products/services that have an existing well-known reputation, they perceive the payment of royalties to the franchisor as being a great disadvantage in operating under such an agreement. SMEs in Malta ultimately would not operate under a franchising agreement in the future as they lack financial limitations in doing so and they also lack the experience in such an area of conducting business.