Franchising as a business model undoubtedly has its critics.

Perhaps the most prominent is Mr J R Rau. In 2007, Mr Rau MP, a member of the Economic and Finance Committee of the Parliament of South Australia conducted an inquiry into franchising, and commented that “in a perfect world we would not have franchises at all because I think they are all nonsense”. This is an intemperate and silly comment which flies in the face of the remarkable record of franchising as a proven model for business development for both prospective franchisors and prospective franchisees. RauÍs philosophy has little support and those who subscribe to it could hold their meetings in a phone box.

Another critic is George Ritzer whose attitude is enshrined in the title of his 1993 book, The McDonaldisation of Society. RitzerÍs criticism is nevertheless not of the franchise model as such but of the increasing standardisation of contemporary life. Standardisation is, of course, an inevitable by-product of franchising but ironically it is through franchising that the opportunity arises for diversity, albeit standardised. Franchising empowers small businesses and provides the most viable model for competition with entrenched corporate groups.

Another level of criticism is summed up in the title of the recent report of the federal Joint Committee on Corporations and Financial Services — Opportunity not Opportunism. The CommitteeÍs starting point was not that of Rau — that franchises are nonsense.

The federal committee recognised the appeal of franchising: for a franchisee, the potential benefits of being able to conduct a business under an established brand name using tested operational systems and for a franchisor the ability to grow their business by allowing others to use the model they have developed within an agreement that allows them to retain substantial control over its use but without the financial risks of significant capital expenditure. The focus of the CommitteeÍs report was not on the viability of franchising as a business model but on the appropriate responses to address the information imbalance and power imbalance which is a common incidence of the franchisor and franchisee relationship.

The vigorous and sustained debate as to the appropriate regulatory response to the challenges posed by the dynamics of the franchising relationship has been widely publicised and this column is not the appropriate vehicle for revisiting it. It is nevertheless important to appreciate that, to the extent there are flaws in franchising, they are in the application of the model rather than in the model itself. Way back in 1996, in giving evidence to the federal Fair Trading inquiry which led to the introduction of the Franchising Code of Conduct, I commented that “Good franchising is very good. It is undoubtedly the most efficient and effective distribution system ever invented. It is the greatest invention of Western capitalism since the invention of the corporation. Good franchising is so much better than independent operation but bad franchising is so much worse.”

This is the reality of franchising. As indeed it is of marriage and all institutions. A prospective franchisee can take some comfort from the proven record of franchising but must understand that it is the manner in which the model is applied in each particular case which will be so significant in a successful business operation. The Franchising Code of Conduct, supplemented by strong laws prohibiting misleading and unconscionable conduct, afford a level of protection to prospective franchisees in Australia much greater than their counterparts in other countries. But, as has been said so often in these columns, the greatest protection for prospective franchisees is education, specialist advice and informed due diligence.