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Leveraging Intellectual Property

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					  Leveraging Intellectual Property
Assets for Business Success: Building
an Enterprise Based on a Franchise


          Dr. Guriqbal Singh Jaiya
                  Director
  Small and Medium-Sized Enterprises Division
 World Intellectual Property Organization
               www.wipo.int/sme
SMEs Website
    IP for Business Series
• Making a Mark
  (Trademarks)
• Looking Good
  (Designs)
• Inventing the
  Future (Patents)
• Creative
  Expression
  (Copyright and
  Related Rights)
http://www.wipo.int/sme/en/multimedia/
     Development of 10 Modules

Module 1: Importance of IP for SMEs
                         developed in 2004 as a pilot project

                              Based on “IP for Business”
                              in SMEs Homepage
                              • Why is IP relevant to your SME?
                              • IP as a business asset
                              • IP as an investment
                              • The value of IP assets
                              • Introduction of IP Audit
         Basic IP Modules in 2005
        Module 2 : Trademarks and Industrial Designs
                                            • Main Story : Susan faces
                                            difficulty in marketing due to
                                            weak brand and poor design. With
                                            the help of Gibson and hard work,
                                            her company eventually succeeds
                                            in developing a new brand and a
                                            nice design to attract consumers.

                                            • Learning Points
                                            - TM and ID to increase
                                              the Power of Marketing
Alex
                                            - Brand Building
           Gibson Susan Nicole Chris
Marketing IP Lawyer CEO Designer Branding   - How to Protect TM and ID
strategist                       Expert     - Trademarks Management
          Basic IP Modules in 2005
                                                           Module 5
     Module 3                   Module 4                Copyright & RRs
Invention and Patent          Trade Secrets
                            • Learning Points
                            - Basics of trade secrets
                            - TS management program
                            - Violation of TS
                            - TS audit
                                                        • Learning Points
• Learning Points                                       - Basics of copyright
- Basics of invention and                               - Copyright and related
     IP Promotion
  patent
- Patent application
                                                          rights
                                                        - Ownership of copyright
- Patent infringement                                   - Using works owned by
- Patent management                                       others
   Advanced IP modules in 2006

Module 6 : Patent Information
Module 7 : Technology Licensing in
           a Strategic Partnership
Module 8: IP in the Digital Economy
Module 9 : IP and International Trade
Module10 : IP Audit
    Spotlight is on knowledge
      in today’s economy
• Knowledge, Weightless, Information,
  Digital or Service Economy
• Factors of production: Land, Labor, Capital,
  Intangibles (Knowledge)
• Knowledge as useful Information (or
  Service)
• Information as a “Public Good”
• Information as Property
    Market-oriented Economy
• Playing Field: Unfair competition; free riding
• National Legal Systems: Diversity
  (bilateral/regional/ international treaties or
  agreements)
• Adding Value : Meeting or exceeding market
  needs or expectations
• Market research: Consumers‟ needs, competing
  products or substitutes, gaps
• Technological innovation as an element of
  marketing
 The challenge of adding value in
        today’s economy
• Raw materials/Inputs: Processing (Value addition) = Value
  added output/component; product; sale; Profit
• Value addition: Better: Functional/technological or
  aesthetic/non-technological; Rational/Emotional (More for
  Less)
• Price; access/availability; consistency
• Individual, Enterprise (legal person), Chains, Networks;
  consortia; Open Innovation (Industry-Government-Academia)
• Ownership vs. access to knowledge
• Value Addition, Value Delivery and Value Extraction
Levels of Product                          Augmented
                                            Product


                           Installation


                           Packaging
                  Brand                   Features
                  Name       Core
                            Benefit                       After-
Delivery
                                                          Sale
& Credit                      or
                                                         Service
                 Quality    Service         Design
                  Level




                           Warranty

        Actual                                  Core
       Product                                 Product
          What is innovation?

• Innovation is the process and outcome of creating
  something new, which is also of value.

• Innovation involves the whole process from
  opportunity identification, ideation or invention to
  development, prototyping, production marketing
  and sales, while entrepreneurship only needs to
  involve commercialization (Schumpeter).
        What is innovation?
• Today it is said to involve the capacity to
  quickly adapt by adopting new innovations
  (products, processes, strategies, organization,
  etc)

• Also, traditionally the focus has been on new
  products or processes, but recently new
  business models have come into focus, i.e. the
  way a firm delivers value and secures profits.
        What is innovation?
• Schumpeter argued that innovation
  comes about through new combinations
  made by an entrepreneur, resulting in
  –   a new product,
  –   a new process,
  –   opening of new market,
  –   new way of organizing the business
  –   new sources of supply
   Dimensions of innovation
There are several types of innovation
  – Process, product/service, strategy,
which can vary in degree of newness:
  – Incremental to radical,
and impact:
  continuous to discontinuous
     Drivers for innovation
– Financial pressures to reduce costs, increase efficiency, do
  more with less, etc
– Increased competition
– Shorter product life cycles
– Value migration
– Stricter regulation
– Industry and community needs for sustainable development
– Increased demend for accountability
– Demographic, social and maket changes
– Rising customer expectations regarding service and quality
– Changing economy
– Greater availability of potentially useful technologies coupled
  with a need to exceed the competition in these technologies
      What is innovation?
• Gary Hamel argued that today‟s market
  place is hostile to incumbents, who
  now needs to conduct radical business
  innovation:
  – Radically reconceiving products and
    services, not just developing new products
    and services
  – Redefining market space
  – Redrawing industry boundaries
New conditions for innovation
• Small start-up entrepreneurs increasingly
  depend on large firms:
  –   as suppliers or customers
  –   for venture finance,
  –   for exit opportunites,
  –   for knowledge (production, markets and R&D)
  –   and for opening new markets.
New conditions for innovation
• Large firms increasingly depend on small
  start-ups
  – for NPD,
  – as suppliers of new knowledge (which they cannot
    develop themselves),
  – or organizational renewal, for experimentation with
    busienss models,
  – for opening new markets, etc
 New developments in innovation
 raises new issues and problems
• Greater emphasis on commercializing scientific
  discoveries, particularly in IT and the bio-sciences
• Speed and potential value of scientific progress leads to
  emphasis on solid and well-designed portfolios of
  research projects
• Universites as active drivers of innovation: Academic
  entrepreneurship and the entrepreneurial university
• University-industry partnerships
• Increased search for radical innovation and top-line
  growth.
    Complementary Resources

             Manufacturing Distribution


        Finance                           Service
                         Core
                     technological
                       know-how
                                     Complementary
        Marketing                     technologies

                    Other    Other




Bargaining power of owners of complementary resources
depends upon whether complementary resources are generic or
specialized.
New Business Models Emerge
    Then…                     Now…


                      CRO’s                  CRM’s



                                 Product
      Product                  Development
    Development
       Cycle

                     Tool                    Testing
                   Companies                 Services



  One Integrated       Many Distributed
    Company              Companies
    New Regional Model Emerge
           Then…                                       Now…
                                                                         Region D
                                            Region A
                                                       Region B
         Manufacturing
                                                                  Region C
                               Research
Trials/Testing
                                 Services
                                                                             Region G

                 Development
                                            Region E        Region F




      Self-contained                           Specialized,
     regional clusters                      networked regions
Understanding the Process of Innovation


                 The Process/Steps of Innovation
                                                                        Pre-IPO
 $
                                                                        • Viable
                                                          Expansion     • Market acceptance
                      • Legal Entity                                    • Heading to IPO or M&A
                                                          • High Growth
     • Bright Idea     • Founders = Mgt Team
                                                          • Head Count
     • Experimental    • Minimal Revenue    Start-Up      • Multiple Cycles
     • Research        • Slow Growth
                                           • Support Functions
     • Business Plan
                                           • Administration
     • Proof of Concept        Seed
                                           • Marketing
        Idea / Concept                     • Revenue Growth

                                                                                       Time
                The Needs of Each Stage
                                       •Recruitment
                                       •Business
                       •Corporate and
                                       Development
                       Secretarial
                                       •A & P
$                      •Financial
                                       •Market Access
                       •Training
                       •PR and Marketing
                       •Networking
                       •Business                      Expansion
    •Business Plan     Development
    •Prototype/ POC                                       •International support and
    •Project Management                                   Mkt. Access
    •Business Premises                    Start-Up        •Diversification strategies
    •Project Management                                   and support
    •Management Training                                  •Recruitment
                            Seed                          •Training and Incentives
     Idea / Concept
                                                                                        Time


                      IP Management Needed in all stages
              An Aspect of Good Management
  • People Management –       because IP is generated by people and used by
                              people
  • Knowledge Management – because a lot of knowledge is informal and
                           may or may not crystallise as
                           recognisable category of IP
  • IT Strategic Planning –   because a lot of IP is IT-related; some
                              of the more complex IP issues arise in
                              IT context
  • Contract Management –     because IP is often created (or improved) in
                              context of a contract (eg, supply contract or
                              joint venture relationship)
  • Asset Management –        because IP is an asset, albeit intangible; it has
                              a value
  • Risk Management –         because there are risks to an organisation
                              flowing from its actions, or failure to act, in
                              relation to IP (including risk of lost
                              opportunity)
with permission of
P Crisp, AGS, 2003
Introduction to IP Management 1

•   Legal           •   Accounting
•   Technical       •   Tax
•   Business        •   Insurance
•   Export          •   Security
•   Financial       •   Automation
•   Relationships   •   Personnel
Introduction to IP Management 2
   •   Trademarks (Brands)
   •   Geographical Indications
   •   Industrial Designs
   •   Patents and Utility Models
   •   Copyright and Related Rights
   •   Trade Secrets
   •   New Varieties of Plants
   •   Unfair Competition
                                  Basic Message 1
     IP adds value at every stage of the value chain
     from creative/innovative idea to putting a new,
     better, and cheaper, product/service on the market:

         Patents /                                                           Trademarks/ GIs
Utility Models/Trade secrets                                          Ind. Designs/Patents/Copyright
                                                                                                       All IP Rights
                                  Patents /     Industrial Designs/
                               Utility models    Trademarks/GIs
    Invention
                                                                            Commercialization
                                                                               Marketing
                               Financing          Product Design                                        Exporting

  Literary / artistic                                                          Licensing
      creation


Copyright/Related Rights
                                                                              All IP Rights
            Basic Message 2
• IP Strategy should be an integral part of the
  overall business strategy of an Enterprise
• The IP strategy of an Enterprise is
  influenced by its creative/innovative
  capacity, financial resources, field of
  technology, competitive environment, etc.
• BUT: Ignoring the IP system altogether is in
  itself an IP strategy, which may eventually
  prove very costly or even fatal
Basic Message 3 (More for Less)

• Own Use
• Licensing
• Franchising
• Merchandising (Mickey
  Mouse, Hello Kitty)
 Strategic Entrepreneurship and
            Innovation
• Entrepreneurship is concerned with:
   – The discovery of profitable opportunities
   – The exploitation of profitable opportunities
• Firms that encourage entrepreneurship are:
   – Risk takers
   – Committed to innovation
   – Proactive in creating opportunities rather than waiting to
     respond to opportunities created by others
    Entrepreneurship 1
Entrepreneurship drives innovation,
competitiveness, job creation and economic
growth.
It allows new/innovative ideas to turn into
successful ventures in high-tech sectors
and/or can unlock the personal potential of
disadvantaged people to create jobs for
themselves and find a better place in society.
     Entrepreneurship 2
Entrepreneurship, in small business or
large, focuses on "what may be" or
"what can be".
One is practicing entrepreneurship by
looking for what is needed, what is
missing, what is changing, and what
consumers will buy during the coming
years.
    Entrepreneurship 3
Entrepreneurs have:
–   A passion for what they do
–   The creativity and ability to innovate
–   A sense of independence and self- reliance
–   (Usually) a high level of self confidence
–   A willingness and capability (though not
    necessarily capacity or preference) for
    taking risks
    Entrepreneurship 4

Entrepreneurs do not (usually) have:
– A tolerance for organizational
  bureaucracies
– A penchant for following rules
– A structured approach to developing and
  implementing ideas
– The foresight to plan a course of action once
  the idea is implemented and established
 Entrepreneurial Success
1. People (Entrepreneur /Entrepreneurial
                                Team)
2. Opportunity (Marriage of Market and
                           Product/Service)
3. Access to Resources (Land. Labor,
                      Capital, Knowledge
   And the fit amongst these three elements
               (Business Model)
  What is a Franchisee?

         “Frantrepreneur”
        (fran*tre*pre*neur) n.

One possessing the desire to be a
business owner -- without the desire to
recreate the wheel -- by following a
proven system for the benefit of personal
and professional goals.
The Frantrepreneur Mentality
                         “I have the opportunity
“I‟m in                 to learn from the success
business for              and failure of others.”
myself, but not          “I want a „bottled‟ process for
by myself”.           success that I can use in developing
                         my own successful business.”
“Why would I work
                      "Why would I spend years and the
for someone else      investment required to establish a
when I can work for   successful brand when I could buy a
myself and reap the   franchise which provides immediate
rewards of my         access to a successful business system and
efforts?"             a brand name which others already have
                      made successful?"
          Entry Strategies
• New Business
  – Develop a new product or service
  – Develop a similar product or service
  – Competitive approaches
• Existing Business
  – Buying a business
  – Franchise
  – Joint venture – customer or supplier
    Classification of Retail
          Operations
         Ownership


                  Level of Service


 Classification        Product Assortment
      of
    Retail
Establishments                       Price
Classification of Ownership
         Independent
           Retailers


         Chain Stores


          Franchises
  Foreign Market Entry Options
•Indirect Exporting
•Direct Exporting
•Licensing
•Franchising
•Turnkey Projects
•Management contract
•Strategic alliances
•Joint ventures
•Wholly Owned Subsidairy
 Entry Mode              Advantage                        Disadvantage
Wholly         Enables global strategic           High costs and risks
owned           coordination                       Requires overseas
subsidiaries  Protects technology                  management skills
               Realizes (potentially) location    May be slower to implement
                and experience economies
International  Gives access to local partner's    Loss of control over
Joint           knowledge                           technology and managerial
Ventures       Allows sharing of development       know-how
                costs and risks                    May impede global
               May be more politically             coordination
                acceptable than 100% foreign       May make realization of
                ownership                           location and experience
               Allows foreign parent do            economies more difficult
                deploy resources across more       Sharing of profit "pie"
                national markets at once
International  Similar to international joint     May be more difficult to
Strategic       ventures                            manage than international
Alliances                                           joint ventures
Entry Mode        Advantage                            Disadvantage
Franchising  Low financial risk          Lack of direct control over quality
             Relatively low              Successful international franchising
              development costs            requires considerable start-up and
                                           ongoing presence overseas (cost)
                                          Is likely to impede, make global
                                           coordination costlier than ownership
                                          Growth may be slower depending
                                           on franchisee's intentions
                                          Sharing of profit "pie"
                                          Possible loss of know-how to
                                           potential competitor
Licensing    Similar to franchising      Similar to franchising
             Fewer "maintenance"
              costs than franchising
Exporting    Ability to realize        Transport costs
              experience curve          Trade barriers
              economies                 Motivation of local agents a
                                         challenge
     SELECTING AN ENTRY MODE
• Core Competencies and Entry Mode
The optimal entry mode for these firms depends to some degree on the nature of
    their core competencies.
 In particular, a distinction can be drawn between firms whose core competency is
    in technological know-how and whose core competency is in management
    know-how.
• Technological Know-How
• If a firm‟s competitive advantage (its core competence) is based upon control
    over proprietary technological know-how, licensing and joint venture
    arrangements should be avoided if possible in order to minimize the risk of
    losing control over that technology, unless the arrangement can be structured
    in a way where these risks can be reduced significantly.
• When a firm perceives its technological advantage as being only transitory, or
    the firm may be able to establish its technology as the dominant design in the
    industry, then licensing may be appropriate even if it does involve the loss of
    know-how. By licensing its technology to competitors, a firm may also deter
    them from developing their own, possibly superior, technology
• Management Know-How
• The competitive advantage of many service firms is based upon management
    know-how. For such firms, the risk of loosing control over their management
    skills to franchisees or joint venture partners is not that great, and the benefits
    from getting greater use of their brand names can be significant.
       Categories of Franchises
   Accounting/Tax Services               Fitness                       Packaging/Ship/Mail
   Advertising/Direct Mail               Florist Shops                 Painting Services
   Auto & Truck Rentals                  Food/Restaurants              Paralegal Services
   Automotive Products/Services                                         Payroll Services
                                          Golf Products/Services
   Batteries-Retail & Comm.                                             Pest Control Services
   Beverages: Special                    Greeting Cards                Pet Sales/Supplies
   Business Brokers                      Hair Salons & Services        Photography
   Business/Mgmt Consultants             Health Aids & Services        Printing/Copying
   Campgrounds                           Home Furnishings              Real Estate Services
   Check Cashing/Financial Services      Home Inspection               Recreational Services
   Children‟s Services                   Hotels and Motels             Rental Equipment & Supplies
   Clothing and Shoes                    Insurance                     Retail Stores
   Computer/Electronics/Internet         Janitorial Services           Security Systems
   Construction Materials                                               Senior Care
                                          Jewelry
   Consumer Buying Services                                             Sign Products & Services
   Convenience Stores                    Laundry & Dry Cleaning        Tanning Centers
   Cosmetics                             Lawn/Garden/Agriculture       Telecommunications
   Dating Services                       Maid & Personal Services      Transportation Services
   Drug Stores                           Maintenance                   Travel Agents
   Educational Products/Services         Marine Services               Vitamin & Mineral Stores
   Employment Services                   Optical Aids & Services       Weight Control
    Franchise Agreements in Profile

• Data from 91 publicly traded franchisors in US
  – % outlets franchised (75% mean, 12% - 100%)
     • (best performers have a mixture of own and franchised)
  – Franchise fee ($29k mean, $5k - $123k)
  – Royalty rate (5,6% of revenue mean, 2% - 12%)
     • (franchise fees and royalty rates are market benchmarked)
  – Advertising rate (3,8% of revenue, 0% - 15%)
     • (marketing power is function of #outlets * ad rate)
  – Term (14 years average, 5 – 20 years range)
  – # outlets (2.650 mean, 100 – 13.600 range)
      Questions To Ask Yourself
• How much capital do you have to invest?
• How much liquid assets do you have?
• Do you require a specific level of annual income?
• Are you interested in pursuing a particular field?
• Are you interested in retail sales or performing a service?
• Do you want a part-time or full-time opportunity?
• How many hours are you willing to work?
Questions To Ask Yourself (continued)
• Do you want to operate the business yourself or hire a
  manager?
• Do you want to have employees?
• Do you want to have inventories?
• Do you want to have Accounts Receivables?
• Will franchise ownership be your primary source of
  income or will it supplement your current income?
• Would you be happy operating the business for the next
  20 years?
• Would you like to own several outlets or only one?
Questions to Ask a Franchiser
• Determine what assistance the franchiser provides. Do they assist
  with training, store design, location construction, site selection,
  and feasibility studies?
• Do they have any access to demographic studies to get an
  understanding of the audience within the market area?
• What types of support will the franchiser provide once your
  franchise has opened its doors?
• After the initial investment, will there be additional financial
  obligations requiring working capital?
• Does the franchiser offer any form of financing?
• Ask the franchiser how many franchises have been sold in the
  state you will be operating in during the last 12 months, and how
  many have been opened for business?
   Questions to Ask a Franchiser
                          (continued)
• What types of territorial restrictions and protections have
  been set up by the franchiser?
• Is the franchiser planning on expanding within your state?
  Are they focusing on any specific locations?
• What arrangements are established through the franchiser in
  terms of product supply?
• Ask if the franchiser has been forced to terminate any of its
  franchisees and detail the reasons for this decision. Have any
  franchisees failed or gone       bankrupt?
• Are there any current lawsuits pending or past judgments
  against the franchiser? What steps are taken to settle
  disputes between the franchiser and franchisees?
    Questions to Ask Franchisees
•   How long have you owned your franchise?
•   Is your franchise profitable?
•   In which month did you reach your breakeven point?
•   Have you made approximately the same profit that was
    forecast in the disclosure document?
•   Were your opening costs consistent with the original
    projections in the disclosure document?
•   Are you satisfied with the franchiser?
•   Are you satisfied with the product or service?
•   Is the operations manual, clear, up-to-date and adequate?
•   Are you satisfied with the marketing and promotional
    assistance provided by the franchiser?
   Questions to Ask Franchisees
                           (continued)
• Was the initial training and ongoing support sufficient for you to
  operate your business?
• What was your background prior to buying your franchise and
  was it beneficial to your success?
• Are deliveries of goods provided by the franchiser timely and
  competitively         priced?
• Is the franchiser fair and amicable to work with?
• Does the franchiser listen and help you with your concerns?
• Have you or other franchisees had any disputes with the
  franchiser? What was their nature? Were they resolved fairly?
• Do you know of any disputes between the franchiser and the
  government?
• Do you know of any disputes with competitors?
• Who are the major competitors?
Common Mistakes of Prospective
       Franchisees
• Not reading, understanding or asking questions about the UFOC,
  franchise agreement and other legal documents
• Not understanding the responsibilities of the franchisee and the
  obligations of the franchiser
• Not seeking sound legal and financial advisors
• Not verifying oral representations of the franchiser, representatives or
  brokers
• Not contacting enough current franchisees
• Not contacting closed, sold or changed franchisees and confirming
  reasons
• Not having enough working capital
• Not recognizing the need for financing
 Common Mistakes of Prospective
      Franchisees (continued)
• Not knowing how to make a proper loan request
• Not developing true and accurate budgets/forecasts and financial
  statements
• Not meeting the franchiser’s key management and support personnel
• Not analyzing your market in advance
• Not developing your marketing strategy
• Not determining dollar amounts necessary to implement marketing
  strategy including advertising and promotional programs
• Not choosing the right location
• Not analyzing the competition
               Established Franchisers offer:
         Established versus New
• Name Recognition
              Franchisers
• More regional and national advertising
• Experienced management
• Better chance of competing with competitors in a price or
  advertising war
• More refined training and support
• Better purchasing power with established price discounts
• More likely to have franchise financing available
• More established and efficient working prototype or
  company-owned stores
• Improved assistance from existing qualified franchise
  owners through advisory councils
Should You Use a Consultant?
A Franchise Consultant...
• will take the time to educate you on the franchise industry
• will help you define your qualifications so that you don’t waste your
  energies and time on franchises that are not right for you or that you
  are not qualified for
• can provide you valuable insight on franchises that you won’t find on
  your own
• will help you present your qualifications to a Franchiser
• are paid by the Franchisers, but they recognize that this only happens
  if they provide you excellent service and present to you the right
  opportunities
• will take an unbiased approach to helping you achieve your goals

				
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