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26 Dec, 2006 09:20

Franchising is taking off across Russia

Franchising is taking off across Russia

Experts believe there will be a boom in the franchising business format in Russia in the coming decade. But investing in this relatively young and inexperienced sector remains risky.

Several reasons make franchising in Russia so popular – a large consumer base, cheap labour, and a lively real estate market. A boom of franchise businesses is expected in Russia’s provinces.

Franchising first came to Russia in the early nineties. The first franchisees were primarily American and Italian restaurant chains. Now, a number of Russian retailers are using the franchise system. It helps them to increase trademark recognition, win more customers and earn larger profits.

Of the different kinds of franchising, adopting a business model, such as running a restaurant brand, is more developed in Russia then product distribution. It is a result of keen demand from consumers for high-quality services in retail, restaurants, and other service sectors.

However there are still significant gaps in Russian franchising legislation. The rights of franchisees are not properly protected and the credit rates remain too high and risky for many to afford. The Russian Franchise Association, established in 1997, is concerned that the legal system makes it difficult for franchisers to set up and grow in Russia. The association says the close relationship between legal, political and commercial institutions leads to corruption, and is working to improve the legislative environment for franchisers.