The role of franchising in the development of innovation in Ukraine

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Lviv Polytechnic National University

The role of franchising in the development of innovation in Ukraine

Drymalovska Kh.V.

Introduction

Ukraine's European integration aspirations have influenced the search for effective ways of doing business in order to ensure competitive advantages in the global market. One of these forms is franchising, which intensifies the innovative activity of domestic enterprises through the introduction of scientific and technical ideas, increasing competitiveness at the national and international levels.

Despite the difficult political situation and economic opportunities, as of 2023, Ukraine is not the last country in the world to engage in innovation and R&D activities. Due to the impact of corruption, shadow government activities, the pandemic, and Russia's full-scale invasion of Ukraine, the standard of living of the population does not reach a satisfactory level. Economic instability and a slowdown in business development reduce the level of state budget revenues, causing a deterioration in the operations of enterprises and the overall standard of living of the population. As a result, entrepreneurs are faced with the task of finding a profitable form of cooperation to enter new markets, realizing the opportunity to show the world their skills and ensure business development. This is made possible through the introduction of franchising in the field of entrepreneurship. This type of cooperation is becoming more relevant due to the likelihood of developing a country's development strategy based on taking into account existing problems and contradictions and identifying effective ways to overcome them. The franchising cooperation of entrepreneurs, which is formalized by contractual relations, is primarily based on the formation of partnerships and the choice of a way of doing business.

Presentation of the main material

Franchising means "a type of partnership when one party (the franchisor) transfers to the other party (the franchisee) for a fee (a lump sum) the right to a certain type of business, using the developed business model of its conduct: to act on its own behalf, using the technology, raw materials, trademarks, and/or brands of the franchisor" [1].

The concept of innovation activity is complex and multifaceted, which is explained by its presence in various areas of business activity. Innovative activity is associated with the creation, implementation and ensuring the profitability of scientific inventions and developments in order to increase competitiveness in the domestic and international markets of goods and services. In turn, in the context of the spread of innovative activity, the role of employees is strengthened by establishing relationships in the field of business and attracting investments to achieve the goals related to the implementation of scientific and technical programs and the introduction of new innovative achievements in the long term [2].

Innovation is the result of innovative activities to meet the needs of consumers. Effective innovations are characterized by scientific, technical, and managerial novelty, as well as practical application, compliance with social needs, and profitability in the future [2]. The role of innovations in the modern environment can be outlined through their functions, which are shown in Table 1.

Table 1

Functions of innovations [2]

The above functions of innovations allow us to understand their content and role in the modern world. It should be noted that innovations determine the success of a particular state in the fields of economic, scientific, technical and social policy. An increase in the share of high-tech production in a country enhances its competitive advantages not only at the national level but also at the international level. franchising innovative competitive business world market

The high level of innovation activity in the state is the result of the reproduction of human capital, i.e., the use of the necessary skills, experience, and professional abilities of participants in the innovation process through the use of motivational incentives aimed at satisfying their interests.

One of the most common tools for ensuring the innovative development of entrepreneurship is the franchise system, which combines the main elements of the market structure, allowing it to solve the tasks of innovation, namely [3, 4]:

1) increasing the market value of companies and their financial assets by finding ways to maximize economic profit in the long term;

2) solving the production and economic problems of enterprises through the realization of opportunities for the formation of innovation and economic potential;

3) to develop a strategy for the stable functioning of business entities based on a combination of theoretical and practical principles for forming their financial stability and economic security;

4) to implement the strategic development of companies based on adherence to the principles and implementation of the approved internal provisions of corporate culture, which form models of employee behavior focused on achieving the mission, goals, and values;

5) taking into account the requirements of today to resolve the issue of continuous education of personnel in order to ensure their professional competence.

A franchise agreement is considered a way of disseminating innovative knowledge, as it provides for the receipt of a set of innovations in the managerial, economic, marketing, scientific, technological, and production areas of business for a fee. That is, the subject of the agreement may be technologies, know-how, industrial designs, rights to use a trademark or trade name, and other intangible assets that are innovative in nature [5].

The franchise model is a unique way to finance investment and innovation activities, as it can combine features of various types of economic relations, including investment, lease, technology transfer, licensing, dealership, sale and purchase, patenting, service provision, etc. In this form of relationship, the franchisor company is the developer of innovations, and the franchisee company is the consumer responsible for their further distribution and implementation. Franchising has an impact on increasing the innovative level of entrepreneurship through the study of environmental factors, namely: the ratio of supply and demand for innovative goods and services; stages of the innovation process associated with the emergence, improvement and introduction of the latest technologies; taking into account the peculiarities of sociocultural factors; studying consumer needs in order to improve the quality characteristics of products, developing a new assortment policy in the face of increased competition, etc.

In the field of innovative entrepreneurship, the use of franchising becomes expedient, firstly, if it is necessary to promote an innovation under a well-known brand. In this case, both parties involved in the formation of franchise relations benefit. Thus, the franchisee gets the opportunity to create a safe business, minimizing the possible risks associated with starting a new enterprise, and the franchisor promotes innovative ideas to the market due to the reputation, image and popularity of the brand, receiving a high level of profitability through the coverage of new markets [7].

The franchise model of doing business around the world dates back to the mid-nineteenth century. Today, this model is present in more than 140 countries. Among the leaders in this area of business development are the United States, France, Great Britain, Germany, and Poland. According to experts, the use of this business model in Ukraine is primarily due to the desire of entrepreneurs to resolve the issue of business expansion. Franchise agreements have been concluded in Ukraine since 1993. In 1999, the first franchise restaurant of the Pizza Celentano chain was opened. In 2001, the Franchising Association of Ukraine was established. Since 2004, the number of franchise outlets has been increasing annually. In 2020, more than 23,000 franchise outlets successfully operated in Ukraine. The most successful franchise chains in Ukraine are: fast food restaurants (Pizza Celentano, Fresh Line, Lviv Croissants, France.ua); coffee shops (AROMA KAVA); retail chains (ZARINA, Novus, Nash Krai); real estate agencies (Coldwell Banker, Re/Max). More than 30 Ukrainian chains hold competitive positions in international markets, namely: VD one - a chain of men's clothing stores; DELFAST - a courier express delivery service on electric bicycles; Arber - business clothing stores for men; Burger Club - a chain of burger joints [8].

After Russia's full-scale invasion on February 24, 2022, the Ukrainian economy experienced: a lack of efficient use of resources; a drop in consumer demand, a crisis of non-payments and receivables; an inability to develop and attract the necessary amount of investment; high production losses, resulting in inflation; a budget deficit; and pressure on the exchange rate. In turn, Ukrainian businesses faced a general decrease in demand for products and services (84%), as well as the termination of suppliers' activities (77%), increased logistics costs (73%), and insufficient funding for current activities (71%). According to the survey, 62% of legal entities have reduced the volume of activities, 8% said that their capacity has dropped to zero, and 76% said that their capacity is less than it was before February 24. Another 11% of respondents said they were working in the same mode as before [9].

Despite the war, Ukrainian entrepreneurs consider franchising as a tool for developing small and medium-sized businesses in the context of the post-war economic recovery. Compared to 2014, there is a tendency to change the areas of franchising development in Ukraine. Today, the first place is occupied by the service sector, followed by retail and then catering. When choosing a direction for creating and developing a business, it is necessary to take into account the peculiarities of demand from the population. Franchising in retail allows companies to enter new international markets with their own sales. The creation of franchises in the food service sector with an investment of USD 50 thousand is typical for the western regions of Ukraine and Kyiv. In addition, the number of franchises in the field of educational services has decreased due to the departure of mothers with children as a result of Russia's full-scale invasion. However, there is a growing interest abroad in the implementation of Ukrainian educational projects due to the compliance of the quality of education with European standards, for example, negotiations on opening around the world, such as Happy Time and the STEM school INVENTOR [10].

As we can see, the recovery of Ukrainian business is based on the successful creation of franchise networks. In turn, the success of franchise networks is primarily determined by new technologies, inventions, and creative ideas. Innovative business solutions need to be developed in the following areas: marketing innovations (design of a store, office, restaurant or cafe, expansion of the range of services provided, new menus, signature dishes, promotions, bonuses, savings programs); innovations in technology (green or more cost-effective technologies, modern mobile applications, improvement of production technology, use of new, more modern equipment, renewal of the vehicle fleet, automation of processes); innovations to improve the company's operations (improved approach to the selection of According to experts, franchises are characterized by a high level of profitability in the following innovative areas of activity: 3D technologies; alternative medical diagnostics; biotechnology; artificial intelligence; energy-saving technologies, including energy storage devices; catering outlets offering environmentally friendly, farm products, menus for vegetarians and vegans; production and sale of electric vehicles [11].

Promising areas for the development of the Ukrainian franchise market in 2024 may include:

- medicine - increasing the volume of investments to meet the needs of servicing the population with physical and psychological trauma as a result of the war, i.e. opening laboratories, clinics, monoclinics, rehabilitation centers

- catering - classic catering establishments are no longer a surprise. The dark kitchen format is gaining popularity, and it can also be mono-restaurants, food markets, bars with a Ukrainian identity, self-service coffee shops, establishments with a strong brand and a non-standard approach to marketing);

- services - meeting customer requirements, for example, in the fields of delivery, tailoring, beauty, etc;

- retail - people buy every day. We are talking about grocery retail--supermarkets, convenience stores, mono-stores (household chemicals, electronics, etc.);

- education - people are returning home, there is a need for new knowledge as the world is changing. These can be online or offline schools [12].

Conclusions

Despite the fact that the concept of franchising is relatively new for Ukraine, in recent years there has been a tendency to study the peculiarities of ensuring its active implementation in the development of innovative small and medium-sized businesses. New domestic franchisors are emerging, and foreign companies are entering the Ukrainian market, strengthening their cooperation. Given all the shortcomings of the Ukrainian franchising market, its development is slower than in Europe and the United States. Nevertheless, in the current crisis conditions, this type of business remains one of the most promising and least risky for Ukrainian entrepreneurs and provides an opportunity to increase the competitiveness of the country's economy. In addition, there is a close relationship between franchising and innovation. In other words, the success of franchise networks depends on the presence of innovations in various areas of activity. And the implementation of innovations occurs through the conclusion of franchise agreements, which attract investment resources.

References

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