CHALLENGES AND PROSPECTS FOR EXPANDING FRANCHISE NETWORKS IN THE SMALL BUSINESS ENVIRONMENT OF UKRAINE

Abstract

The article studies the challenges that hinder the expansion of franchise networks being a promising framework for the small and medium-sized entrepreneurship in Ukraine, as well as their cross impacts. The author refers to such primary hurdles, as lack of start-up capital for most of the entrepreneurs willing to join a franchise network, and complicated bank loan procedures. The work detects three positive factors that can facilitate the development of franchise networks in Ukraine and ensure competitive advantages of franchising as a beneficial entrepreneurship framework for small and medium-sized businesses, and that have already made an impact in pushing the growth from 48 franchise networks in 2001 to 550 in 2021. The author identifies two key trends that define the potential development of national franchising mechanisms under new economic conditions: 1) expansion of the national franchise due to the rise of successful Ukrainian businesses; 2) ‘reverse franchising’ when a franchisee gets a reward from a franchiser in a form of a sales commission at the end of a reporting period and does not pay royalties. The national franchise will develop in two directions, i.e. an inflow of foreign companies searching for Ukraine-based entrepreneurs as potential franchisees, and the development of national chains. The correlation analysis the author made while researching entrepreneurship network interactions, reveals growth patterns for the small businesses, which deploy a franchising scheme. The work provides calculations on a ratio of a small business growth to a number of franchise networks being one of the criteria that characterise various aspects of the small business development process. While applying a polynomial trend line, it is shown that at the beginning the ratio grows rapidly that in dynamics testifies to the increased dependency, and then gets stabilized demonstrating a certain maturity small businesses have reached within franchise networks. The regression analysis allows for defining trends with which to forecast the numbers of small businesses and franchise networks, and define their interrelations. An increase of franchise networks means further legalization of businesses, a growth of income for local budgets and new jobs, as due to their specific structural features, they provide the state with far wider opportunities to impact small business development in a targeted manner.