Franchising in Hungary

Franchising is a rather new form of entrepreneurship in Hungary. Although the franchises appeared in the late seventies, early eighties of the last century the conditions of real franchising were created only after the socio-economic changes from 1989. Before that some state owned companies reached agreements with franchisors operating in the field of tourism. Hotel chains and rent-a-car services established themselves in this way first. At the beginning even McDonald's was a joint venture in Hungary where the largest state farm directed by one of the members of the Central Committee of the Hungarian Socialist Workers' Party (the local version of the communist party) became the partner of the US based company. Actually McDonald's became one of the founding members of the Hungarian Franchise Association.

The Hungarian Franchise Association was established in May 1991 by 17 companies operating in different fields of franchising. Among these companies there was a Hungarian franchise called City Grill and McDonald's, the pioneer of international franchising as well. Out of these founders only McDonald's has remained member of the Hungarian Franchise Association, others were replaced by new coming franchise companies. Couple of consultants still works for the Association from the beginning.

Currently there is 400-450 companies exist in Hungary, which qualify themselves as or claim to be franchises. Among these companies many offers multi-level marketing systems as franchise activity or they use the word franchise to sell their businesses in a fashionable and sophisticated way, while they are neither legally nor financially independent companies or partnerships. Except these operations the Hungarian franchise community consists of approximately 300 companies (international statistics provide only estimates of number of franchising entities due to the fact that except few countries in the world franchise companies do not need to be registered). Number of franchisees is approximately 20.000 in Hungary and 100.000 employees work in the franchise sector including suppliers.

50% of franchise systems are based on Hungarian ideas and owned by Hungarian companies as well. The other 50% are international licenses and coordinated by either subsidiaries of international companies or Hungarian companies owned by Hungarian master licensees.

Additionally not every brand carries out its operation in form of franchising in Hungary, meaning that e.g. more than 60% of 80 McDonald's restaurants are run by franchisees, but all 13 Burger King restaurants are operated by the Master Licensee (custom made statistical evaluations should be applied in these cases).

There is continuous interest in franchising in Hungary based on the last 15 years of experience. Entrepreneurs contact Hungarian Franchise Association on weekly bases inquiring about starting franchise operations or seeking for international business partners. Subway as an international business for example works in direct franchise format and they make unit franchise contracts.

Several Hungarian franchise companies do international activity successfully. Most of them are expand their operations in countries around Hungary under master license agreements. MOL the Hungarian gas station company is among these franchises, but there are smaller companies as well, for example Gardenia curtain manufacturer and its retail network or DIEGO's floor covering system. FORNETTI (bakery products) has the biggest international network; besides Kuwait or Sweden they have licensees in 14 countries.

20% of all franchise companies in Hungary are member of the Hungarian Franchise Association. This is a good background to be able to do significant lobby activity for ethical operation of franchise businesses. The Hungarian Franchise Association assists franchisees to operate according to the European Codes of Ethics. There are no additional regulations for franchise operations in Hungary. After terminating the Block Exemption Regulation of EU, there is even no legal paragraph containing the word franchise, however all legal condition is provided for operating an ethical franchise business in Hungary.

As a result of the lobby activity of the Hungarian Franchise Association this is the second 4 year government cycle that involved franchise operations among the subsidized business types. The government subsidized more than 200 Hungarian franchisees with 1 billion HUF non refundable financial support in the previous government cycle and furthermore currently this fund exists even in the National Development Plan as well. As a result of this 40-60 million HUF non refundable financial support is available indirectly from the European Union.

Financial conditions are behind the legal framework, due to the fact that none of the banks in Hungary provide real credit package for franchise companies. The same case applies for those multinational banks, where the mother company has significant franchise financing activities/products abroad. All together the Hungarian Entrepreneur Private Benefit Foundation - mainly in the Budapest region - provide favorable credit possibilities for even startup businesses, which franchise operations can benefit from.

The Hungarian Franchise Association has organized the first international franchise conference and exhibition in Budapest in 1992 (the 12th one will be organized in September 2006), and hosted several international program as well. The European Franchise Federation has also organized two times its General Assembly during these events in Budapest. Hungary is the member of this federation since 1993.

The activities of the Hungarian Franchise Association have three major scopes. The first and the most important one is to provide the possibility of ethical franchising by influencing and controlling all regulations connected. The second one is to extend the knowledge related to ethical franchising thru regional conferences in cooperation with county chambers. Last but not least, the Association helps to find appropriate franchisors and franchisees each other, and in relation to this we do market organizing activities as well. The Association published its latest yearbook in 2002 due to the heavy expansion of internet. The publication policy of the Association has also changed at this time. Firstly Franchise News & Market newsletter was written in separate sections of business magazines then an independent quarterly publication entitled Franchise News & Market has been started by the Association. Currently this is the second subsequent year that the Association is responsible of editing the Franchise magazine published by Central Press. Franchise education has started at the Corvinus University (the former Budapest School of Economics and Social Sciences) in this year, which provides continuous development to franchisees, franchisors and franchise managers. There is an increasing demand on the labour market for franchise managers, since more enlarging companies look for and recruit trained franchise specialists.

A franchise radio program will start soon on weekly bases in Hungary, and apart from the Hungarian Franchise Association more companies organize franchise exhibitions and issue publications. This clearly shows that franchising has reached the level of significance in Hungary, where more and more businesses worth to be involved in.

Source: The Hungarian Franchise Association