Other Forms of Cooperation
There are several types of chains that consist of independent companies in cooperation with each other.
On first glance, these chains can resemble franchise chains which can lead to misunderstanding. Therefore, it would be prudent to mention other forms of cooperation and what differences there are when compared to franchising.
Chains of resellers
Manufacturers and distributors often want to create a safer market for their products. The product sometimes has an inherit need of service, e.g. office and gardening appliances, and the resellers must be able to repair and service the product. Thus, it is not uncommon that certain suppliers want to create a deeper cooperation with their resellers.
A deeper cooperation is established by creating certain perks for the reseller, e.g. training them and providing signs and other marketing ploys. The reseller also gains from the cooperation by receiving favourable terms for purchase, taking part of the brand and its prestige and also the ability to handle service and any collective agreements the supplier has signed.
The supplier does not offer a tried and tested concept for running the reseller’s operation. It is more often the case that the supplier has little knowledge of how to run reseller’s business. This should not be a surprise, since most suppliers do not have any experience of running such a business. Hence, the supplier only provides a well functioning handling of its products. These are often only a part of a larger selection.
Main differences from franchising
- The supplier provides mainly a concept for its own product rather than a concept for the running the whole reselling operation.
- The reseller owns its business concept and has developed it successfully on its own.
- The differences in between different resellers can often be great regarding selection, service and business concept.
In Swedish retail, so called ‘voluntary chains’ are common. These chains are often long established and successful.
Voluntary chains have often formed through a group of shops in the same trade forming a cooperation. The cooperation has in many cases been initiated by having common negotiations when purchasing. By representing a unified larger entity, the terms of purchase are greatly improved from what each would have been able to get independently. An economy of scale when purchasing is thereby achieved.
Over time, the cooperation can be modified to include other parts of the operation where an economy of scale can be achieved. This can be marketing, distribution, logistics, education etc. In due time, the cooperation is expanded and more businesses join. Eventually, the cooperation has grown to large to be handled in a decentralised way. This often leads to an office with common staff is being established to handle the work. Thereby, the chain HQ is established.
It is common that the HQ is organised into a commonly owned company. The structure of ownership vary somewhat. Some voluntary chains have started economic associations that in turn owns the HQ-company and some do not. Some chains have let the common activity to run within the economic association, without a separate company for this purpose.
In all voluntary chains the common association/company is owned by the members. The board is elected and by the members and the board hires a CEO to lead the daily operation.
The common brand is owned by the common company. Just as often however, the member companies themselves are given the right to register a firm (the name of the company) containing the name of the brand. For example Expert in X-ville AB. Ownership of the business concept, regardless of how similar they may be, is often not clear. In some cases, the business concept is defined and documented by the HQ.
If it is the common commonly owned company/association or the independent member who owns the concept is not always decided. It is common that the individual member considers himself to have ownership of the business concept that his shop uses, regardless if this complies with the common and sometimes documented business concept.
Main differences from franchising
- The main company is owned by the members
- The board of this company is appointed and ousted by the members.
- The business concept is developed by the members. In a franchise chain, the concept is developed by a franchisor.
- A member can generally leave the chain without ceasing the operation.
Examples of voluntary chains