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There has been a lot of ink spilled recently about the plight of the Forex Polaris small businessman in the recession. In particular, there has been a great deal of discussion as to whether franchising as a business model has done relatively better or relatively worse than non-franchised businesses.
There is no definitive answer. If the answer is that franchises have done relatively worse why might that be the case? There are myriad answers from excess liquidity in the capital markets to the simple fact that franchising did so well over the past two decades that it was only natural that it would experience a temporary set-back.
Another possible reason, and the subject of this essay, may be that by its very nature franchising has a greater inherent risk profile due to the fact that franchising necessarily entails the transmission and transference of trade secrets and confidential. Consequently, the more popular a franchise becomes the more difficult it is to maintain its trade secrets and confidential information.
This, in turn, impacts the long term economic health of the franchise. A franchisor therefore makes a bet that it can parlay its franchise system into a profitable venture without losing the value it already has staked in its trade secrets.