Slovenian Franchising

By Igor Pavlin Slovenian Franchise Association Email: Igor.Pavlin@icpe.si

Slovenia joined the EU on 1st May 2004. Yet, the Slovenian economy is still going through turbulent times that are a consequence of ongoing economic and institutional restructuring including ongoing changes in ownership, readjustment of the financial sector as well as labour adjustments. Although the rate of growth in 2004 was about four per cent, the world recession trends have been reflected in the rate of growth and inflation rate.

Even before Slovenia joined the EU the consequences of market changes have been obvious, though foreign direct investments were not as large as the international financial institutions as well as the EU governance would expect. The privatisation process was to a large extent in-bound. Slovenia has not adopted any specific law that would regulate franchising.

The new government constituted at the end of 2004 has paid increased attention to entrepreneurship development that has been found a critical economic issue, starting with inadequate support systems, bureaucratised responses of the government and environmental attributes that do not stimulate creative business solutions in the small business sector.

In Slovenia one witnesses the processes of the second and third stage of franchising development, where domestic companies are expanding to the foreign markets, while Italy, Austria, and Germany tend to be the main geographic provenance of the incoming international franchising.

Relatively small economies of scale are one of the major determinants of franchising in Slovenia. They may prevent start up of a domestic franchise system or arrival of an international franchise system. In the case of domestic systems under-capitalisation of the would-be franchisors and their push for survival occasionally overrules this determinant. A crippled network of a short life-span is born.

In the case of international franchise systems the economies of scale represent a barrier to the entry of quality franchise systems as they induce substantial cost of the localisation of the operation through testing, master franchising etc. In several cases this barrier has been overcome by foreign franchisors by simply applying the direct franchising entry.

We estimate that there is over 100 franchise systems operating about 1,150 franchise units in Slovenia. Apart from a few car rental and hotel businesses that were established in the '80s, other franchise companies were created after the year 1989.