FRANCHISE: Franchising as SME strategy in Africa

Franchising nurtures and deFranchising nurtures and develops the entrepreneurial talent in a country. This is very prevalent in South Africa and other countries where franchising has taken root. It is for this reason that franchising has been acknowledged by the South African government as an important SME strategy to contribute to the economic development of the country. Other African governments, particularly our governments in East Africa can borrow a leaf from South Africa, and the reasons are clear as explained hereunder

Standards

The success of a franchised system is highly dependent on the standards of service, quality and efficiency that are established and maintained. This applies as much on the shop floor as on the value chain supporting the franchise system. Besides the desire of both the franchisor and franchisee that the standards of operation are maintained and external factors also have an influence in keeping standards high, namely; once a system is successful, competition will follow with improved offering thereby necessitating constant standards update (to the benefit of the consumer!). International brands also enter the market, raising the standards bar even higher!

Part of global network

There is a common saying in international business that if you want to attract the wrath of the USA government, try to mess around with Coca Cola, Ford and McDonalds. Through franchising a country becomes part of the global village. This is due to a local franchise system expanding internationally or an international franchise system entering the local market. The benefits are massive for the country as it attracts investments, skills transfer (sharing of expertise and knowledge e.g. technology) and the country earns foreign currency when local brands export to other franchise markets. In South Africa, 14 per cent of franchising systems are international brands whilst 56 per cent of South Africa’s indigenous concepts have expanded internationally. In contrast, although franchising records are not easily available in East Africa, it would be safe to say that 99 per cent of franchising systems in East Africa are international brands with no known records of local brands that have expanded their franchise systems to other parts of the world.

Innovation

Franchising is a unique source of innovation. It also stimulates the development of the entrepreneurial spirit. It is estimated that franchising currently covers more than 75 industries in the world with more than 10,000 different franchised concepts. The franchisee networks of each of these brands contribute to this development. Regrettably, Africa as the second largest continent with the most countries only contributes between 3-4 per cent of these franchise concepts with 98 per cent concentrated in South Africa, Egypt and Morocco.

Reduced risk

The risk of developing the franchise system is reduced. The concept is a proven system, ongoing advice and assistance is given by the franchisor as is initial and on-going training. The failure rate is lower than in the case of independent SMEs and makes it easier to obtain finance as discussed above.

The writer is a Franchise Consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.