Thursday, November 23, 2017

FRANCHISE: Franchising as SME strategy in Africa

 

By Wambugu Wa Gichohi

Franchising nurtures and develops the entrepreneurial talent in a country. Hence it has been acknowledged by the South African government as an important SME strategy to contribute to the economic development of the country. Our governments in East Africa can borrow a leaf from South Africa, and the reasons are clear;

Franchising supports the economy: Because of its higher success rate, higher standards, quality control and efficiency, franchising offers more sustainable support to the economic development of a country. This is done through Creating jobs: In Europe the average number of direct employment in a franchised unit is nine and in South Africa it is 20. One in four Canadians are employed in franchising. It is estimated that for every one direct job in franchising another indirect job is created. McDonald’s came to Africa through South Africa in 1995 and could soon announce entry into East Africa having started the master franchisee recruitment process.

Since then they have created nearly 16,000 (direct and indirect) jobs in South Africa and their entry into East Africa will no doubt offer a new avenue for additional job creation. Wealth creation: With 75 different industries using the franchise model- 17 being the most prominent- franchising contributes 2.5 per cent of the GDP in the USA, 10 per cent in Mexico, and 11.67 per cent in South Africa. The average direct jobs created per franchise outlet in South Africa is 17. It is acknowledged that one direct job creates one indirect job. The average household in South Africa has four to five people. It is therefore fair to say that franchising impacts on the lives of between 68 and 136 people per franchise outlet. With 757 franchised brands and 35,111 franchise outlets, franchising impacts between 2,387,548 to 4,775,096 people across the 17 franchise sectors. Based on this example and assuming we can quickly mobilize and create 400 franchise systems in East Africa in the next five years (Egypt achieved this within four years of embracing franchising) with an conservative average 50 outlets each, franchising could impact between 1,360,000 and 2,720,000 people in East Africa by 2022. This might be the secret key to unlock exponential GDP growth, one which our governments have missed. Training: Franchising provides skills transfer through training. Prior industry experience is not a prerequisite for most franchises. Once you are in the franchise system as a franchisee, you get initial training by running one of the company-owned units (the prototype unit or one designated specifically for training e.g. McDonalds Hamburger University). You also get ongoing support from the franchisor throughout the franchise period. Stimulating growth: Franchising as an SME strategy has boosted the economies of many countries around the world. According to the Word Franchise Council, 50 per cent of all retail trade in the USA is through franchise systems, 35 per cent in Europe, 30 per cent in Canada, 26 per cent in Australia and only 11 per cent in South Africa.

In conclusion, it is often said that franchising is the best ambassador of free enterprise in the world. It is indeed the wave of the future.

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.

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