Thursday, October 5, 2017

FRANCHISE: Nurturing a vibrant franchising sector in Tanzania

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

By Wambugu Wa Gichohi,

Walking on the streets of business and residential districts of Dar es Salaam and other leading cities in East Africa, you will notice many new high quality establishments selling all sorts of items. The reality is that multinational franchise brands are trooping into Africa attracted by Africa’s youthful population and the burgeoning middle class, coupled with market saturation in their mother countries. Most visible are fast food, hospitality and auto-related brands among many others.

What most East Africans do not know is that as our East African entrepreneurs outdo each other in opening as many (few, limited by financial and operational considerations) company-owned outlets as they can afford, the owners of these multinational brands realized a long time ago that the easiest way to conquer the world is to build a winning army of dedicated business partners running their own businesses using the multinationals’ long-established brands under pre-agreed arrangements, thereby guaranteeing them a quick worldwide footprint at a fraction of the cost of setting up and running company-owned outlets.

If the situation is not addressed actively and early, we will end up like the Philippines where 70 per cent of the franchise sector is controlled by foreign brands, as opposed to South Africa where 90 per cent of all franchises are home-grown.

In deciding whether the Philippines or South African model works better for us, it is important to consider the benefits of each. These multinationals play a very significant role in creating jobs, transferring skills, playing commercial diplomacy and creating wealth for themselves and everyone involved in the value chain. But the down side of this is that they repatriate all their profits back home. Worse still, most import almost all inputs from centralized supply chain bases far away from their host countries, thereby creating the bulk of jobs out there and worse still, exacerbating trade imbalance between their host countries and their mother countries.

If Tanzania is to meet her development goals, this imbalance needs to be addressed and one way of doing this, in addition to encouraging the multinationals to source their inputs locally (by first training locals to meet their quality standards) is to encourage indigenous brands to perfect their business models at home (Buy Tanzania Build Tanzania) then start exporting their brands to East Africa, SADC, COMESA and other African trading blocks before finally exporting to the world. This model worked miracles for South Africa during the days of economic sanctions of apartheid days. They produced goods and services of world quality for local consumption and when economic sanctions were lifted, they could only grow in one direction-outwards. This explains why many western multinationals find it difficult to compete in South Africa, hence South African brands controlling 90% of the franchise sector there.

Franchising has been used by businesses across the world to quickly and cheaply transfer skills, create jobs, play commercial diplomacy and generate massive wealth thereby contributing enormously to GDPs of countries such as USA at 2.5 per cent, Mexico at 6 per cent, Australia at 10 per cent and closer home, franchising contributes 11.6 per cent of South Africa’s GDP. In East Africa, its contribution to our countries’ GDPs is negligible because we still believe in the old-school brick and mortar model of company-owned outlets, due to among others, little understanding of how franchising works, shortage of expertise in the region to guide brand owners through the franchise development landscape and inadequate legal backup for franchising.

In order to address these and many others and scale up the contribution of franchising to Tanzania’s GDP, and in an effort to support the government’s industrialization drive, The Citizen has partnered with a leading Franchise Consultant in East Africa to educate the business community on the franchising ecosystem with a view to grow a vibrant franchising sector in Tanzania.

For the foreseeable future, we will run this column weekly where the consultant will write everything you need to know about franchising, including understanding what franchising is and how it works, how industries can use franchising to scale up in the country before going regional and international, how these multinational brands work in Tanzania and globally, what Tanzania would gain by enabling indigenous brands to franchise, the legal environment (minimum) needed to nurture a vibrant franchising sector, what individual brand owners stand to gain by franchising their brands, what to do when you are looking for a foreign or local franchise, what to do in order to franchise your business, what could go wrong in the franchising process, your role as the owner of the franchised brand, your role as the one running the franchise, what is expected of you when you are a supplier to a franchise network, what the government can do to enable more indigenous brands to franchise, the role of the Franchise Association of Tanzania and many other areas of interest to the concept and practice of franchising.

The column will run alongside an editorial commentary about any business that is currently operating under the franchise model in Tanzania. After booking an ad, we will write a brief commentary about your brand history, what products/services you currently offer and any other information you may wish to communicate to the public which a normal ad cannot enable you to do. The consultant will, whenever possible, use your brand as the main example in the accompanying article, thereby giving your brand maximum exposure.

We welcome participation from the business community, government, development partners, scholars and our readers in general so that we can together build this new sector of our economy that holds the answer to many questions that each of us has been asking. If you have any questions regarding the concept, please write to the consultant, who will answer all questions in subsequent articles.

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.