According to Professor Mark T. Spriggs, in a paper presented to the 13th Annual Society of Franchising conference in the USA in 1999, “Economic growth focuses on output increases and is often measured by Gross Domestic Product (GDP)”. Economic development, on the other hand “focuses on transforming a nation’s economic system and social structure in order to increase per capita income, create and distribute wealth, develop new business-related skills, create new locally-aimed businesses, local markets and new organizational forms”.
Small and medium enterprises (SMEs) have over many years been the seedbed of innovation and contributor to economic activity in their countries. In Africa particularly, the SME sector has hitherto been the driving force of socio-economic aspirations. Most such businesses are, however, too small with little chance of graduating into medium and large enterprises.
A recent study in South Africa (Bushe, B., 2019, ‘The causes and impact of business failure among small to micro and medium enterprises in South Africa’, indicates that 70% of such enterprises fold within the first 5 to 7 years. Majority are started because of their founder’s need to survive rather than on solid research and planning.
Franchising is an integral part of the small business sector and entrepreneurial landscape and more than just a tool for expansion of entrepreneurial ventures.
It is in fact also a socio-economic development tool for governments. What Africa therefore really needs now is a development strategy that will help indigenous entrepreneurs to grow their business through franchising.
Studies by AfDB indicate that 85% of businesses started and run outside a franchise system are likely to fold in the first 5 years compared to only 15% of those started and run under a franchise system.
Business format franchising is an arrangement where the franchisor grants the franchisee the right to use its proven business systems, processes/trademark/name, for the purpose of producing/marketing a good or service in accordance with certain specifications.
It facilitates the systemization, replication and scaling of enterprises, thereby formalizing businesses, creating wealth and shortening the business operation curve for SMEs.
Franchising also ensures more business sustainability compared to the normal situation where everyone starts and runs businesses on their own.
Properly applied, franchising, particularly micro-franchising which uses the same commercial principles of business format franchising at the micro level, is a development tool that can create opportunities for young people, women and those at the bottom of the social pyramid to own and manage their own small businesses, using established and proven marketing and operational concepts of a bigger brand.
SMEs’ transformative role in social-economic development can therefore be justifiable using franchising.
The franchise business model can be a very successful propellant in response to Africa’s endemic economic stagnation.
Whether in a developed or developing economy franchising is designed, and has proven worldwide over many years, to mitigate risk. It is therefore surprising that franchising has not been embraced by the majority of countries on the continent. The reasons are probably twofold.
First, there is a tendency to refer to Africa as one. Acknowledgement is not given to the diversity that defines Africa.
Each of the 54 countries has their own cultural, linguistic and socio-economic environment and any franchise activity has to adapt to the local environment. Second is a lack of understanding of the franchise concept, its operation and the economic benefits this business model offers.
With the coming into force of the Africa Continental Free Trade Agreement (AfCFTA) franchising stands at the driving seat of the economic integration of Africa.
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.