Franchising is flying the flag of sustainable job creation

The franchise mechanism has been widely used by a range of businesses as a means to expand their operations, and over the years franchising has made a significant contribution to the economy.

By Bendeta Gordon

By creating a number of small businesses (franchisees), supported by the franchisors, franchising has afforded many people the opportunity to pursue self-employment. The franchisees, in turn, create sustainable employment opportunities.

To a certain degree, franchising is able to accommodate the inherent weaknesses within our economy, business infrastructure, business and government mind-set, work force and so forth, to meet the need for job creation. 

The current challenges and issues we are facing in South Africa:

·         Insufficient numbers of entrepreneurs and managers;

·         A young, unskilled and inexperienced unemployed workforce;

·         Low investment levels; and

·         Insufficient training systems.

These issues can be addressed through the franchise mechanism.

Franchising operates on the basis that a proven business and operational format of distributing/manufacturing goods and/or services exists. In a franchise system:

·         The business system is formalized and packaged into a structure that can be replicated;

·         Licensed to third parties (who may have no skill or experience in the business format);

·         These licensees and their staff are trained by the licensor to manage and operate the business format;

·         The licensor provides ongoing mentoring, business support and training to the licensees;

·         The licensor markets the products and/or services.

The franchise mechanism addresses the issues raised above by:

·         its ability to replicate proven business formats

·         its ability to address the specific skill set required for the manufacture or distribution of goods as required by the franchise model;

·         providing training and ongoing support to the unskilled licensee;

·         facilitating job creation with each new operation unit established;

·         the licensor taking responsibility for developing the market to receive the products/services.

The research information provided herein is based on the Franchise Factor® survey, an extensive quantitative research project undertaken by Bendeta Gordon and Franchize Directions since 1994.  As at 28 February 2010 there were 29,206 business units operating as franchised brands. Of key interest is the noticeable sustainability of these businesses.  During the research period, March 2008 to February 2010, South Africa experienced a slowdown in GDP growth and job losses.  According to the Franchise Factor® 2010, there were approximately three business unit closures recorded per brand, between March 2008 and February 2009, and two business unit closures per brand between March 2009 and February 2010.

The low failure rate is a testament to the advantages of franchising, which include:

·         Proven business systems

·         Well developed brands

·         Proven operational systems and procedures

·         Proven business management systems and processes

·         Support from franchisors in terms of training and ongoing support

·         Better access to funding

Employment

Direct employment in the franchise sector includes the management teams and staff employed by franchisors, as well as the management and staff employed in each franchise. The Franchise Factor® research reveals that franchising as a whole has displayed a steady growth in the number of parties employed.

Period ending	Parties
	employed
28 February 2006	390 500
28 February 2008	461 218
28 February 2010	477 623

The continued growth in the number of franchised business units and the direct employment opportunities created, is indicative of the franchising model’s resilience to changes in the economy and fluctuating business confidence.

Transformation

Franchising is widely accepted as a favourable entry point into the realm of business ownership as it naturally creates a positive transformation as far as business ownership development is concerned.

·         36.73% of franchises are owned by previously disadvantaged individuals, and 

·         23.28% of franchisees are women.

Myths about franchising

The franchise mechanism is not necessarily well understood by the larger business community. The mechanism, however, offers enormous potential for the provision of services where replication, standardization and geographical dispersion for the distribution of products and services exist. Many believe that control is compromised in a franchise distribution network, when in fact, if structured correctly, operational control is optimal. Franchising is also perceived as only being applicable to fast food outlets and restaurants when, in reality, it operates in a wide range of business categories.

The franchise mechanism can also be adapted to allow the free market requirement for profit to operate on a social enterprise basis. In so doing, there exists the possibility for the provision of state and municipal services in a more productive manner.

Examples of the possible application of franchising in South Africa

Agriculture 

In other countries, small scale farming in a structured format has contributed to sustainable employment.  Small tracts of land are licensed to farmers who operate in accordance with the licensor’s intellectual know-how to cultivate plant and animal products, while sharing equipment and facilities. 

Waste recycling

In areas where waste separation is undertaken by residential homes, licensees can be appointed to collect the waste from these homes and distribute it to waste recycling facilities. The waste recycling facilities can also be franchised and products manufactured from recycled waste allows for a possible third franchised mechanism.

Provision of primary health care

Establishing mobile clinics, in accordance with an ideal operational format, will extend the geographical reach for the provision of primary health care. 

Road maintenance in urban areas

This has been executed effectively in China where families are given the opportunity to maintain a certain stretch of road. The maintenance of roads and surrounding gardens can be allocated to licensees who, in turn, are provided with necessary equipment and skills to do so. 

Garment production

Garment production can be separated into component parts with each franchisor handling a different aspect of the production process. While one franchisee is responsible for design, pattern development and sample making, another may focus on spreading and cutting fabric, sewing and assembly and finishing.

While this article only scratches the surface as to the extensive possible applications of the franchise mechanism, real application requires resources, intellectual know-how and identifying business/social franchise opportunities to name but a few.

© Bendeta Gordon of Franchize Directions, July 2011

Bendeta is a chartered accountant and co-founder of Franchize Directions which provides development services and training to franchisors and franchisees.  She initiated The Franchise Factor in 1994, which is the only formal research initiative determining the economic contribution of the franchise sector in South Africa.  

Franchize Directions

Franchise Development & Training Specialists

www.franchize.co.za

(011) 803 0665