A SUGGESTED FRANCHISING PLAN FOR AFRICA

By Eugene Honey • July/August 2017 • Issue 56

Across the African continent there is a need to develop small- and medium-sized businesses (SMEs). Franchising is a vehicle that can substantially contribute to this initiative, but ensuring its success requires adopting and prudently locating successful and appropriate business systems.

The plan to develop SMEs should commence with a study conducted by local franchise experts to assess small business activity and the potential for franchising in the relevant country or region. Once the status quo, commencement point, possible supportive regulatory framework and franchise business potential have been determined, a strategy should be created to develop and support franchising and small- and medium-sized business development.

It is suggested that a full business format franchise model be adopted. From a legal perspective and subject to compliance to the business model and the standards it imposes, this involves granting franchises the license to use the intellectual property, trade marks, copyright and know-how, and business system of the franchisor, for which a fee will be payable by the franchisee.

The usual benefits of belonging to a franchise system include comprehensive initial training, establishment support, the use of a refined business system, and the right to use a trade mark and brand that enjoys considerable goodwill. Although maintaining quality standards and strict compliance with the business system is burdensome for the franchisee, it helps to ensure the sustainability and viability of the business. It is to be noted that a pure distributorship agreement, agency agreements, multi-level marketing agreements, also known as network marketing and pyramid schemes, are not franchise arrangements.

Cognisance should be taken of the franchise industry in South Africa which, with over 757 franchise systems consisting of around 35,000 business outlets employing roughly 350,000 people, is the most developed on the continent. These figures do not include motor vehicle and equipment dealerships or rental companies, fuel and service stations, hotels and like businesses which, while they are franchise systems, are not always viewed as such.

The franchise laws and regulatory framework in South Africa can be used as a basis for consideration. This includes the Consumer Protection Act (CPA) which aims to provide franchisees with consumer-type rights and which includes, inter alia —

Regulation 2 which sets out what must be dealt with and included in a Franchise Agreement, including best practices and requirements, and
Regulation 3 which sets out the contents of the disclosure document to be given to prospective franchisees at least 14 days prior to signing a Franchise Agreement. Pre-contractual disclosure of material issues includes the details of the franchisor, the business system, the expenses and income of a typical franchised business, establishment and set-up costs, training and related expenses, the working capital required, the estimated breakeven point, and other relevant information so as to place the prospective franchisee in a position to properly assess the business.

If at all possible, an independent or government and business-driven franchise association should be developed so as to promote ethical and best practice franchising, and to raise awareness of the benefits and possible pitfalls of franchising. Franchise education and training are key elements in developing an awareness and an understanding of franchising, and to assist with the development of prospective franchise systems.

Since its inception over 35 years ago, the Franchise Association of South Africa’s (FASA) efforts have substantially supported and assisted with the development of franchising in South Africa. In addition to a legal and regulatory framework, they promote ethical and best practice franchising and their Code of Ethics and Business Protections is recommended for consideration.

FASA has also spearheaded the establishment of the Pan African Franchise Federation (PAFF). The objective of the federation is to bring together franchise associations from as many African countries as possible with the goal of promoting franchising as a business format. While there are various PAFF initiatives underway to develop and support ethical and best franchising practices on the African continent, as the development and establishment of franchise associations in other African countries has been slow, PAFF development has been similarly affected.

To support franchising and small business development, governments should implement initiatives to empower, develop and finance businesses in this sector. A micro franchisor development programme should certainly be looked at, and social franchising also holds great potential.

Protecting their intellectual property is a key aspect for investors and franchisors granting the use of their trade marks, copyright, know-how and business systems into the African business landscape. While in many instances there are sufficient intellectual property laws to protect franchisors and investors, the registration and enforcement of intellectual property processes and practices, however, is usually a lengthy drawn-out process fraught with difficulties to the substantial detriment and discouragement of franchisors and investors.

In addition to facilitating access to funding and creating support mechanisms, entrepreneurship and franchising development should also be promoted and best practices and ethical franchising encouraged, developed and maintained on an ongoing basis. This can be achieved by establishing and maintaining a supportive legal and commercial framework, attracting appropriate franchise systems and business concepts, keeping up with international trends and supporting SME development.

Wherever these practices have been promoted, supported and pursued, franchising has thrived, leading to a substantial increase in the number of sustainable small- and medium-sized businesses. As their awareness and understanding of franchising as a business model grows, it provides fertile ground for local entrepreneurs to develop similar and competing businesses that they can franchise, which ultimately contributes to job creation and economic development in their respective countries.

The time is ripe for African governments and businesses to carefully consider this massive opportunity and to take steps along the lines of those suggested herein. There is no need to reinvent the wheel; the franchise industry in South Africa and in certain African countries is already well-developed; it is simply the opportunity of making this a priority and then pursuing and supporting best franchise business practices and ethical franchising.

Disclaimer: SA Franchise Warehouse is not associated in any manner to any of the brands listed on this website apart from listing details of their respective franchise opportunities. We do not underwrite their viability as a business opportunity nor the quality of the service or products offered by their franchisees. Any complaints need to be directed to the franchisors directly.