Driving Africa’s free trade area through franchising

Africa

Across the world, franchising has weathered all sorts of social and economic shocks in the past and will continue doing so for the following reasons, placing it at the driving seat of the Africa Continental Free Trade Agreement’s (AfCFTA’s) implementation.

First, franchisees are, ideally, selected from the local community where they have acceptance and are better placed to respond to the cultural, linguistic and socio-economic environment of their assigned franchise territory.

Conventional distribution models miss this and almost always manufacturers engage the biggest distributor in a locality, who normally would already have some financial freedom, is mostly inflexible and serves different masters.

Second, franchising has proven to be the most effective distribution model internationally where standards really matter, as is the case in AfCFTA.

Its success is based on all franchisees strictly abiding to the franchisor’s standards unlike conventional distribution models where distributors have little to abide to.

Counterfeiting, a major headache to manufacturers-sometimes schemed by their distributors-has little chance in a franchise setup because of the tight grip both franchisor and franchisee have on the market.

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Third, franchising works because franchisees managing individual units have an economic interest in the franchise system and a valid reason to ensure it succeeds.

This is unlike conventional distribution models where a distributor stocks merchandise from different manufactures and is barely actively involved in pushing the products-manufacturers employ sales reps for this. Some distributors have muscle over new and existing manufacturers seeking to use them to reach the market, but since a franchisee deals solely with one franchisor’s products, both parties seek areas of mutual benefit.

Forth, franchising leverages the franchisor’s success to attract capital from franchisees to run franchised outlets, otherwise called using Other-Peoples’-Money (OPM).

It is no secret that to serve a huge market as AfCFTA, manufacturers using traditional models will take longer to cover the market as they seek to raise capital to increase production capacity to meet demand.

Through franchising, this is easily solved as has been done by Coca Cola and Pepsico who franchise production and distribution systems, thereby ensuring their products are available in every corner of the globe.

Fifth, innovation has become an increasingly important source of competitive advantage.

The smaller businesses and franchising in particular are being acknowledged internationally for many of the product and service innovations currently exposed in the market place.

Sixth, franchising contributes to public policy initiatives of employment creation and poverty reduction while creating entrepreneurship through transfer of technologies and skills.

This is achieved through mentoring relationships between the franchisor and franchisees, significantly decreasing failure rates of franchised businesses.

Seventh, most governments on the continent have an interest in transforming their country’s informal sector into formal/modern sector for obvious reasons (i.e. tax collection). Franchising is a formalization strategy, particularly in the low-income sectors.

Eighth, franchising knits social integration better than traditional trade models. Franchisees are selected from the local environment and have to deal with franchisors from different countries on a continuing basis.

Initially, the relationship is purely business but it matures into a social one, much deeper than in conventional distribution models when franchisees realize that without the franchisor it would take longer to achieve success.

They will go to the social level to solidify the relationship in order to keep the golden eggs coming.

Until Africa’s private sector fully emerges, the informal economy will remain one of the biggest development challenges. But there is a solution and this can be found in franchising.

Franchising offers real hope for AfCFTA’s success and for socio-economic development in Africa.

The writer is the Project Promoter and Lead Franchise Consultant at Africa Franchising Accelerator Project aimed at achieving faster African socio-economic integration under AfCFTA.

We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise. We turn around struggling indigenous franchise brands to franchise cross-border.

We settle international franchise brands into Africa to build a well-balanced franchise sector. We create a franchise-friendly business environment with African governments for quicker African economic integration.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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