Franchises safer in hard times

This is evident in the 2008 Standard Bank Franchise Factor survey, which showed that only about 3% of franchises fail, whereas the percentage of failed start-up businesses is much higher.

The survey showed that, between 2006 and 2008, the contribution to GDP by the franchise sector rose to 12.57% from 12% and the sector created 3 600 new businesses.

The sector that has the most franchised businesses is retailing, followed by restaurants, building, office and home services, fast food, and automotive.

Bendeta Gordon, director of Franchize Directions, which conducted the research, said franchising is “a sustainable mechanism”.

Franchising created 70 000 new jobs between 2006 and 2008.

The research also showed that turnover in the sector increased 37% over the two years to R188.2 billion.

Closures in the franchise system were relatively few compared to the number of liquidations of companies.

The sector receives little support from the government but it does receive support from banks, which consider it less risky than other forms of enterprise.

Gordon said South Africa could learn from China, where, before the Olympics, billions of dollars were invested and millions of jobs created by franchising.

There are 531 franchise systems in South Africa and 28 620 franchises, 32% of which are owned by previously disadvantaged people.

The results also show that 95 companies are operating franchises in 21 countries, mainly in the SADC region.

Most of these are in Namibia and Botswana.

Gordon said economies that have a strong small-business sector, often driven by franchises, tend to fare better in depressed conditions.

Source: The Times

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