Franchise business model promotes economic growth

While we constantly hear about the need for people to open their own businesses in order to overcome unemployment, business failure remains a major problem. The Franchise Association of Southern Africa (FASA) believes that the franchise model, by taking away the isolation of business-owners, overcomes lack of business skills.

Brenda Macqueen, chairperson of FASA, speaking at a First National Bank media briefing recently on this issue, said at least 80% of new businesses in South Africa fail within the first year. "Business management skill is a major factor in this," she says. "Many people don't start off with thorough business plans and a lack of understanding of cash flow forecasting is often the cause of the downfall. Business-owners are also extremely lonely - decision-making is done on one's own, without any sort of support to lean on.

"The franchise option takes away that isolation, which is why there is a far lower rate of failure among new businesses operating within the franchise model. In fact, research shows that only about 15% of franchise operations fail."

The focus group research conducted by First National Bank (FNB) shows that well over 80% of franchised operations on the African continent are indigenous. This extensive local experience, built up over many years, augurs well for further growth in local franchised businesses.

GDP contribution

In some countries, franchised businesses contribute significantly to the economy – in the USA, over 50% of retail market GDP arises out of franchises. In South Africa, the current contribution is about 12%, but Riaan Fouche, Head of Franchising at FNB believes it could be higher.

"With the high success rate of this form of business already proven in our country and the fact that franchised businesses definitely create new jobs – 15 to 20 new jobs per franchisee – all stakeholders need to push for the right conditions being put in place to promote the franchise model.

"Franchising also provides a good opportunity for BEE deals: the transfer of skills it includes is an important part of this."

Macqueen says that the enormous growth in consumer spending in recent years is perfect for the expansion of the South African franchise industry, which has strong foundations. "Many franchisors are involved in businesses that meet consumer needs – retail goods, petrol sales, fast food and other entertainment – and so we expect to see them enlarge their operations as long as the economy remains so buoyant."