With the world’s population growing rapidly – and almost all of this increase set to occur within developing markets – the need for further economic development within third world nations has never been more critical. To this end, the development of business opportunities with the potential to generate jobs and income streams for impoverished people remains a vital issue facing developing countries, and South Africa currently counts itself amongst this category.
With an unemployment rate that presently hovers at just over 25% according to official statistics (widely expected to be much higher) and almost half the population living below the poverty line, the creation of employment has scarcely been more urgent for a nation now home to over 50 million people and rising.
In this capacity, franchising above most other forms of business is uniquely poised in South Africa to assist in economic development and thus serve as an engine for employment and growth. Because franchises are replicas of proven business formats and provide extensive support to franchisees, they are far more attractive options to entrepreneurs with limited capital and/or experience seeking to start their own business. Furthermore, as South African’s generally tend to favour indigenous, owner-driven enterprises over large multinationals, native franchises have an instant advantage over larger rivals.
Eric Parker, co-founder of Nando’s, said as much recently when he claimed the franchising could form part of the solution to South Africa’s unemployment problem, going as far as to suggest that the government should establish an incentive plan (including tax breaks) encouraging corporates to invest in franchising. He cited the current failure rate for small businesses in South Africa at over 70%, dwarfing the corresponding figure for franchises at only 5%.
“Franchising, as a business expansion mechanism, continues to demonstrate its potential of allowing inexperienced people to set up and operate businesses in accordance with a proven business format,” Lindy Barbour of Franchize Directions told Franchise Direct. “The Franchise Model provides the opportunity of scale and replication in job creation. The Franchise business model is about scale and replication. The scale and replication factors can and have spearheaded job creation and sustainability of jobs [in South Africa].”
“It leverages the resources – both financial and human – of the franchisee, the group,” Michael Seid, Managing Director of MSA Worldwide and a leading expert on franchising in developing nations told Franchise Direct. “Today you’re seeing companies opening up multi-unit franchises, where thirty years ago it might have been Mom and Pop opening up one. It creates the ability for the family to own something and pass it on as a business. It gives them the ability to know what business they are getting into, training, [knowledge of] how much capital they needed, where to get their supplies and quality standards.
“It [franchising] certainly creates jobs… it has an amazing impact in that it can be used to bring quality into markets and create wealth.”
Franchising’s value as a vessel of employment within South Africa is undeniable; in 2010, franchises employed 477,623 people in the country according to the Franchise Factor ®, an increase of over 28,000 since 2008. This demonstrates franchising’s capacity as a business model to bestow jobs into often impoverished communities that otherwise would have lacked these avenues for employment, generating wealth for the local and national economy and in doing so facilitating many South African’s with the finance to avoid or fight their way out of poverty.
Furthermore, the growth of franchising is once again demonstrated by the increased number of franchise outlets in South Africa; 29,206 in 2010 compared to 28,620 in 2008 (again, according to Franchise Factor ®). As well as furnishing employment across the country, the support received from experienced franchisors will enable franchisees and their employees to develop vital business acumen necessary not only to safeguard their own long term futures but also to help grow the economy at large.
Meanwhile, the revenue generated from franchising continues to go from strength to strength, totalling R287.15 billion in 2010, an increase of over R30 billion since 2008, according to the Franchise Factor.
All of these indicating factors confirm that franchising as a business model continues to find success within South Africa and in all probability will contribute to economic development within the country well into the future.
Resources:
Bizcommunity.com, Franchising to play key role in solving unemployment, says Nando’s co-founder
Griffith University, Franchising in developing countries
Young, Rod, The Growth and Future of Franchising in Developing Countries
African Development Bank, 2002, Study on Franchising Opport