A SUGGESTED FRANCHISING PLAN FOR AFRICA

Africa needs to develop small and medium sized businesses across the continent. A good vehicle to adopt to substantially contribute towards this initiative, is franchising. This includes adopting successful and appropriate business systems and prudently locating them, so as to as far as possible ensure their success.

The plan should commence with a study of franchising and small business activity, as well as the potential for franchising, by franchise experts, in the relevant country or region. Once the status quo, commencement point, possible supportive regulatory framework and franchise business potential has been determined, a plan should be created to develop and support franchising, small and medium size business development.

It is suggested that a full business concept franchise model be adopted. From a legal perspective this essentially includes, the licensing of intellectual property, usually primarily trade marks, copyright and knowhow, as well as a full business system, by the franchisor to the franchisee, in return for some sort of remuneration and subject to compliance with required standards, the business model and quality control.

Although quality standards and strict compliance with the business system, are onerous to a franchisee, this usually ensures the sustainability and viability of the franchise business, on an ongoing basis. The usual benefits include comprehensive initial training and establishment support, the use of a refined business system and the right to use a trade mark and brand, which enjoys considerable goodwill.

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 is the most developed on the continent, with over 757 franchise systems which include around 35 000 business outlets and offers direct employment to around R330 000 people. These figures exclude a number of franchise systems such as motor vehicle and equipment dealerships, motor vehicle and equipment rental, fuel and service stations, hotels and a number of other businesses, which are franchise systems, but 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 includes, inter alia, Regulations 2 and 3. Regulation 2 sets out what must be dealt with and included in a Franchise Agreement and Regulation 3 sets out the contents of a disclosure document, which must be given to a prospective franchisee, at least 14 days in advance of signing a Franchise Agreement. Regulation 2 attempts to include the best practices and requirements, relating to Franchise Agreements in such documents.

Pre-contractual disclosure of material issues includes the details of the franchisor, the business system, the expenses and income of a typical franchised business, the costs of the investment, establishment, set up, training and related expenses, as well as the likely working capital and estimated break-even point, as well as all other relevant information, so as to place the prospective franchisee in a position where they are able to properly assess the business to be invested into.

The spirit and intention of the CPA is to provide franchisees with consumer type rights including equality, choice, information, honest dealing, fair value, good quality, safety, privacy, fair and responsible marketing and supplier accountability. The CPA also strives towards reasonableness, equity and no unjust prices.

If at all possible an independent or government and business driven franchise association should be developed and supported, so as to promote ethical and best practice franchising, as well as of course to educate and increase the awareness and benefits, as well as possible pitfalls of franchising.

Franchise education and training are also key elements to develop an awareness and an understanding of franchising and to assist with the development of prospective franchise systems.

In addition to the legal and regulatory frame work, the Franchise Association of South Africa (FASA) has over more than 35 years promoted ethical franchising and best franchising practices. This has substantially supported and assisted with the development of franchising in South Africa and their Code of Ethics and Business Protections, is recommended for consideration.

FASA has also assisted with the establishment of the Pan African Franchise Association (PAFF). It is intended that the members of PAFF will be franchise associations in African countries. The development and establishment of franchise associations in other African countries has been slow and consequently PAFF development has been slow. There are however various PAFF initiatives to develop and support ethical and best franchising practices on the African continent.

So as to support franchising and small business development, various government initiatives should be implemented to support, empower, develop and finance, small, medium and franchised businesses. Miro and social franchising also have a great deal of potential and wherever possible and appropriate, should be considered. A micro franchisor development program should certainly be looked at and considered very carefully.

The protection of intellectual property is a key aspect for investors and franchisors granting the use of their valuable trade marks, copyright, knowhow and business systems, into the African business landscape. Although there are in many instances sufficient intellectual property laws to protect franchisors and investors, the registration and enforcement processes and practices of the intellectual property is usually a lengthy and very drawn out process and can be fraught with difficulties, to the substantial detriment and discouragement of franchisors and investors.

In addition to creating support mechanisms and facilitating the access to funding, entrepreneurship and franchising development, should also be promoted. Best practices and ethical franchising should be encouraged, developed and maintained on an ongoing basis by establishing and maintaining a supportive legal and commercial frame work, keeping up with international trends, attracting required and appropriate franchise systems and business concepts and at all times supporting small and medium sized business development.

Wherever the aforegoing have been promoted, supported and pursued, franchising has thrived, leading to the substantial development of sustainable small and medium sized businesses. Further, as the development, awareness and knowledge of the franchise concept and business model grows and develops, this provides fertile ground for local competitors and entrepreneurs to develop similar and competing businesses, which may then potentially allow those business owners to become franchisors, and if successful, to franchise their brands and business systems, to other aspiring entrepreneurs locally and internationally, leading to economic development and increased employment.

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

EUGENE HONEY

Partner
Attorney

View Profile