Franchising And Micro-franchising: An Underused Tool For Underserved Populations

By Daniel Runde for Forbes.com

Many developing countries face large and growing youth bulges, and with youth unemployment rates prevailing at twice that of the general workforce, there is a pressing need for new job creation. Across the world, 600 million youth will be competing for 200 million jobs in the next decade, and this “demographic time bomb” is not only threatening economic well-being but also generating concern for the potential social unrest it can bring about in countries with weak institutions.
Employing the youth bulge means creating jobs. With nine out of ten jobs created in the private sector, it is clear that private business will need to drive this growth.  Franchising and micro-franchising are vehicles that can help bring about increased employment and support entrepreneurship. Currently, the business model of franchising is widely utilized in more developed countries, but very few chains have expanded into frontier markets. There is a clear opportunity to leverage this business model to bring about job creation in the developing country context.

What is franchising?

Franchising is a way to expand businesses through a licensing relationship. Typically, a business (franchisor) can grant a license to a third party individual or company (franchisee) to offer products or services under their brand, and offer them training and support throughout the process. The model has seen great success in the United States, where franchises currently support one in eight jobs. Some of the well-known and largest franchises in the world are fast-food restaurants and hotels from the United States, including McDonald’s and Marriott International.
Micro-franchising, a sub-set of the franchising concept, refers to smaller-scale, and even single-person franchises that distribute standardized branded products and services.VisionSpring is one micro-franchise that typifies this idea in the developing world: it provides its “vision entrepreneurs” with reading glasses, eye charts, and a few days of training. These micro-franchisees then go from village to village selling eye glasses to remote populations that would not have been able to access the product. This is a very much a win-win situation, as the business gets a share of the profit, employs local populations, and provides needed services to remote areas.

Why franchising?

Franchising is a means for young, energetic people to create economic activity without a great deal of experience or capital.  To be a successful franchisee requires individuals that are hardworking and have the ability to follow through with implementation. These entrepreneurs do not need to face the difficulties of starting a business from scratch but still have an opportunity to run a successful enterprise. Additionally, micro-franchising can expand to rural and hard-to-reach consumers that have largely been ignored by companies due to high delivery costs and their low purchasing power. Micro-franchising can bridge this gap in the distribution chain while creating employment and economic activity.

Micro-franchises could extend services and employment opportunities to otherwise hard to reach markets.

There are existing examples of franchised businesses driving job creation and social change in the developing world. Living Goods, a micro-franchise based in Uganda, brings sanitary pads, diapers, basic antibiotics, soap, and vitamins to households at below-market prices. In Ghana, micro-franchisees from Fan Milk Ltd. are peddling dairy and milk products to remote areas on bicycles. In India, an enterprise called Drishtee provides its entrepreneurs with a laptop and fingerprint scanner to provide basic banking services to people in rural northeastern provinces who would otherwise need to travel for hours to reach a physical bank location.
Experience has demonstrated that generating jobs from the military or government ultimately leads to economic stagnation. Creating employment through multinational corporations is important, but can fail to reach the “little guys.” Franchising and micro-franchising provide the opportunity to leverage the existing entrepreneurial energy among youth in society to reach more marginalized populations.

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