What local investors need to know about franchising

Business owners always seek ways through which they can expand to tap into new markets, be it in the region or on the global scale. This is at times not easy as many firms do not have the capacity to open new branches in different territories to widen market reach. This has become even more important for businesses with globalisation, and the drive by firms to dominate markets in all corners of the world. To achieve this, some companies open new branches in different parts of the world. Electronics firms, like Sam sung and Nokia have regional offices in different continents from where they distribute the products; others, including Coca-Cola, Pepsi and biscuit-maker, Britannia permit other firms to make their products under licence. The local firms that, for instance, produce Coke or Pepsi-Cola do so under a franchise arrangement. The franchise makes exactly the same product and uses similar packing and promotional taglines as the mother firm. It is the same for franchises in the services sector. This model is preferred by some companies because it cuts costs of having to open a new factory or operational office in any given territory globally. Bralirwa, for example, holds the Coca-Cola franchise in Rwanda, which allows it to make all the products manufactured by the parent company in Atlanta, USA. Franchises can be hotels, footwear and perfumes, as well as beverages and electronics, among others. Telecom companies - MTN, Airtel, Tigo - businesses like Hellofood, Kaymu, Bata, and Woolworth are some of the thriving franchises in Rwanda. So what opportunities does the franchise model offer businesses in Rwanda? According to Rwanda Development Board (RDB), as long as the potential retailer fulfills all requirements for operating a business, such as registration of the enterprise and payment of required taxes, they are free to open shop. Tushabe Karim, the in charge of the doing business unit at RDB, says the investor also has to meet copyright and brand requirements. “We welcome anybody intending to do business in Rwanda; we have no restrictions for retailers intending to operate under the franchise model as long as they fulfill the requirements from the international brand they intend to work with,” Tushabe says, adding that franchises are treated like any other business, and are accorded equal support. Opportunities Alisa Orlando, country director at Hellofood, a franchise business, says the fact that the Rwandan economy is performing well provides opportunity for business growth. “For a franchise business introduced in Rwanda almost two years ago, our growth could be a reflection of the success of franchises. Franchises offer best practices, and one learns from the mistakes and success of the main business…This is paramount for business growth,” Orlando explains. Advice Shane Bartlett, the country director Educat, an entrepreneurship support international NGO, advises businesses to first carry out enough research before seeking franchises, especially about the business. This could cover areas like the parent firm’s history, how it has been operating, its performance (profit and loss) and future success prospects. “One should also consider brand recognition before investing their money in the franchise because they won’t get value if no one knows the brand,” warns Bartlett. He says the franchise model offers retailers an opportunity to do business with established brands, enabling the franchisee to thrive on the already existing brand recognition. He adds that this also helps the franchise holders to avoid mistakes that may have been done elsewhere. Bartlett, however, says franchises should not be misled by the success of the parent company, but to dig deeper to check its accounts to know if prospects are good. “You must do adequate research about the mother company because success of one franchise in a different country doesn’t guarantee success of another, say in Rwanda,” he adds. Bartlett also advises investors to look at strength of the business model they will operate under so as to avoid any risks, especially when the terms and conditions in the model do not favour them. “Rwanda still presents opportunities for franchise businesses because they are a few global brands in the country. However, it is not wise for an individual who has not done business before to get into franchising,” Bartlett counsels. He adds that one needs skills of managing a top business, and not just moving into something they do not understand. With the growing globalisation and need by international firms to spread their presence in all corners of the world, franchising could present the best option for the industries. business@newtimes.co.rw

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What local investors need to know about franchising