Micro franchises asa Solution to World Poverty

dinfranchise parlance,securescreditorsandreduceslendingrisk.Manyfranchisesystemshavesuch consistentperformancethatequityfundingisavailableinadditiontodebtfinancing.<br><br> PrivatecapitalistsexistinIndia,forexample,whowilljointventureanewfranchise locationasanowner/investorinpartnershipwiththefranchiseeowner/operator. Fartoomanyregionsandcountriesinthedevelopingworldsufferloworevennegative ratesofrealeconomicgrowth.Franchisescaninjectlifeintostagnanteconomies. Franchisingisgrowingmuchfasterthantheunderlyingeconomyinmostcountrieson earth.InMexico,recentannualeconomicgrowthhasbeeninthe3 34%rangewhilethe franchiseeconomyhasgrownby15 320%.InIndia,whereeconomicgrowthhas averaged6 38%,franchisinghasbeengrowingatarateof20 330%.<br><br> C.K.Prahaladeloquentlydescribesthe cpovertypenalty, dthefactthatmanygoodsand servicescostmuchmoreinpoorareasthantheydoinmoreaffluentneighborhoods acrosstown.Franchisesystemstypicallyimplementrationalpricingacrossaregionor evenacountry.Franchisestendtomaximizenetworkratherthanindividuallocation revenues.Pricegouginginanyonelocationisfundamentallyincompatiblewiththe nationalbrandreputationfranchiseownersseek. Educationbuildscapacity,whichiswhydevelopmentaidprogramshavefocusedon educationfordecades.Educationdoesnotnecessarilycreateemployment,though,asthe -10- legionsofhighlytrainedtaxidriversinLimaorManilacanattest.Franchisesystems offeraveryeffectivetypeofeducation:hands-onvocationaltrainingthatisdirectly relevanttoafranchisee 9slivelihood.Mostfranchisesofferapprenticeshipopportunities andaccesstolife-longmentoring. NGOsandsocialentrepreneurs(SEs)arehighlycreative.Mostoftheirprojects,though, neverscale-upbeyondthelevelC.K.Prahaladcalls cacontainedexperiment. d Franchising,ontheotherhand,hasreplicationinitsgenes.Ifentrepreneursinthe citizen 9ssectorbuiltfranchisesystemsratherthansocialprograms,theycouldmagnify theirpotentialimpactmanytimesoverbycreatingsustainableenterprises.<br><br> Microfranchising Insight#3: Thefranchisemodelworkseffectively,evenwithverysmallbusinesses . ThenascentMicrofranchisesocialmovementisquicklylearninghowtoadapttheproven franchisebusinessmodeltothestarkrealityonthegroundinthedevelopingworld.A Microfranchiseisgenerallydefinedasastructuredbusinessavailabletoandwithinreach ofBOPenterprisers.Tofitthedefinition,totalstart-upcostsforaMicrofranchisecannot exceed3timesper-capitaGDPinacountry.ThismeansthataMicrofranchisebusiness opportunityinKenyacannotcostmorethan$3,000,whilearoughlycomparablebusiness inBrazilmaycostasmuchas$25,000. HernandodeSotodescribesthe cbelljar dthatisolatesandprotectstheformaleconomy inadevelopingcountry,whilekeepingouttheraucousinformaleconomyandits -11- marginalizedmasses.Mosthigh-pricedforeignfranchisesinthedevelopingworldhave historicallyoperatedwithinthebelljar.Microfranchisesaredemonstratingthatfranchise networkscanflourishinlow-incomeareasfarafieldfromwealthyurbancenters.Justas ubiquitousfranchisespermeatenearlyeverynookandcrannyoftheUS,Canadaand Australia,Microfranchisesarepenetratingslumsandvillagesalloverthedeveloping world.<br><br> Microfinanceinstitutions(MFIs)eventuallyreachapointofdiminishingreturnsina communitywheremorecreditdoesnotnecessarilyresultinmoreeconomicgrowth.In Bolivia,forexample,themicrocreditmarketisessentiallysaturated,yetBoliviaremains thepoorestcountryinSouthAmerica.LeadingMFIshavebegunofferingproven Microfranchisedbusinessformatsinadditiontofinancialservices.Grameenhasbeen doingthisformanyyears,andnowBRAC,SKS,FINCA,FreedomfromHunger,and othersaregettingonboard.InformedobserverslikeDonTerry,managerofThe MultilateralInvestmentFund(MIF),arecallingMicrofranchising cthenextgenerationof microfinance. d Multi-nationalcorporations(MNCs)andlargedomesticcompanies(DCs)oftenstruggle tocraftacoherentBOPstrategythatleveragestheircorebusinesscompetencieswithout disruptingexistingmarkets.ClaytonM.Christensennotesthatitis caveryunnatural act dforMNCstoventuredownmarket.Microfranchisingisprovingtobeahighly appropriatewayformanyMNCstoengagetheBOPascustomers,suppliers,and businesspartners.Thefranchisebusinessmodeliswell-knownandthoroughlyproven. -12- MostMNCsalreadyutilizeitsomewhereintheirglobalvaluechain.Microfranchised networksofsmall,locally-ownedbusinessesinemergingmarketscancomplement traditionalbusinessunitsinmaturemarkets.Shell,Unilever,Microsoft,Holcimand Vodafone,forexample,areallexperimentingwiththisapproach. MicrofranchiseCatalog ConsiderthefollowingextantMicrofranchises.Someoftheseenterpriseshavecompany stores,traditionalfranchises,andMicrofranchisesoperatingtogetherintheirnetworks.<br><br> Insomecases,theMicrofranchiseisauniquebrandseparatefromthelargertraditional franchise.Theacronymdenotesthecurrentorganizationaltypeoftheoriginalfounding institution.ThelistisindescendingorderbynumberofMicrofranchisees. 1.Amul,India,10,000co-operativesand8,000,000dairies.MNC 2.Avon,Brazilandmanyothercountries,750,000localsalesagents.MNC 3.Natura,Brazil,400,000localsalesagents.DC 4.GrameenVillagePhone,Bangladeshand2othercountries,200,000phoneladies. MFI 5.Unilever,Vietnamand3othercountries,145,000salesagents.MNC 6.Lijjat,Indiaandmanyothercountries,25,000producers.Indigenousfranchisor (IF) 7.KumonSchools,Japanand45othercountries,23,000tutors.MNC 8.PaleteriasLaMichoacana,Mexicoandmanyothercountries,16,000frozen confectioners.IF 9.HoneyCareAfrica,Kenyaand2othercountries,7,800beekeepers.Social enterprise(SE) -13- 10.JaniKing,USand50othercountries,7,500cleaningcontractors.MNC 11.TropicalSno,USand40othercountries,5,500flavoredicevendors.MNC 12.VodacomPhoneCenters,SouthAfrica,5,000phonecenters.MNC 13.GrameeenUddog,Bangladesh,4,500textileweavers.MFI 14.ArvindMills,Ruff 9nTuffJeans,India,4,000tailors.DC 15.FarmaciasdeSimilares,Mexicoand8othercountries,3,400pharmacies.DC 16.DesktoDeskDeliveryService,India,3,000couriers.DC 17.NLogue,India,2,700information,communicationandentertainmenttechnology (ICET)centers.IF 18.ESCoffee,Ecuadorand3othercountries,2,500coffeeproducers.IF 19.AptechSchools,Indiaand33othercountries,2,500computerbasedtraining (CBT)centers.MNC 20.OBoticario,Brazil,2,400cosmeticsstores.IF 21.Grameeneggladies,Bangladesh,2,000eggproducers.MFI 22.Coca-Cola,SouthAfrica,1,850beveragevendors.MNC 23.Wizard,ALPS,Brazil,1,500languageschools.IF 24.ShellBreathingSpace,Guatemalaand8othercountries,1,000stovedealers.<br><br> MNC 25.ShellSolar,Thailandand4othercountries,900solarinstallersandtechnicians. MNC 26.AmancoIrrigation,CostaRicaand5othercountries,800productreps.MNC 27.GamarraMerchantsAssociation,Peru,750merchants.DC 28.GrameenMotshoFishFarms,Bangladesh,600ponds.MFI -14- 29.Holanda,Mexico,600icecreamrestaurants.IF 30.Drishte,India,550ICETcenters.SE 31.ForesTradeSpices,Indonesia,500spicegatherers.SE 32.PlayPumps,SouthAfricaand3othercountries,500waterpumps.SE 33.CemexPatrimonioHoy,Mexicoand3othercountries,500localpromoters serving120,000constructionjobsites.MNC 34.UnileverAnnapurnaSalt,Ghanaand1othercountry,8saltplantsand400local salesagents.MNC 35.NachoKing,Philippines,400snackfoodvendors.IF 36.HawaiianParadise,Mexico,367flavoredicevendors.IF 37.FarmaciasComunitarias,CruzAzul,Ecuador,310pharmacies.DC 38.Julies 9sBakeShops,Philippinesand1othercountry,300bakeries.IF 39.JaniniMedical,India,260clinics.IF 40.PrideAfrica,Kenyaand4othercountries,250microfinanceagents.MFI 41.BlazeFlashDeliveryService,India,225couriers.DC 42.ScojoVision,ElSalvadorand3othercountries,200visionentrepreneurs.SE 43.ReyesBarbers,Philippinesand1othercountry,200barbershops.IF 44.UMU,Uganda,125microfinanceagents.MFI 45.Magitek,Tanzaniaand2othercountries,120villagewatersystems.SE 46.Dormimundo,Mexico,120sleepcenters.DC 47.UVWater,Philippinesand2othercountries,100villagewatersystems.SE 48.PortaNewcell,Ecuador,100cellphonestores.IF 49.InglesIndividual,Mexico,70languagetutors.IF -15- 50.HealthStores,Kenya,56pharmacies.SE 51.Super1,Colombia,50carcaretechnicians.IF 52.PañalerasPototin,Ecuador,45diaperstores.IF 53.GrameenShakti,Bangladesh,40solarinstallersandtechnicians.MFI 54.HolcimCessa,ElSalvador,35buildingmaterialsdealers.MNC 55.YogurtPersa,YogurtTito,Ecuador,35restaurants.IF 56.CellularCity,Philippines,33cellphonestores.IF 57.Ferns 9nPetals,India,32floralshops.IF 58.Temasol,Morocco,31solarinstallers,technicians.SE 59.Unilever,Indonesia,25soybeanfarmers.MNC 60.GlensCareAfrica,Tanzania,25transportationagents.SE 61.HPPhoto,India,25villagephotographers.MNC 62.CasaporCasa,Mexico,18advertisingagents.IF 63.ValetTaxis,Peru,10owneroperators.DC 64.VodafoneM-Pesa,Kenya,10financialserviceagents.MNC 65.OneRoof,Mexicoand1othercountry,8communityinformationcenters.SE 66.CebicheriasChiqui,Peru,5lunchstands.SE 67.MaharlikaDrugStores,Philippines,3pharmacies.SE 68.InkPatrol,Philippines,1inkrefillingstation.SE Thislistisrepresentative,butnotexhaustive.Thereareatleast200Microfranchise networksoperatingsuccessfullyinthedevelopingworldtodayandthemodelisgrowing rapidly.Thesamplesuggestsseveralsignificantconclusions: -16- Microfranchisesarebeingsuccessfullydevelopedby5different constituencies:multi-nationalcorporations,domesticcompanies, indigenousfranchisors,microfinanceinstitutions,andNGOs/social enterprises. Microfranchisesareoperatingindozensofdevelopingcountries.<br><br> Microfranchiseshavebeendeployedinatleast18differentindustries. Microfranchisingencompassesatleast15discretebusinessmodels. Well-managedMicrofranchisenetworkscangrowrapidlytobecomevery large.Thenormalizedmeannumberoffranchiselocationspernetworkin thesampleis7,675(normalizationdisregardsthe3largestandthe3 smallestenterprises).Themediannumberoffranchiselocationsis400.<br><br> CalltoAction Microfranchisingisstillanovelconceptinmanycircles.Itcanbecome cthenextbig thing dininternationaleconomicdevelopmentifpoliticalwilldevelopsandkey constituenciesadvanceappropriatepolicyagendas: MicrofinanceinstitutionsandNGOs/socialenterprisesshouldconsider offeringMicrofranchisedbusinessopportunitiestotheirclients.Aproven methodologyistobecomeamasterfranchiseeorareadeveloperforoneor morereputablebrands. Indigenousfranchisorsshouldrealizethattheirmodelworksoutsidethe belljarandcreateMicrofranchisebrandstogodownmarket. Domesticcompaniesandmulti-nationalcorporationsshouldnotethat manybusinessessuccessfullyengagingtheBOParenotconvolutedcross- -17- sectorpartnerships.ViableMicrofranchisenetworksthatleveragecore linesofbusinessareoftenfairlystraightforwardcommercial implementationsofafamiliarbusinessmodel.<br><br> Thedevelopmentcommunityshouldweanitselfawayfromaidmodelsin favorofgenuineenterprisesustainabilitythroughpervasivelocal ownership. Governmentsinthedevelopingworldshouldcreatefranchise-friendly businessclimates.Franchisesfromabroadarehighlydesirableformsof foreigndirectinvestment(FDI)thatintroducerareandpreciousfranchise know-howintoemergingmarkets.Problematicgovernmentpolicies includelimitsortaxesonrepatriatedroyaltiesandattemptstoenacta comprehensivefranchiselawprematurelybeforetheindigenousfranchise economyhasgonethroughaperiodoffloridinnovation. ASuccessStory InMay2005,LeonidasVillagrán,presidentoftheEcuadorianFranchiseAssociation, firstheardaboutMicrofranchises.HeisaconsultanttoYogurtPersa,alocalchainthat in9yearshadgrownto20franchisedrestaurantsinGuayaquilandQuito.Atypical YogurtPersalocationrequires$50,000to$100,000ofstart-upcapital.YogurtPersa growthhadstalled.TherearenotthatmanyprimelocationsleftinEcuador 9slargecities andonlysomanyEcuadorianscanaffordtoinvest$50,000to$100,000inabusiness.<br><br> VillagránhelpedYogurtPersacreateanewbrand,YogurtTito,asaMicrofranchisewith astart-upcapitalrequirementunder$10,000.Thenewconceptwasanovernightsuccess. 15YogurtTitolocationsarecurrentlyoperatingandthecompanyexpectstohave50by -18- theendof2006.YogurtTitorestaurantsareflourishinginslumareasthatwouldnever supportamuchlargerYogurtPersa.SomeoftheinitialMicrofranchiseeswhohadto takeonpartnerstofundtheirventuresrecoupedtheirinvestmentinlessthan6months. Leveragingitsparent 9sinfrastructure,YogurtTitohasbecomeYogurtPersa 9sgrowth engine.Thisdisruptiveinnovationcomesnotfromsophisticatedtechnology,butthrough theintelligentapplicationofacommon-sensebusinessmodelinunder-servedmarkets.<br><br> MicrofranchisesasLiberators Weendwherewebegan,withbillionsofourdisenfranchisedfellowhumanssuffering silentlythemind-numbing,dailyindignitiesofinstitutionalpoverty.Nobellaureate MuhammadYunuscallsthem cbonsaipeople, dstuntedbytheirenvironment,whowill diewithouteverknowingwhattheywerecapableof.NobellaureateAmartyaSencalls themvictimsof cunfreedom. dThesehuddledmassesareimpoverishedslaves,yearning tobreathefree.TheEnglishword franchise comesfromtheoldFrench franchir which meanttoliberateorsetfree.Proliferatingsuccessful,locally-owned,smallbusinessesas Microfranchisescanempowerhundredsofmillionsofourbrothersandsisterstolift themselvesupoutofpoverty.Thisbusinessmodelbasedoninclusive,mutually beneficialreciprocitycanhelpincitecommercialrevolutionsaroundtheglobe. Ifbankers,investors,CEOs,developmentprofessionals,andpolicymakerswillembrace thisrobustbusinessmodel,Microfranchisingcanbecomeoneoftheprimaryvehiclesthe worldneedstoachievetheMillenniumDevelopmentGoals(MDGs)by2015. -19- Note:Theorthographyoftheword cMicrofranchise danditsderivationsasusedinthis paperfollowstheconventionestablishedbytheMicrofranchiseDevelopmentInitiative (MDFI),CenterforEconomicSelf-Reliance(CESR),MarriottSchoolofManagement, BYU.Foranin-depthlookatthefranchisebusinessmodelanditsimplementationasa povertyintervention,seeKirkMagleby 9s131pagebookentitled Microfranchisesasa SolutiontoGlobalPoverty publishedin2006byAscend,aHumanitarianAlliance www.ascendalliance.org/page.php?microfranchises .<br><br> .

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