Growing the Nigerian Franchise Industry: Lessons from Global Franchise Giants
The Promise of Franchising
With a population of over 200 million people, a growing middle class (with increasing disposable incomes), and a taste for branded products, franchising has a huge potential in Nigeria, and the time is ripe for the country to maximize the awesome benefits of the business model.
One interesting and unique benefit of franchising that is not well known is that franchise businesses are highly resilient to economic shocks. In writing this article, I did a quick research to update my knowledge of the industry’s contributions to the economies of some key franchise nations. Specifically, I wanted to know how Covid-19 impacted the industry. And this is my shocking finding.
From the US to the UK, to Brazil, Australia, South Africa, and Malaysia, the number of franchise establishments surprisingly increased throughout the pandemic. Take Malaysia, for instance. As of 2019, there were about 800 franchise brands in the country, but by the end of 2021, that number had jumped dramatically.
The country hit the 1,000 franchise brand mark at the pandemic's peak. According to the Malaysian Minister of Domestic Trade and Consumer Affairs, Mr. Alexander Nanta Linggi, there are now 1,149 registered franchise brands in Malaysia, with more than 13,000 outlets across the country. This is a whopping 25% growth rate over a 2-year period — 12.5% annual average — at a time when the general economy grew at 3.1%.
What this tells us is that franchising is a business model for spurring entrepreneurship and growing the economy not just in peacetime but also in “economic wartime” like the one the world recently experienced.
Framework for Propelling the Growth of the Nigerian Franchise Industry
Building a high-performing and resilient franchise industry comes down to having the right institutional framework in place. That is exactly how leading franchise nations grew their industry.
From my study of several franchise systems around the world over the last 7 years, it is clear to me that the countries that have a better and more reliable institutional framework for franchise businesses are the ones that maximize the benefits of the business model.
The right institutional framework for franchising rests on a 6-legged stool. The legs are enabling laws, all-government commitment, support agencies, an active association of practitioners, formal institutions for capacity building, and enabling business environment.
The Enabling Laws
Although a franchise business is a relationship-based business and a great relationship between the franchisor and franchisees is necessary for the success of both parties, in practice, however, parties cannot rely on their relationship alone to get each other to come through on their ends of the bargain. This is even more so in a low-trust environment. There is a need for clear, where possible, specific laws guiding franchise transactions and subsequent relationships.
While a franchise-specific law or act is not a pre-requisite for the industry's success as there are many leading franchise systems like Brazil, the UK, and South Africa that do not have a franchise law, countries need an effective contract law with a predictable enforcement framework for their franchise industry to develop.
The USA is a well-developed franchise country today because it has Federal Trade Commission’s Franchise Rules. Australia is considered the franchise capital of the world because it has the Australian Franchising Code of Conduct. Malaysia’s franchise industry is respected by international brands and considered reliable because it has and it enforces Franchise Act 1998 (as amended).
A good franchise law protects the interests of both franchisors and franchisees and guarantees the integrity of franchise contracts. Among other issues covered, the law usually defines what constitutes a franchise and specifies franchise business registration and disclosure of material business information.
Other aspects covered by a typical franchise law include highlighting requirements to offer franchise sales like the number of years and outlets to have operated before franchising, the cooling-off period before the contract formally commences, contract duration, exclusive territory, support arrangement, fees payments, non-competition clauses and so on.
The main issue is not the name of the law but the clarity and enforcement of appropriate contract laws that cover franchise relations.
All-Government Commitment
To develop the Nigerian franchise industry, there is a need for the commitment of officials at the highest level of government in both the federal and state governments. Franchising was deliberately introduced as an enterprise and economic development tool in Malaysia during the first administration of Prime Minister Tun Dr. Mahatir Muhammad. All successive Prime Ministers and senior government bureaucrats have embraced the business model and shown high commitment to the industry's growth.
The three times I met three of Malaysia’s successive Prime Ministers — Mr. Najib Razaq, Mr. Muyideen Yasin, and Mr. Ismail Sabri Yaacob, in person were at franchise business events. They do not miss important franchise industry events. Just a few days ago, the current Prime Minister, Mr. Ismail Sabri Yaacob, was in Hong Kong for the singular purpose of promoting the Malaysian franchise industry and brands. This is the level of leadership commitment that has seen the Malaysian franchise industry develop consistently, and there is a need for a similar attitude to grow the Nigerian industry.
Effective Support Agency
Franchising, in general, is a relatively new business model to the world and thus needs nurturing and conscious development. For Nigeria to develop its franchise industry, there is a need for a specific agency charged with the responsibility of developing the industry.
It could be a department or a directorate at the ministry of trade. What is important is that someone at the directorate level has a responsibility to drive and coordinate government initiatives for growing the industry. I am not necessarily suggesting the creation of a brand new agency for this purpose.
While I commend NOTAP (National Office for Technology Acquisition and Promotion) so far for its exercise of oversight on franchise transactions with foreign brands, I must say that NOTAP is not well-resourced and does not have the needed investment promotion orientation to develop the industry.
To get the Nigerian franchise industry to greater heights, an agency whose orientation is the business development side of franchising (not regulation, in the case of NOTAP) is required. In Australia, that agency is called Australian Competition and Consumer Commission (3C). In Malaysia, the agency is called Pernas. They develop a specific plan and initiate programs and projects to develop the industry. They provide funding, training, policy guidelines, and basic regulations for the industry's growth.
Active Association of Franchise Business Practitioners
The fourth leg of the stool upon which the institutional framework for developing a franchise industry rests is an active association of industry practitioners — primarily the franchisors and franchisees and franchise consultants.
The Malaysian Franchise Association is a respected professional organization that drives the growth and development of the industry. This body plays four important roles in developing the country’s franchise system.
Standards: they regulate the activities of their members, ensuring high professional conduct and taking measures to discourage or punish bad behaviors.
Promotion: they plan and engage in well-coordinated programs and activities to showcase the industry.
Representation: they lobby for policies that could strengthen the industry. They also represent the country at international franchise forums like IFA (International Franchise Association) and WFA (World Franchise Associates).
Education: they provide training and information to members to enable them to make the right decisions and manage their businesses in the best way possible. MFA’s annual franchise conference draws participants from within and outside the country and is a major platform for educating members on trends in global franchise markets.
Currently, there are two professional franchise organizations in Nigeria: the Nigerian International Franchise Association (NIFA) and the Nigerian Association of Franchise Business Members (NAFBM). This is already causing animosity among practitioners and has the potential to cause serious crises in the industry. There is a need to harmonize these two into one formidable association that supports government efforts to grow the industry.
Formal Institutions for Capacity Building
To take the Nigerian franchise industry to greater heights, there is a need to have formal academic programs, ranging from first degree to Masters and Ph.D. programs. This will help to sustainably build capacity in the business model. It will also help to create new knowledge and conduct research for the advancement of the industry.
In many Malaysian universities and polytechnics, there are academic courses and programs specifically on franchising. I am a beneficiary of such a program as I earned my Ph.D. (in franchising) from one of the universities — the University of Utara Malaysia (UUM). Australia has a whole academic center dedicated to pushing the boundary of knowledge and development in franchising. It is called Asia-Pacific Centre for Franchising Excellence at Griffith University, Brisbane.
These academic institutions do a lot more than just research and teaching. They organize regular academic conferences and other forums that foster sharing of best practices among franchise business practitioners. Without a doubt, these knowledge-sharing and networking opportunities help stakeholders in the industry to stay informed and aligned, increasing the odds of their business success.
General Business Environment
Lastly, one of the factors that have propelled the franchise industry of many of the world’s advanced franchise nations forward is the consistent improvement in their ease of doing business.
Think of developing a country’s franchise industry as trying to lose fat and build muscles in any part of your body — say belly. While specific exercises and diets targeting the concerned part of the body could help to an extent, getting a sustainable result requires full body exercise and a diet that is healthy for the entire body.
No matter the number and quality of franchise industry-specific measures, including those discussed earlier, the industry will not achieve meaningful growth if the general business environment is not enabling.
For Nigeria to sustainably develop her franchise industry, concerted efforts must be made to progressively reduce the time, procedures, and amount of money entrepreneurs have to expend to register their businesses, register properties, get construction permits, get electricity, get credits, pay taxes, have their contract enforced and trade across borders.
Conclusions
Among other benefits, franchise businesses bring together local entrepreneurs, brands, employees, and communities to create value, share wealth and boost the economy's productivity. It enables individuals to join a proven business system and have the opportunity to own wealth-generating assets, creating job opportunities for many while serving as the biggest vocational training in the economy.
With its proven benefits, franchising has become a veritable tool for enterprise promotion and boosting the productivity of Small and Medium Enterprises (SMEs) in many countries of the world. Countries such as Australia, Brazil, and South Korea have franchise industries accounting for up to 10% of their GDP.
The Nigerian franchise industry has great potential. The country doesn’t need to reinvent the wheel before realizing the potential. It only needs to understand how other countries have grown their industry and then galvanize relevant stakeholders to work towards building its own to a level that inspires confidence and attracts the global franchise business community to take the country seriously.
