ABUSE OF FOREIGN FRANCHISES

Culled from Nigerian Best Forum. As more franchises from abroad find their way into Nigeria giving birth to new businesses, the immediate concern before the country’s policy makers should be how to strike the right mix of foreign inputs with local content.
With very low production base and an economy that is heavily dependent on imports, Nigeria would be mortgaging its future if the government left things to play out in the manner of the vagaries of demand and supply. Over reliance on franchised businesses that are heavily skewed in favour of foreign investors is neither healthy for the growth of the local industry nor the economy for that matter.

Major urban centres are now littered with many businesses that have their roots in a franchised model and it cuts across various fields including agro-allied, hotel services, eateries, building materials, construction, banking, educational, auto sales and repairs, IT repairs and services, consulting services, real estate and so on.

Whilst it is true that franchised businesses have boosted employment opportunities in the country, it could also be argued that the local content has not been developed in terms of expertise put into these fields and importantly, the franchise rights appear mostly domiciled in the hands of foreigners instead of Nigerians which makes the issue of empowerment still an illusion.


Franchising is where the owner of franchise system (the franchiser) agrees to license the use of its operating systems abroad and other intellectual property, and provide training and ongoing support to enable another person (the franchisee) to start up and run an identical business elsewhere. Although franchises can also be created on national and local basis, the thrust of this piece is toward franchises from abroad.

Franchises of well established franchise systems benefit from business based on existing models with proven track records; initial training and ongoing support; better access to bank lending to finance the purchase and start-up costs; economies of scale and greater purchasing power that derives from being part of larger business network.

Franchising can, therefore, be described as supported self-employment as franchisees go into business for themselves and not by themselves. It offers a sustainable form of self-employment and many franchise business can be started with little experience, training and cost.
Through the model, services can be provided directly to private consumers in their homes or other businesses. Such services cut across many fields as it can possibly be conceived. Generally, franchising as a complete and compact business model focuses in one particular limited industry area. The strength and management ability of a global brand determines its scope of franchise operations. Franchising extends a product or service rights and trade mark from a business owner to another. The trade mark on the brand serves as a clear message to consumers that only company-owned shops, sell that product line or render a particular service and that any other channel where the product/service line is available is not officially authorized and so could be subject to legal redress.
Because of the country’s large population which creates a ready market for the goods and services and a ready source of cheap labour that a franchise brings in, Nigeria is a very attractive destination for many franchised businesses but the country has also been subject to abuses in several ways as well. Investments are good and welcome but not when such investments are channeled in a way to take more out of the country than to give to the host economy as often witnessed in a larger portion of the accrued revenue repatriated on persistent basis amounting to negative capital flights.
Also, with a poorly developed capacity to produce its own good and services in core technical fields, the country has turned prey to greedy, self-seeking foreign entrepreneurs who have little of the country’s interests at heart. The exploitative departmental stores and various businesses that cut across many fields operating in the country reflect this destruct character of foreign domination.
The running battle with foreign airlines over excessive, arbitrary air fares and other long-standing issues with several multinationals over capital flight, consumer exploitation and unjust labour practices are various indications of what these franchised businesses stand for as two-faced foreign enterprises. Besides the franchise rights being domiciled mostly with foreigners in Nigeria, the top and sensitive hierarchies of these companies are occupied by nationals of the country of the franchisee.

The secrets of the business are known only between them while the Nigerian, employees mostly in the junior cadres are left in the dark. Franchises should not hold in perpetuity, it should foster growth and development of local industries. It is expected that a sanitary wares company based in Spain, for example that has franchised right to do business in Nigeria would after sometime open a factory in the country not only to show for its seriousness but also to help to grow the local industry.
The growth of Asian Tigers and others came through such models. It is not enough for these franchised businesses to fill up the markets with goods and services that the prices are increasingly prohibitive. A ready argument against this is the country’s poor infrastructural base and inept power supply amongst other factors which make production very expensive but these are merely excuses compared with the immense gains that accrue.

That said, the government must create a conducive environment for foreign investments to flourish in Nigeria. Already, a number of companies owing to hostile environment of inadequate and expensive power and poor infrastructure closed shop to relocate to other countries in the West African sub-region. These issues are well known that the writer would not over labour them.
Nigeria is a growth market for U.S. franchising and franchise development services. There are opportunities for both business format and product or trademark franchising. A market survey conducted by the U.S. Commercial Service in Nigeria (CS Nigeria) clearly showed that food franchising is currently experiencing strong growth. This growth trend is expected to continue over the next five years and, in fact, may have a spillover effect on other sectors.
Recently, one of world’s greatest brands, Kentucky Fried Chicken (KFC) made historic entry into Nigeria through Devylani International Nigeria Limited with Marc Schreuder as the Chief Executive Officer of the Company. Besides the fact that the franchise for this global brand has not been given to a Nigerian, it would not come as a surprise if most of the raw materials for the eatery are flown in from abroad whereas they can grow farms in the country for that purpose.
With the growing franchise sector in Nigeria, the country is fast becoming a recruiting ground for franchisers around the world. According to some experts, Nigeria’s national economy is ripe for benefit from franchise intensification if only the government will recognize the role of franchising as one of the major economic boosters.

Perhaps, things are this way because few Nigerians are willing and ready to get master franchise rights from famous global brands. It could also be that fewer Nigerians have access to owners of such franchise rights and fewer still have the ability to manage such enterprises as evidenced in the collapse and poor run of many indigenous businesses.
Sometime ago, a reputable real estate developer who manages a front line property development and management company, related their experience of how they wanted to buy some machines (crushers) needed for their business and was told that the franchise resided solely in the hands of a foreign national who is not even permanently based in Nigeria. If a survey were to be conducted, a startling discovery would be made that most business franchises operating in the country are held by non-Nigerians.

If things remained this way, local expertise in specialized franchised fields may never be developed which would make the country to remain a dumping ground for foreign goods and services. Various media reports at different times indicated that the working conditions in some of these companies are inhuman to say the least. For example, it was recently reported that dozens of machinists had either died or became permanently paralyzed in one of the companies run by some Asian nationals. There have also been reports of tax evasion and other economic sabotage activities.
Some other times as always, Nigerians who are often victims become the culprits as dubious local businessmen go to their foreign counterparts and deliberately tell them to make products that are substandard for Nigerian consumers which underline some of the ways the activities of some Nigerians undermine other Nigerians just as foreigners do.


By Paul Ojenagbon

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