While there are an increasing number of social enterprises meeting social needs, most are operating at a scale far too small to make a meaningful dent in global problems.
Re-imagining international development the way Steve Jobs re-imagined technology
By Julie McBride, Senior Consultant, Social Franchising, MSA Worldwide
Steve Jobs is celebrated for pushing boundaries – the boundaries of societal norms and the boundaries of individuals willing to put principles over personalities and persevere through uncertainty and/or adversity – in order to achieve something larger and more important than self-fulfillment. His vision involved the merging of previously separate disciplines – technology and the humanities – to create something altogether new.
Something different. Something better.
In recent years, the international development space is experiencing a similar merging of disciplines – commercial business with social services – to address some of the still-unsolved problems that plague society today. While there are an increasing number of social enterprises meeting social needs, most are operating at a scale far too small to make a meaningful dent in global problems.
The international development community is making important strides toward supporting the growth of successful social businesses through the establishment of “incubators” that support businesses in the early startup phase; and “accelerators” that address organizational, operational, and strategic barriers to growth at later stages. Indeed, a recent Forbes article counted some 3500 social business incubators and/or accelerators designed to support the growth of social businesses.
Both incubators and accelerators are important resources that can help firms grow into well-established organizations that contribute to local economies and deliver social impact to the communities they serve. There remain questions, however, about how well they work and whether these efforts are really enough.
Is a Successfully “Incubated” and “Accelerated” Small or Medium Social Enterprise Enough?
This article suggests that when global development is the goal, it is not enough to settle for successfully operating small or medium enterprises; and that the development community should also invest in strategies that can help those proven social businesses further expand through models such as franchising, particularly “business format franchising”, that have proven themselves in the commercial sector. In this way, social businesses can scale in the same way that commercial businesses have scaled thus resulting in a) more wealth creation for the local business owners; b) more jobs for people in communities where businesses are located; c) more social impact in more communities that are served by these local social businesses; and d) higher, consistent, and sustainable quality standards across a range of industries based on the requirements of larger branded enterprises.
This approach should also be interesting to those primarily concerned with promoting economic development in low-income communities.
Franchising of any type of business, social or not, has the power to transform economies because it both, directly and indirectly, creates business ownership and jobs in the communities those businesses serve, thus building a middle class. Franchising is one of the fastest-growing segments of the global economy. Thousands of franchisors and millions of franchised businesses create millions of jobs globally. In addition, its economic output represents a significant share of national GDPs, on average just over 4%. Studies show that in the US alone, 780,000 franchise establishments across 295 industries support nearly 9 million direct jobs and $890 billion of economic output for the economy. On average, one in four franchises in any given country outside of the US are foreign-based. This suggests that consumers are open to foreign products and that there is great potential for export of domestically developed concepts regionally and globally.
What Makes Franchising Such a Promising Model for the International Development Community?
Franchising works on many levels to drive economic development and social progress. A recent investigation of franchising’s role in economic development concluded that franchising drives economic development in four key ways, the first of which is efficiency. Franchising generates efficiencies in markets by establishing systems (both internal and external to the franchise business) and know-how (e.g., business and management skills) that are proven in the global marketplace. Second, franchising stimulates competition, which in turn leads to higher quality products and services, lower costs, and more market segmentation that enables a greater portion of society to access the market. Third, the effects of franchising on customer service and product quality improve consumer welfare even if the service being franchised is not a “social” business. For example, in the restaurant industry franchising can raise standards of food products through sourcing, preparation, and hygiene requirements. There is also a built-in process for educating consumers and further driving demand for higher quality products and services. Fourth, franchising provides opportunities for business ownership, which is widely regarded as an important means to achieving economic growth. It is also a powerful vehicle for imparting knowledge and skills that entrepreneurs need to succeed in business, which has a positive spillover effect on quality and quantity of locally -owned businesses beyond franchises.
Franchising can further contribute to a country’s economic development by facilitating its ability to develop exportable goods and services – i.e., home-grown franchises that have regional or global appeal. Many think of franchising as the export of US culture and that its sum effect is more destructive to local culture than it is helpful to the local economy. In fact, that trend is changing, and more franchises every year are home-grown and even being exported to the US; 5% of franchise brands in the US are imported. South Korea is the second largest developer (behind the US with 3,636 domestic brands) of franchise brands with 2,584 locally developed franchises. Other countries leading the way in domestic franchise development are Taiwan (2,141 domestic brands), France (1,547 domestic brands), Mexico (1,120 domestic brands), Australia (998 domestic brands), and Philippines (975 domestic brands).
In sum, franchising works so well in so many diverse cultures because it is adaptable, scalable, and has proven to be sustainable over long periods of time. Franchising is highly effective at transferring entrepreneurial skills and best practices around the world because of its adaptability to differing cultures and economic requirements. Because of its focus on and enforcement of brand standards, franchising has created secondary benefits in establishing supply chains and by bringing best practices in business to new economies with the resulting effect of improving living standards across the globe.
How Does Franchising Facilitate Business Expansion?
Franchising is a powerful growth strategy that has proven itself as one of the most effective ways for a brand to achieve global coverage. Franchising solves multiple barriers to business expansion for entrepreneurs. For example, it provides a mechanism for them to access three critical types of capital needed to successfully expand: 1) financial; 2) managerial, and 3) local market insight. The franchisor uses the franchisees’ funds to open new locations, the franchisees’ people to manage the site, and the franchisees’ knowledge of local markets to identify site locations, secure local suppliers, and continually adapt to evolving market conditions. In the social sector, social franchisors leverage resources from the philanthropic community to provide the local funding necessary for the local entrepreneur to invest in their franchised businesses.
Franchising also solves barriers that many local entrepreneurs face to starting a business of their own. First, it offers benefits of a proven business model and rights to use the procedures and systems that make it so successful. This spares the new entrepreneur time, money, and risk involved when trying to create a successful business concept from the ground up. Second, it offers benefits of a shared brand across multiple locations delivering a consistent customer experience. It also provides a way to rigorously measure output and results at the local level so that the business can be effectively managed. Both of these features make it easier for the entrepreneur to attract and maintain a strong customer base from the inception of the business and enable them to become cash-positive much more quickly than if they were to start their own business with their own brand. Third, it enables them to leverage the power of a large network (purchasing, lobbying, etc.) and therefore get access to things like advertising and supply chains that might otherwise be cost-prohibitive.
How Can Franchising Change the Development Landscape?
Imagine if added to the list of franchise opportunities being marketed to prospective franchisees (via websites such as betheboss.com or events like the International Franchise Expo) were social business franchises such as Jibu’s water franchise, CFW’s healthcare franchise, One Family Health’s healthcare franchise, SolarSister’s clean energy franchise, Farm Shop’s agro-business franchise, and so on. Then imagine these opportunities being marketed to prospects in the communities that need the services. So, for example, a local entrepreneur in Kenya might be interested in purchasing the Jibu water franchise to operate in her community because she sees the tremendous business potential. She may also see it as a way to provide a social benefit to her community. She can get a loan from the bank or start-up capital from investors because they have confidence in the Jibu business model and perceive it as a low-risk investment.
In this way local entrepreneurs, instead of (or in addition to) international NGOs, would take on the role of owning and operating businesses that solve needs in their communities while at the same time creating wealth and jobs that lift those communities out of poverty. This is where the re-imagining happens, and the new and better way of doing international development begins to take form.
How Do We Make This Happen Faster?
Demonstrating that expansion models like franchising can work in the social sector the same way they work in the commercial sector will lead to the transformative change we are all seeking in international development. We can’t demonstrate it until we try it, try it correctly, and try it a lot. This will require industries that are very different in many ways to come together to share ideas and teach new skills, and ultimately revolutionize our collective thinking and approach to solving social problems in emerging market economies, both domestically and overseas. It is not easy to do this, but if we decide that it is important and make our own personal needs (e.g., for recognition and reward) secondary to our common mission to create the world where more people can live healthy and productive lives, then we can do it.
We have all of the components needed to create this – proven social businesses, local entrepreneurs looking for business opportunities, franchising know-how, existing funds (that would simply need to be diverted from less promising projects or approaches), and plenty of market potential. We just need to connect them more efficiently and effectively. When we do, the resulting effect will be transformative on many levels.
To learn more, please contact Julie McBride (jmcbride@msaworldwide.com) who is leading the effort at MSA Worldwide in partnership with the International Franchise Association’s Social Sector Task Force to identify and connect players in this space – including funders looking for good social investment opportunities, existing social franchisors looking to improve and/or expand to new markets, existing social businesses interested in franchising their concept, and providers of technical assistance and/or products (i.e. franchise management systems, mobile health technology, new diagnostic tools, etc.) that might be helpful to franchisors.
Sources:
International Franchise Association (IFA); Franchise Business Outlook; Franchise Economy.com; January 2014
World Franchise Council Survey on the Global Economic Impact of Franchising; 2015
World Franchise Council Survey on the Global Economic Impact of Franchising; 2015
Do you have further questions about social sector franchising?
MSA can provide expert guidance on how the model of social franchising can efficiently bring needed services to under-served populations.