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					JOINT AFRICA INSTITUTE (JAI)
SEMINAR ON FRANCHISING WITHIN A SMALL AND MEDIUM ENTERPRISE (SME) DEVELOPMENT STRATEGY: NOVEMBER 29 – DECEMBER 3, 2004 TUNIS, TUNISIA

FRANCHISING WITHIN SMALL AND MEDIUM ENTERPRISE (SME) IN BOTSWANA
BY MMOLOKI NONO SELEMA SENIOR INDUSTRIAL OFFICER DEPARTMENT OF INDUSTRIAL AFFAIRS MINISTRY OF TRADE AND INDUSTRY BOTSWANA
Contact Address: Department of Industrial Affairs Integrated Field Services P. O. Box 763, Molepolole Botswana. Tel: +267 5920384/5910628 Fax: +267 5910629

Franchising within a Small and Medium Enterprise

JAI – Tunis, Tunisia (Nov 29-Dec3, 2004)

1.1

INTRODUCTION

Botswana is a land locked country situated in Southern Africa. It shares its borders with Namibia, Zimbabwe, Zambia, Angola and South Africa. The country is democratically ruled, boasts of a growing economy and a stable political environment. Botswana has some of the Africa’s last great wildernesses, including the famous the Okavango Swamps and the Kalahari Desert. Botswana is the largest explorer of gemstone diamonds in the world as well as a beef exporter to the European Economic Community. Botswana has a population of about 1.7 million based on the 2001 population census. The official language of Botswana is English and Setswana is the local language. The currency of Botswana is Pula (1 Pula is equivalent to about 4.5 U$).
Angola Zambia
N

Kasane

Moremi G am e Reserve

Botswana
Chobe National Park
Nxai Pan National

Zimbabwe

Namibia

Maun

Park

Nata
Makgadikgadi Pans National Park

Tutume

Orapa Ghanzi
Central Kalahari Gam e Reserve

Francistown Tonota Selebi Phikwe Bobonong Serowe Mahalapye

Botswana

Palapye

Khutse Game

Kang

Rese rve

Molepolole Jwaneng
Kgalagadi Transfrontier Park

Mochudi Gaborone Ramotswa

Legend:
Okavango Delta International Boundary Main roads Main towns

Kanye

Lobatse

Tsabong

X (

Lodges etc.
Forest Rese rve Gam e Reserve

South Africa
0 100 200 300 Kilometers

National Park

Figure 1: Map of Botswana

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Franchising within a Small and Medium Enterprise

JAI – Tunis, Tunisia (Nov 29-Dec3, 2004)

1.2

FRANCHISING AS AN SME DEVELOPMENT TOOL

1.2.1 Definitions: 1.2.1.1 Franchising:

Franchising can be defined as a method in which the franchiser of a product or service grants exclusive right to the franchisee to sell or distribute his company’s products or services in a particular area under the same brand name, where operational procedures are standard. 1.2.1.2 Small and Medium Enterprises

There is no standard definition for SME’s; rather vary from country to country. Botswana’s SMME Policy of 1999 defines small enterprise as a business with less than 25 employees and has an annual turnover of between P60 000 and P1 500 000, while medium enterprise is defined as a business with less than 100 employees and has an annual turnover of between P 1 500 000 and P 5 000 000. 1.2.1.3 International vs Indigenous Franchising International franchising is a franchise that has been borne outside one’s country, while indigenous franchising refers to franchise borne within one’s country. Franchising has the following advantages: a) Training Franchisers offer intensive amount of management training to franchisees in order to assist them to overcome the weakness of entrepreneurs’ lack of experience. They said this is done prior to business opening. Training and counselling are continuous even if the business is in operation. Established Brand Name Products or Services As franchisees, their identification with the established name (known internationally) provides them with the distinct advantage of the drawing power of well-known products or services. National Advertising Due to their association with a nationally known franchisor, as franchisees they benefit broader promotion of their products/ services than it would be with an independent businessperson. These adverts

b)

c)

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Franchising within a Small and Medium Enterprise

JAI – Tunis, Tunisia (Nov 29-Dec3, 2004)

are financed by their contribution, which is a certain percentage of their monthly gross sales to the franchiser. d) Standardized Goods and Services The franchiser’s reputation depends to a large extend on the quality of the products or services provided by the franchisee. Therefore by adhering to standard operating procedures of the franchiser, the goal of uniform products and services can be achieved and the image of franchiser achieved. Employment Creation Like any business sector, franchising improves the lives of people through employment creation.

e)

Though international franchising has several advantages, it has been found that like any other business entity, it has the following disadvantages. a) Restriction on Sale of Franchise The desire to sell or transfer the franchise by the franchisee lies with the franchisor’s approval. Franchise Royalties The franchisee has to pay the franchisor a certain percentage of the annual gross sales. This fee is paid for using the franchisor’s trade name. Limited Product Line Franchisee can’t introduce any product of his/her choice except if it’s introduced by the franchiser. Conformity to standardized Operation Franchisees don’t have autonomy to run the firm as independent business owners do (e.g. can’t put any product on special nor change set up). Franchisor’s representatives have the right to visit the store without prior arrangements to do regular check ups (inspection). BOTSWANA’S OVERVIEW

b)

c)

d)

1.3

1.3.1 Franchisers in Botswana Franchising can be viewed as a means of nurturing and developing the entrepreneurial talent. As an SME business concept, franchising contributes positively to the socio-economic development of Botswana due
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Franchising within a Small and Medium Enterprise

JAI – Tunis, Tunisia (Nov 29-Dec3, 2004)

to its success as compared to independent SME businesses and job creation. It also plays a vital role in technology transfer, i.e. transfer of skills and know how. It also makes it possible to become part of the global network of small businesses. In Botswana, most franchising businesses are international franchises. Majority of these businesses are from Republic of South Africa. However, there are very few indigenous franchises like Linda Holdings, trading as Phones 4 U. The activities of this franchise include a call centre, distribution of highly ranked public pay phones, PABXs, billing systems, cell phones, IT consumables and accessories throughout the country. Table below gives examples of some of the international franchisers found in Botswana. Table 1: International Franchising in Botswana
Business Type of Business Automotive Products Automotive parts and accessories & Services Shatterprufe automotive replacement glass Buildings, Office & DIY Storage solutions, board, Home Services timber and hardware products Business to Business Travelling Agency Retail postal domestic & International Courier centre Childcare, Education Individual Mathematical tuition and Training (primary and high schools) Fast Food & General Restaurants Pub Concepts Italian style Foods Food Baking Real Estates Services Sales & letting of properties Retail & Direct Distribution of tiles & sanitary Marketing ware Buying & Selling of new & second goods Supermarkets Marketing of television advertised products Food and Clothing Professional Firms Banks Examples MIDAS, FASFIT PG Glass EasyFit, Lumber City, Timbercity Harvey –World Travel Postnet Master Maths Barcelos, Nandos, KFC Keg Debonaires Pizza, Scooters Pizza Butterfield Pam Goulding Properties Ceramic Tile Market (CTM) Cash Crushers Pick n Pay, OK, Spar Verimark Direct Woolworths First National Standard Bank,

1.3.2 Policy Developments
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Franchising within a Small and Medium Enterprise

JAI – Tunis, Tunisia (Nov 29-Dec3, 2004)

The Government of Botswana continues to introduce different reforms aimed at providing a favourable environment for industrial development in order to strengthen the role of industry towards sustainable economic diversification and development. Based on the above, major national policies and regulations are being implemented and programmes developed. These include the Industrial Development Policy, SMME Policy (operating under auspices of CEDA). In addition, the Ministry of Trade and Industry is amending the existing policies and regulations, and developing new ones. The following examples are related to the promotion of Small and Medium enterprises in Botswana. 1. Small, Medium and Micro Enterprises Policy of 1999: This policy aims at fostering citizen entrepreneurship and empowerment, achieving economic diversification, promoting exports, encourage the development of competitive and sustainable SMME community and creating sustainable employment opportunities. Industrial Development Act of 1988: It was established to promote small enterprises in Botswana in order to achieve economic diversification through entrepreneurship development. According to this act, all small businesses with ten or more employees need industrial licence. Small Business Act of 2003: This Act was enacted to establish the Local Enterprise Authority, which will be responsible for promoting micro, small and medium enterprises. The same Act established the Small Business Council, which will be responsible for advising the government on policy constraints, related to the development of micro, small and medium enterprises. Trade and Liquor Act of 1986: Currently all businesses in Botswana are governed by the Trade and Liquor Act of 1986. As a way to improve the services to the promotion of businesses in Botswana, the Government had amended the Act by separating trade and liquor and established the Trade Act of 2003 and Liquor Act of 2003. The two Acts are not yet implemented as the Regulations are still being developed. New Companies Act of 2003: With this Act, small businesses will not submit certain requirements needed in order to establish and operate a business. For examples, they will not be required to produce audited reports but will be required to keep accounts books for record
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2.

3.

4.

5.

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JAI – Tunis, Tunisia (Nov 29-Dec3, 2004)

keeping. In this way, government is trying to reduce the number of things required from small businesses to operate. The Act is not yet implemented as the Regulations are still being drafted. 6. Competition Policy: The Government will use this policy to monitor the operations of franchising businesses in Botswana. The Policy is still being developed. After the approval, an Act of Parliament will be passed.

1.3.3 Financial Opportunities The Government of Botswana established Citizen Entrepreneurial Development Agency (CEDA) in 2001 to overcome financial constraints affecting the development of citizen businesses and citizen participation in the economy. CEDA focuses specifically on the development of viable and sustainable citizen owned business enterprises. It provides financial assistance in the form of loans at subsidized interest rate to all businesses in all sectors of the economy. CEDA lends P 500 to P 150 000, to micro/small scale projects, at an interest rate of 5%, repayable at a maximum of 5 years. It also lends P150 001 to P 2000 000, to medium scale projects, with the interest rate of 7.5%, repayable in 7years. CEDA is the only financial institution that the Government is using to support small and medium enterprises. 1.3.4 Constraints facing both Franchisers and Franchisees in Botswana a) Finance - Projects which are not approved by CEDA have difficulties in seeking loans from commercial banks due to lack of security and high interest rates. On the other hand, sometimes funds are not available to support certain franchisers. High Rental charges – In Botswana, majority of franchising businesses operate from rented premises, thus high rental charges with escalations that outstrip the income growth. Cultural Norm – Though there are opportunities to franchise, some Batswana still believe that they cannot share their ideas with others nor buy other peoples ideas, hence the difficulty in promoting black economic empowerment within the franchise base.

b)

c)

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Franchising within a Small and Medium Enterprise

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d)

Conformity to standardized operations – Sometimes it is difficult to venture into franchising in certain areas of the country as the set standards for a particular franchise disqualifies those areas. Lack of providing required services by support service providers in time. CHALLENGES FOR THE FRANCHISING IN BOTSWANA DEVELOPMENT OF

e)

1.4

Botswana is faced with the challenge of developing and implementing the appropriate policy and legislation for monitoring the establishment and activities of franchising businesses in Botswana. The Government is in the process of producing the Competition Policy, which is still being discussed. After the approval of this Policy, the Competition Act will be established. These documents are needed as franchising involves certain set standards and agreements, and it is the government’ s interest to foresee that franchising businesses in Botswana do not become monopoly, and also Batswana who are interested in franchising are assisted to protect their interests. Lastly, with the development of Botswana’s National Vision 2016, the Government is faced with the challenge to achieve one of the Vision 2016 pillars, which says, “A prosperous, productive and innovative nation”. According to this pillar, it means that by 2016, Botswana should have a prosperous, productive and innovative nation and by so doing, the Government should put in place appropriate policies and programmes to promote and develop conducive business environment to attract investors. I thank you for your attention.

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