Monday, January 01, 2007

Definition

What is Microfranchising?

Microfranchising is a development tool that seeks to apply the proven marketing and operational concepts of traditional franchising to small businesses in the developing world. The primary feature of a microfranchise is its ability to be streamlined and replicated. The businesses are designed for microentreprenuers and usually target development issues such as health, sanitation, and energy.

One of the first publications on microfranchising provides some additional definitions of microfranchising.

As an illustration consider a microcredit borrower who is not particularly gifted as an entrepreneur. With the option of a microfranchise they could get a loan from a microfinance institution along with a 'business in a backpack' and therefore gain access to an entire system of training, support, branding, and marketing as a franchisee. The franchisor would operate with the efficiency of a McDonalds or Subway and subsequently drive prices down and increase distribution of essential products and services. Most microfranchises have the ability to provide additional employment to a handful of people beyond the franchisee which could potentially be the poorest of the poor.

3 comments:

Jean-Baptiste said...

Hey David,

You've got an interesting blog - I had never heard of the term "micro-franchising" before. But it certainly seems to be part of the next generation of philanthropies. You might be interested in The Issue's analysis on the subject. We've handpicked 4 different blog posts describing how philanthropy and business principles have merged to create a new breed of charities. Also, I would love to get your feedback on our site, if you have the chance.

Cheers,
Jean-Baptiste
The Issue

Jon said...

Interesting blog but I don't understand the terminology. It seems to me that what is described is direct to consumer marketing.

Franchising implies some ownership on the part of the franchisees. The franchisees could then sell the franchise to someone else. I don't know of any examples of that. To me, it seems to be distributorship.

David Stoker said...

Thanks for coming by Jon. You make a great point. I think the line is often blurry, sometimes simply for legal reasons but also due to this being such a new field that we are still seeing experiments on the model. I think franchising is still the vision but implementors are finding they are having to design mixed models of ownership and ways to minimize risk both for franchisees and early investors. Franchising is also a completely new business model in many countries and so both the willingness of franchisees to assume that risk but also to follow the contractual obligations of being a franchisee requires a maturation of the informal market.