Tuesday, July 10, 2007

Vodacom Phone Kiosks

Vodacom provides phone and fax services to the poor throughout South Africa via phone kiosks set up by Vodacom and operated by a franchisee. In 1993, Vodacom was issued a license to operate in South Africa with specific requirements that involved providing services to the poor who either had limited or absolutely no access to phone lines. Vodacom accepted the challenge and has set up approximately 22,000 phone lines scattered among 5,000 kiosk sites. A kiosk receives a wireless signal which is directed to stationary phones in a renovated shipping container.

Vodacom seeks out entrepreneurs who own and run the kiosks. Vodacom began by tracking cell phones with abnormally high numbers of calls each month. Vodacom perceived that these people were self-motivated entrepreneurs selling air-time. After identifying the natural entrepreneurs, Vodacom trained them how to manage a mobile kiosk. Vodacom no longer has to recruit franchisees; businessmen/women now come to them seeking franchises.

The total cost of setting up a phone kiosk is $7,400; however, Vodacom assumes a greater portion of the costs and leaves the franchisee with a cost of approximately $3,400. Vodacom builds the kiosk and the franchisee is responsible for the equipment and transportation costs. Initially, Vodacom provided loans, but demand for franchises has grown so rapidly that they now have enough franchise applicants that they are able to select people who already have financing.

Total revenue from Vodacom’s 5,000 kiosks was $129.5 million in 2003. Vodacom receives 2/3 of revenues and the franchisee retains the other third, resulting in a gross profit on average of $38,800 a year. This model is a MFO paragon, demonstrating the third MFO hypothesis that a MFO should provide jobs as well as create entrepreneurs. Vodacom kiosks employ an average of 5 people per shop. Currently, the demand for kiosks is greater than Vodacom’s ability to develop them.

Source: BYU Center for Economic Self Reliance
There is also an extensive case study prepared by WRI
These Vodacom shops really show the potential of microfranchises in terms of providing employment, delivering essential services, and being highly profitable for the franchisor. Considering the higher startup costs, the franchisees of Vodacom shops are not the same target market as the Grameen Phone ladies or similar operators, but I actually think employment holds more potential to help poor families than forced self-employment.

1 comment:

Chris White said...

Firstly, I just want to tell you how much I appreciate your blog. Your examples and insights are really valuable.

Secondly, I’ve been digging around a bit and I am having a hard time finding examples of large corporations that have used micro franchising to achieve significant scale. Your Vodacom and Coke references are great. Which other large companies/MNCs do you feel are the main proponents of this?

Thanks - and keep up the great work!