CHALLENGES OF FRANCHISING IN NIGERIA VALERIE OGBUAH MATRIX-SOLICITORS UBA HOUSE, 6 TH FLOOR MARINA, LAGOS 01-2647971; 2601287-9 HOW TO SUPPORT AND CONDUCT

CHALLENGES OF CHALLENGES OF FRANCHISING IN FRANCHISING IN

NIGERIANIGERIA

VALERIE OGBUAHVALERIE OGBUAH

MATRIX-SOLICITORSMATRIX-SOLICITORS

UBA HOUSE, 6UBA HOUSE, 6THTH FLOOR FLOOR

MARINA, LAGOSMARINA, LAGOS

01-2647971; 2601287-901-2647971; 2601287-9

HOW TO SUPPORT AND CONDUCT FRANCHISING FOR EFFECTIVE ECONOMIC DEVELOPMENT

JOINT AFRICAN INSTITUTE

NOVEMBER 20-23 2005

CAIRO, EGYPT

INTRODUCTIONINTRODUCTION1.1. Perspectives of Franchising in Nigeria:Perspectives of Franchising in Nigeria:

To highlight the constraints of the existing To highlight the constraints of the existing

operators and the potential entrants into the operators and the potential entrants into the

Nigerian marketNigerian market

Examine the environmental considerations and;Examine the environmental considerations and;

As a way forward to improving Nigerian As a way forward to improving Nigerian

products and services through transfer of products and services through transfer of

technologytechnology Valerie OgbuahMatrix-Solicitors

2.2. Nigeria has a large market with a population of 130 Nigeria has a large market with a population of 130

million, the most populous country in Africamillion, the most populous country in Africa

3.3. As the largest West African market, Nigeria could be As the largest West African market, Nigeria could be

the gateway for Franchising in West Africa and a the gateway for Franchising in West Africa and a

platform for franchise development in Africa, 2nd only platform for franchise development in Africa, 2nd only

to South Africato South Africa

Valerie OgbuahMatrix-Solicitors

STATUS OF FRANCHISING STATUS OF FRANCHISING IN NIGERIAIN NIGERIA

1.1. Franchising as a business concept in Nigeria is:Franchising as a business concept in Nigeria is:

Relatively underdevelopedRelatively underdeveloped

Awareness is relatively low, but is picking momentumAwareness is relatively low, but is picking momentum

Establishment of a franchise association (NIFA)Establishment of a franchise association (NIFA)

2. Product franchising has been prevalent examples include:2. Product franchising has been prevalent examples include:

Soft drinks market (Coca Cola etc )Soft drinks market (Coca Cola etc )

Petroleum ( Total , Elf, Mobil, etc)Petroleum ( Total , Elf, Mobil, etc) Valerie OgbuahMatrix-Solicitors

3.3. The Business format franchise system is emerging and is The Business format franchise system is emerging and is

increasingly gaining momentum especially in the QSR increasingly gaining momentum especially in the QSR

industry. industry.

Examples include:Examples include:

DuracleanDuraclean

Fast food – (Chicken Licken, Butterfields brands, Steers, Fast food – (Chicken Licken, Butterfields brands, Steers,

Debonairs, Churches Chicken, Mochachos Chicken Debonairs, Churches Chicken, Mochachos Chicken

village, Barceló's, St Elmo's etc.)village, Barceló's, St Elmo's etc.)

Retail – (Woolworths, Nike, Addidas, Game, Shoprite)Retail – (Woolworths, Nike, Addidas, Game, Shoprite)Valerie OgbuahMatrix-Solicitors

HISTORY OF FRANCHISINGHISTORY OF FRANCHISING

In 1960, Product Franchising was introduced to Nigeria in In 1960, Product Franchising was introduced to Nigeria in

sectors like soft drinks, petrol, automobiles etcsectors like soft drinks, petrol, automobiles etc

In 1980, First Business Format Franchise bought Chief Moses In 1980, First Business Format Franchise bought Chief Moses

Emeya from Duraclean International, USAEmeya from Duraclean International, USA

In 2001, Food Concepts Limited imports South African Brands In 2001, Food Concepts Limited imports South African Brands

in the Fast Food Industryin the Fast Food Industry

In 2003, Indigenous Franchise Systems were developed by a In 2003, Indigenous Franchise Systems were developed by a

few a owner operators (Tantalizers, Chicken Republic and Mr. few a owner operators (Tantalizers, Chicken Republic and Mr.

Biggs)Biggs) Valerie OgbuahMatrix-Solicitors

STATISTICS OF STATISTICS OF FRANCHISE SYSTEMS IN FRANCHISE SYSTEMS IN NIGERIANIGERIA Fast FoodsFast Foods

Imports (International Franchisors with Local Imports (International Franchisors with Local Franchisee), which consists of predominately South Franchisee), which consists of predominately South African brands ;African brands ;

S/N S/N

NameName No of unitsNo of units International/LocalInternational/Local

11 ChickenChicken

Licken Licken 55 International ( S.A )International ( S.A )

22 St Elmos St Elmos 33 International ( S.A )International ( S.A )


33 Chicken Republic Chicken Republic 99 locallocal

44 ButterfieldsButterfields 33 International ( S.A )International ( S.A )

55 BarcelosBarcelos 22 International ( S.A )International ( S.A )

66 Mochados Chicken Mochados Chicken VillageVillage

22 International ( S.A )International ( S.A )

77 SteersSteers 11 International ( S.A )International ( S.A )

88 DebonairsDebonairs 33 International ( S.A )International ( S.A )

99 Churchs Chicken Churchs Chicken 11 International ( S.A )International ( S.A )Valerie OgbuahMatrix-Solicitors

1010 Chicken Inn Fried Chicken Inn Fried Chicken Chicken

22 International International (Zimbabwe)(Zimbabwe)

1111 Creamy Inn Ice Creamy Inn Ice Cream Cream

22 International International (Zimbabwe)(Zimbabwe)

1212 Southern Fried Southern Fried Chicken Chicken

1212 EnglandEngland

1313 Mr. BiggsMr. Biggs 1010 LocalLocal

1414 TantalizersTantalizers 33 LocalLocal


RetailRetail

11 Woolworths Woolworths DepartmentDepartment

11 International (SA)International (SA)

22 GameGame 11 International (SA)International (SA)

33 AddidasAddidas 55 USAUSA

44 ShopriteShoprite 11 International (SA)International (SA)

55 NikeNike 33 USAUSA


Services and ProductsServices and Products

11 Sheraton HotelsSheraton Hotels 22 HotelHotel

22 Protea HotelsProtea Hotels 44 HotelHotel

33 Le Meriden HotelsLe Meriden Hotels 33 HotelHotel

44 HertzHertz 55 Car RentalCar Rental

55 AvisAvis 77 Car RentalCar Rental

66 Western Union Western Union 3030 Financial Services Financial Services


MAJOR CHALLENGESMAJOR CHALLENGES FACED BY FACED BY LOCAL OPERATORSLOCAL OPERATORS

Government recognition and supportGovernment recognition and support

Support StructuresSupport Structures

Legal and Regulatory Framework ( There is an absence Legal and Regulatory Framework ( There is an absence

of franchise specific legislation)of franchise specific legislation) There is a need for a presence of an interplay between There is a need for a presence of an interplay between

many areas of laws such asmany areas of laws such as

TrademarksTrademarks CopyrightsCopyrights AntitrustAntitrust ContractContract


TaxTax

Technology transfer issuesTechnology transfer issues

Currency controlCurrency control

Foreign investmentForeign investment

Import & Export restrictionsImport & Export restrictions

Dispute resolutionsDispute resolutions

Laws on multilateral and bilateral treatiesLaws on multilateral and bilateral treaties

Property rightsProperty rights

Labour lawsLabour laws


1. The Judiciary1. The Judiciary

There is a lack of in-depth knowledge of Intellectual property There is a lack of in-depth knowledge of Intellectual property

(IP) Laws (IP) Laws

Violation of IP rights is on the highViolation of IP rights is on the high

There is a need for an amendment in our laws There is a need for an amendment in our laws

Procedural bottlenecks Procedural bottlenecks

The courts need to be expeditious and judgments need to be The courts need to be expeditious and judgments need to be

sound sound

Better enforcement mechanisms must be put in placeBetter enforcement mechanisms must be put in place


2.2. Lack of an enabling environment to wit: Lack of an enabling environment to wit:

Poor infrastructurePoor infrastructure

Port delays, strikes, short term funds, erratic electricity Port delays, strikes, short term funds, erratic electricity

and water supply, bad drainage and roads, insufficient and water supply, bad drainage and roads, insufficient

support structure support structure

Lack of satisfactory transportation, communication and Lack of satisfactory transportation, communication and

basic utilitiesbasic utilities

Short term returns Short term returns

3.3. Capacity building and Human Resource is yet another Capacity building and Human Resource is yet another

major challenge major challenge


1.1. Equity funding through SMIEIS Equity funding through SMIEIS

SMIEIS aims for : SMIEIS aims for :

Employment generationEmployment generation

Value added productionValue added production

Encourage movement to the formal sectorEncourage movement to the formal sector

Develop equity investment cultureDevelop equity investment culture


FINANCEFINANCE

22. Financing Franchising with SMIEIS funds. Financing Franchising with SMIEIS funds

SMIEIS Funds can support franchisingSMIEIS Funds can support franchising

Each franchise outlet - an SME - limited liability Each franchise outlet - an SME - limited liability

company with at most N200 million asset base company with at most N200 million asset base

(excluding land and working capital).(excluding land and working capital).

Resulting benefits to Venture Capital FundResulting benefits to Venture Capital Fund

Benefits also to Franchisor / FranchiseeBenefits also to Franchisor / Franchisee


STATUS OF INTERNATIONAL FRANCHISE STATUS OF INTERNATIONAL FRANCHISE SYSTEMS IN NIGERIASYSTEMS IN NIGERIA

ENTRY BARRIERSENTRY BARRIERS

Cultural and Consumer taste Cultural and Consumer taste

The income levels The income levels

Political risk Political risk

Urbanization Urbanization

Rule of Law Rule of Law

Regulatory RestrictionsRegulatory Restrictions


CRITICAL SUCCESS FACTORS FOR THE CRITICAL SUCCESS FACTORS FOR THE GROWTH OF FOREIGN BRANDS IN GROWTH OF FOREIGN BRANDS IN NIGERIANIGERIA

Customizing the realities in the local market Customizing the realities in the local market

Transplanting their principles to suit the Nigerian Transplanting their principles to suit the Nigerian

marketmarket

To bring what is relevant to the needs of our marketTo bring what is relevant to the needs of our market

Modifying their business systems to suit our Modifying their business systems to suit our

environmentenvironment


STRATEGIES FOR DEVELOPMENT STRATEGIES FOR DEVELOPMENT OF FRANCHISING IN NIGERIAOF FRANCHISING IN NIGERIA

Building Franchise CapacityBuilding Franchise Capacity

Intellectual Property Intellectual Property

Human CapitalHuman Capital

Investment CapitalInvestment Capital

Enabling EnvironmentEnabling Environment


CONCLUSIONCONCLUSION


QUESTIONS QUESTIONS


Documents

CHALLENGES OF FRANCHISING IN NIGERIA VALERIE OGBUAH MATRIX-SOLICITORS UBA HOUSE, 6 TH FLOOR MARINA, LAGOS 01-2647971; 2601287-9 HOW TO SUPPORT AND CONDUCT