Growing Enterprises through Franchising

Growing Micro, Small, and Medium-Sized Enterprises in Colombia through Franchising

The “Growing Micro, Small, and Medium-Sized Enterprises in Colombia through Franchising” project was to establish a secure, transparent, predictable and sustainable system of commercial franchise that will promote the expansion of MSMEs. The beneficiaries of the project were MSMES with successful business models who decide to franchise their product. This project was financed by the MIF and was implemented and coordinated by the Chambers of Commerce of Medellín for Antioquia in conjunction with eight departmental chambers of commerce, namely Aburrá Sur, Armenia, Barranquilla, Bogotá, Bucaramanga, Cali, Cartagena, and Oriente Antioqueño. The project had 36 months of execution period, between December 2005 and December 2008. The total funds available for the project were $2,384,117 of which $1,430,200 consisted of non-reimbursable funds from the IDB and $953,917 of a local counterpart fund.

MAIN FINDINGS

• On average the franchised companies have 4.7 franchised points of sale against on average 5.9 company owned points of sale. Most of these companies considered their conversion to a franchised company to be due to the project, i.e. to not have been possible without the help of the project (69%).
• Most companies that participated in the project feel to have benefited significantly from the project, due to the project helping them to structure and formalize their company. In some cases these benefits may not have resulted in franchising or even in expansion as yet, but is considered a key element in the development of the company by the overwhelming majority of the interviewed companies.
• The process to outsource the main activities of the project to consultants, (namely the advisory services to the participating companies), should be considered a weak aspect of the methodology, particularly due to the fact that these consultants themselves needed to be trained first. It is suggested to experiment with a peer group improve-your-business approach to expanding business services with 10 to 15 companies going through the process simultaneously.
• An important benefit of the project was that the prices for a consulting trajectory were significantly lowered: before the project’s start, franchise consulting processes cost around US$ 70 to 100,000 and the project negotiated this down to US$ 20 to 35,000.
• One of the overachievements of the project was the number of people it has sensitized. Rather than informing the planned 5000 individuals about franchising close to 8000 individuals were informed in different presentations, seminars and “ruedas de negocios”.
• The project, in its design and implementation, was fully focused on franchising. This focus led to a certain extent to promote franchising as superior to alternative forms of company expansion. There is some evidence that the project started to regard franchising as the goal rather than as a means to an end.  It is suggested to offer different business expansion options to the companies. Ideally a project would be offering all forms of expansion simultaneously, carefully explaining their relative worth and risks and when they are most appropriate. Then companies can themselves select which strategy to follow and receive appropriate support in their choice.