Friday, December 28, 2007


Back in the 1980's I was on a team doing an evaluation of AT International. I was impressed by a couple of the projects that they funded. In one, a group in India funded solar powered kiosks that were set up as tea shops. In the other, a non-governmental organization in Colombia created a factory for manufacturing pre-fab houses for the poor. When the effort succeeded in Bogota, they started setting up comparable factories in other Colombian cities.

Grameen Phone in Bangladesh provides cell phones to women in villages, who in turn provide the service for a fee of allowing other villagers to make phone calls.

All of these, if you think about it are like the franchise operations that have been made famous in the United States by McDonalds and other franchise chains. They provide a business package to a local entrepreneur that enables that person or organization to set up in business providing a useful service to his community. In all of these cases, the franchising serves as a means for the dissemination of a useful technology -- the solar kiosk, the factory for manufacturing prefab houses, and the cell phone. (Indeed, McDonalds also provides a technological package to its franchisees, and indeed uses innovative technology in areas such as site location analysis.)

I would suggest that franchising is itself an innovation when it is applied in developing nations to the dissemination of an appropriate technology.

Franchising solves a couple of problems simultaneously. On the one hand, it enables entrepreneurs to start businesses that they could not start without help. The Franchiser supplies the franchisee with the technology, but also with a business model, with technical and managerial assistance, and sometimes with financing and material inputs. On the other hand, the payments from the franchisee to the franchiser pay the costs of the services provided. Thus the business model of the franchiser substitutes for a "community foundation" model in which the agent seeks donations from others, while making donations to the local individuals. Financing is always a problem, especially when seeking donations. Moreover, franchising requires that the franchises earn a surplus to pay the franchise cost. Thus a franchiser will not be successful unless it provides a package that would be valued by the franchisee. Do gooders all too often provide things which the giver values more than the recipient.


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