In Nigeria, companies and startups alike are applying models such as micro-franchising and agent networks to scale their business. Franchising is a business expansion strategy, where a company leases part or all of their proven business model to another party for them to replicate elsewhere. These third parties can then use the company’s trade name, marks, and brands.
The franchise model is ideal training for less active capital and unskilled would-be business owners in hard-to-reach communities. As a shortcut to self-employment, in its most enterprising forms, it can provide a business school education on the cheap.
Agent networks, on the other hand, allow organisations to use agents to sell goods and services while the agent operates under its own business name and earn commission on sales.
Globally, Micro, Small and Medium Enterprises (MSMEs) have been accepted as the engine of economic growth and equitable development. The major advantage of the sector is its employment potential at low capital cost.
The labour intensity of the MSME sector is much higher than that of large enterprises. The MSMEs constitute over 90% of total enterprises in most economies and are credited with generating the highest rates of employment growth, and account for a major share of industrial production and exports. In Nigeria, MSMEs contribute 54% of its GDP, playing a pivotal role in the overall economic engine.
Although big corporations thrive on their strong brand awareness and ability to mass produce, MSMEs thrive on their ability to adapt and innovate quickly.
The Nigerian Bottling Company was the first to adopt franchising in the country in 1951, obtaining the franchise to bottle and sell products of The Coca Cola Company in Nigeria, and allowing them to dominate the beverage market. Micro-franchising affords business owners to launch their businesses more successfully by leveraging a proven formula created by a franchisor.
Over the years, one of the most successful ways of conducting business has been franchising. It is one of the most sticky business models in the world. When employed in both developed and emerging markets, it has not only stimulated business and economic growth but also encouraged private ownership and skill transfer. It offers the means of nurturing, developing entrepreneurial talent, promoting good corporate governance and transparency, and attracting the informal sector business to the formal sector.
By replicating a proven model, while receiving support and targets from the franchisor (central office), the franchisees (business owner) can spend more time on meeting customer needs and less time focusing on creating a viable business model.
International franchises have proven to be quite dominant in the Nigerian market. This is evident in the retail space by Shoprite and Game, in oil & gas by ExxonMobil and Total, and in the fast food by Domino’s and KFC. The franchise concept is considered to be in its infancy, particularly when compared to the likes of South Africa where the sector accounts for 12.5% of GDP. This has caused Nigerian franchises to struggle, with a few exceptions such as Mr. Biggs which enjoyed success for years.
Recently, businesses are better harnessing the franchising model through micro-franchising. Considered the most simple business in a box form of franchising, micro-franchising is a subset of franchising where the focus is on MSMEs. Strong emphasis is placed on low capital requirements and sustainability through easy to replicate business models and technology.
A micro-franchise is perfect for would-be entrepreneurs and low-income individuals because they don’t need to have lots of specific skills to take it on, as these franchises come with a lot of support systems that have been tested and packaged up.
Online sports betting for all its popularity coupled with the high internet penetration in Nigeria has not been able to rid the betting industry of physical betting shops.
Sports betting has seen an evolution from pool bet houses to micro-franchises. These sports betting micro-franchises are in form of shops. These shops spot the franchise name, brand, and identity. Some of these sport betting companies are displaying the robustness of an MSME and capabilities of big corporations. Betting companies have used micro-franchises (shops) to cater mostly to a large number of unbanked Nigerians who engage in the activity.
The consequence of the low start-up costs of micro-franchising is an abundance of physical betting shops all over the country. With standard requirements for potential shop owners being shop premises or kiosks, with a registration fee of ~ ₦50,000, Internet access, a few computers and printers, and additional paperwork, Betting franchise owners are allowed some freedom to modify their shops for local preference such as showing televised sports matches for free.
The betting shops also allow the betting companies to collect large amounts of data via the bets placed in the shops. The data can be used to gain insights on customer preference and make more informed marketing strategies that make the companies more scalable and efficient.
Paga has an agent network that enables people in Nigeria have easy access to payment and financial services using retail entrepreneurs and SMEs as agents. The company, which just received funding of $10 million, currently has over 11,600 agents and is seeking to expand to different parts of the world. These agents earn substantial commissions by simply offering financial services via the innovative and secure Paga platform.
For most of the working population in Nigeria, work means a miscellany of micro-enterprises in informal sectors. Street trading, odd jobs, hawking -minding children, and other vocational jobs – the tasks vary, but they are united by a lack of coherence and security, an absence of training and advancement, and legal protection in the event of malpractice. This group of the working population forms the core of the unbanked in Nigeria.
37% of Nigerians are unbanked which implies a majority of the population is under-banked or have no access to financial services. Yet, Nigeria stands as Africa’s biggest market for mobile money with its 62 million mobile phone subscribers. The strong compelling needs of the millions of unbanked population is propelling mobile money in Nigeria, which is seeking to surpass Kenya’s MPESA in a few years. The major force propelling the mobile money uptick in Nigeria is Agent networks.
Financial institutions, which include banks, fintechs (financial technology companies), and other financial operators, are employing agent networks as a technology that enables them to reach customers in remote places and interact with them in a trusted way through MSMEs. The gains realised by these finance companies are a significantly reduced cost of setting up brick and mortar branches. An agent provides the space, energy and trained manpower to provide services to customers.
Agent networks are very popular in Peru, Brazil, Kenya and Philippines. They provide the backbone for financial services to be offered to customers that were previously left behind and create the opportunity for finance companies to tap into new customer segments.
New technology-based companies are building their own networks like the aforementioned Paga, pocketmoni, kudi ai and even Firstbank’s first monie. These companies are giving incumbents a run for their money and having a piece of the pie.
Nigeria’s apex bank, the Central Bank of Nigeria, is pushing the initiative for a Shared Agent Network Expansion Facilities project all in a bid to establish a 500,000-strong agent network over the next few years, with higher target priorities placed on the geopolitical zones in Northern Nigeria where financial exclusion is predominant.
When compared with other countries like Ghana with 140,000 agents and Kenya with 165,000, Nigeria’s over 12,000 agents are insufficient for the distribution and access to financial services that the most populous black nation in the world requires.
It’s quite interesting that betting companies also refer to their franchise owners as agents. This shows the similarity between franchising and agent networks. Both of these models are impacting MSMEs in similar ways and also increasing their success rate in Nigeria, thereby having a trickle-down effect on the economy. With the much-touted need for financial inclusion and rising increase of Nigeria’s betting population, we are going to see more growth in MSMEs.
Franchising and agent networks have proven to be successful models for both the betting and finance industry in Nigeria. Consequently, adoption and successful application by other industries seems like a very rational thing to do.
Some industries that might gain the most from adopting these models are the agricultural and real estate sectors where replicating sustainable business solution across the country could be more beneficial than waiting for local ingenuity.
If a business has a successful model and intends to scale, then micro-franchising or agent networks likely would be the key to taking the business to another level. The business can increase access to its services and products in areas where they are not available by copying and pasting their model around the country using micro-franchising or adopting strong agent networks. It will be very interesting to see different industries adopt this model in Nigeria over time.