During the remainder of my Accion Ambassadorship at Fundación Paraguaya, I will be focusing on their microfranchise initiative. So, why not dedicate my next few posts on this theme – the advantages, the challenges, and the evolving popularity of this model.
So, what even is Microfranchising?
“Microfranchising is built on the concept of franchising – the development of a turn-key business model, designed for replication, that is inherently less-risky than a standalone start-up enterprise.” The above statement, which I found in a discussion on socialedge.org, successfully summarizes the key elements of this bottom of the pyramid business concept (or the BOP, as it is known within the industry)
In other words, microfranchises have an established business model that enables their franchisees to hit the ground running. In the typical microfranchise, microentrepreneurs receive intensive training, pre-conceived operational guides, and marketing and promotional materials. They are often provided with credit and/or customized funding, ongoing business support, and an incentive scheme to meet sales targets, ensuring long-term sustainability.
The assumption that microfranchises, as opposed to general microenterprises, are inherently less-risky stems from the replication of a successful business model. As a franchise, the product design has already been fine -tuned, the operating procedures adjusted to maximize efficiency, and supplier relationships established using the bargaining power of the larger-scale franchise. Additionally, as the microfranchise expands, microentrepreneurs benefit from growing brand awareness, product innovation, and increasing scale.*
Fundación Paraguaya and VisionSpring
Fundación Paraguaya’s first microfranchise experiment was the kit de lentes (or glasses kit). In 2007, the Fundación began a partnership with VisionSpring (http://www.visionspring.org), a non-profit social enterprise focused on distributing reading glasses to low-income communities. Following VisionSpring’s model, the Fundación has provided local vendors (mostly members of the women’s committees) with “a business in a box,” each containing 12 pairs of glasses of varying magnification, as well as cases, strings, booklets, and a briefcase. The vendors must raise enough capital (or take out a loan) to purchase the kit, which costs about 200,000 Gs, or about $44. They are then trained to perform vision tests and instructed in sales strategies.
The women earn about 20,000 Gs, or about $4.44 per sale.
Other microfranchises that the Fundación is currently trying to jump-start include jewelry-making kits, clothing kits, anti-dengue kits (these contain a variety of mosquito repellents), as well as alimentos (food), such as bread filled with cheese, barbecued meat, empanadas, and others. Last Friday, I accompanied two other interns to Encarnación to see how they were conducting their market surveys. In the next few weeks, I will be designing my own survey and exploring new strategies to increase the sales of current “kits.
Ultimately, Fundación Paraguaya aims to use microfranchising to both diversify and amplify the earnings of its clients, providing them with an opportunity to stabilize their income and better provide for themselves and their families. Furthermore, microfranchising presents an efficient distribution method for needed goods (such as reading glasses and mosquito repellent), selling at affordable prices to those without access.
Microfranchising, however, also has specific challenges. It is essential to maintain low costs and low risk (since the potential franchisees have little extra income to invest) as well as cater to BOP consumers, who are extremely price sensitive.
A potential ice cream microfranchise considered by the Fundación, for example, was just too pricy. It seemed like a great idea to me – the climate in Paraguay is usually very hot, there is a cultural love for ice cream, and the foundation was planning to partner with a well-known brand. However, after exploring the actual costs, it became apparent that the high overhead and steep price structure would hinder the business’s success.
I am now investigating other opportunities, including a retail business for local artisans, and looking into strategies to improve the sales of reading glasses. Stay tuned!
And let me know what you think! In your opinion, is microfranchising an effective way to create sustainable and scalable opportunities for microentrepreneurs?
* The information on microfranchising in this blog post was sourced from the book: Microfranchising: How Social Entrepreneurs are Building a New Road to Development, edited by Nicolas Sireau. I highly recommend it!