Templeton Report
News from the John Templeton Foundation
February 17, 2010

What Is Microfranchising?

SPOT City Taxi in Bangalore
SPOT City Taxi in Bangalore

Need a cab in Bangalore? Call SPOT. Since its founding in 1999, SPOT City Taxi has grown from 18 cars to more than 300, making the company the largest taxi operator in the capital of India's Silicon Valley. SPOT's drivers are franchisees—independent owner-operators linked by a common brand, radio, and computerized dispatch system. What has made SPOT work when so many other franchises in the "frontier markets" of Sub-Saharan Africa and South Asia barely get off the ground? A new research report by Dalberg Global Development Advisers sets out to find the answers.

"Franchising in Frontier Markets," which was supported by a grant from the John Templeton Foundation, is the result of over 50 interviews conducted with businessmen, investors, and policymakers in these areas. The report offers surprising findings on microfranchising, an idea touted by many in the international development community as the next big thing to help the world's poor.

Dalberg researchers found that familiarity with local conditions, including consumer tastes and ways of doing business, make home-grown chains better positioned to operate in frontier markets than Western franchises, whose business model may be a poor fit. Plus, in microfranchising, the rule seems to be: Keep it simple. Small franchisors—think Avon rather than Burger King—require less capital for start-up. Because they are less dependent on favorable legal and policy environments, small franchises can be more agile in negotiating complex bureaucracies.

Franchising in Frontier Markets

Steve Beck, the principal investigator on the project, was startled to discover how little research there was on microfranchising. What scant reports existed, he says, had been "written by enthusiasts who were promoting their own model." For the most part, he concludes, those models are not working well, especially in the delivery of social services. The Dalberg report found that successful franchises generally rack up six profitable years before expanding. By contrast, failed franchises—like a Kenyan healthcare operation cited in the study—expand too quickly, and survive only if they can secure private or government aid. Unsurprisingly, these subsidies often have a negative long-term impact on the viability of franchises.

Dalberg's research was initially presented last fall at a Washington meeting of the World Bank's International Finance Corporation, an event that brought together franchisors, academics, donors, and investors. The International Franchising Association (IFA) is a key player in the field and has taken positive note of the Dalberg findings. The final version of the microfranchising report received the IFA Educational Foundation's Arthur Karp Research Award "for the best research paper on a subject of relevance and practical usefulness to the franchising community." The approach of the report is in keeping with the Templeton Foundation's commitment to developing enterprise solutions to the problem of poverty and to making sure those solutions actually work.

Steve Beck hopes that the report will be "the first word rather than the last word" on microfranchising in frontier markets. He says IFA members are already talking about establishing a kind of Peace Corps of franchisors—"people willing to get on planes and help start up franchise businesses in frontier markets."

Notebook

Empowering Young Inner-City Entrepreneurs

TEN9EIGHT: Shoot for the Moon

A child drops out of high school in the U.S. every nine seconds—but it does not have to be that way, according to the documentary TEN9EIGHT: Shoot for the Moon. The film tells the inspirational stories of several inner-city teens as they compete in an annual business-plan competition run by the Network for Teaching Entrepreneurship (NFTE). Both the film and the NFTE have received major grant support from the John Templeton Foundation.

Produced by the award-winning filmmaker Mary Mazzio, TEN9EIGHT shows that when young people are given the opportunity to start their own businesses and take control of their futures, they can improve their academic performance and lift themselves out of even the most difficult circumstances. New York Times columnist Thomas Friedman writes, "Obama should arrange for this movie to be shown in every classroom in America. It is the most inspirational, heartwarming film you will ever see." Both the Black Entertainment Television (BET) cable network and its sister channel CENTRIC recently broadcast TEN9EIGHT as part of its Black History Month programming.

To learn more, see the trailer for TEN9EIGHT or join the TEN9EIGHT group on Facebook.

The Spiritual Side of Capital

Yale Center for Faith and Culture
Yale Center for Faith and Culture

In his 2008 book Spiritual Enterprise: Doing Virtuous Business, the political economist Theodore Roosevelt Malloch argued that succeeding in business ethically was a noble calling, one that served the greater social good. Now Malloch will be helping to lead a major university study designed to research and promote “spiritual capital”—the connection between healthy spirituality and successful business practices.

The John Templeton Foundation has awarded the Yale Center for Faith and Culture a $1.875 million, three-year grant to underwrite research on spiritual capital. Theologian and Yale Center director Miroslav Volf will co-direct the project with Malloch, who is both a research scholar in business ethics at Yale Divinity School and a member of the Templeton Foundation's board of advisors. One of the project's goals, Volf says, is to develop ways in which the concept of spiritual capital can be integrated into business school studies.

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