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Why Master Franchises can fail

A foreign master franchise isn’t really a different form of franchising. What happens is that a South African entity, a company or person, acquires the master franchise rights for the country from a foreign entity. Seeing that the concept of franchising is universal and applied in the same way all over the world, there should be no surprises here, but beware. Bringing a foreign concept to South Africa has a nice ring to it, yet this is one area of franchising where failures exceed successes by far. Not that there is necessarily something wrong with the foreign concept, what it usually boils down to is a combination of factors, for example:

  • an overestimation of the pulling power of a foreign concept by the would-be master franchisee
  • insufficient commitment by the foreign company to understand the target market and partner the master franchisee in making the transaction successful
  • a lack of understanding of the complexities involved in a cross-border deal on the part of both parties.

In South Africa, these problems are further compounded by the practical reality that most license deals are entered into with overseas franchisors. This is not necessarily a bad thing either, but you have to contend with differences in consumer taste, lack of brand recognition and the impact of foreign culture. Add to this the possibility that co-operation takes place “long distance”, possibly even involving a foreign language and the potential for problems will become obvious.

Just picture this: during a visit to some exotic location, you came across a concept that impressed you. You concluded that this is precisely what your fellow South Africans have been waiting for all their lives and approach the company with a request for a license. If they have prior experience in franchising, they will either rebuke your advances or join you in bringing the project to fruition.