New franchise fund launched to help young entrepreneurs
In order to stimulate job creation, Business Partners Limited has announced the launch of a new R107.03 million Franchise Fund.
The fund is a new and innovative platform backed by the Development Bank of Southern Africa (DBSA) aimed at allowing young and previously disadvantaged entrepreneurs, with limited assets and access to capital, to qualify as franchisees.
The total Franchise Fund consists of R48.65m from National Treasury’s Jobs Fund (R38.92m for financing and R9.73m for technical assistance), as well as R58.38m from Business Partners Limited.
According to Christo Botes, Executive Director at Business Partners Limited, a specialist risk finance company for formal small and medium enterprises (SMEs) in South Africa, the Franchise Fund aims to create jobs through entrepreneurship via franchised businesses.
He said: “Purchasing a franchise in South Africa can be quite onerous given that the franchisor normally requests a 50 percent own contribution.
“This fund will provide affordable franchising opportunities to those who would otherwise not have had the opportunity to acquire a business.”
Botes explained that the Franchise Fund is only open to franchisors who have been accredited by SA Franchise Warehouse and Business Partners and that comply with certain minimum requirements, such as proper founding documents, full Franchise Association South Africa (FASA) membership and accreditation, successful track record and subscribing to jointly support the new franchisees.
He said that the Franchise Fund financing model also requires a minimum own contribution of 10 percent of total financing from the entrepreneur.
“Government’s Jobs Fund finances 50 percent of the total financing requirement, less the own contribution, and Business Partners Limited finances the remaining 50 percent of the total financing requirement.”
The Franchise Fund has certain key deliverables over the next 2.5 years, according to Botes. “Our key outcome is to provide funding, training and mentorship to 125 viable and long term sustainable franchises, with most applications for finance ranging between R600 000 and R2 000 000, and in the process also facilitate the creation of more than 700 jobs.
“These newly employed individuals will not only be empowered as a result of the training they will receive, but also build a solid employment record.”
Botes added that the challenge with start-ups is the technical assistance required and the affordability of the costs related to the support required.
As a result, a portion of the funds from Government’s Jobs Fund have been allocated specifically for technical assistance.
The funds disbursed for technical assistance carries a zero percent interest rate for the entrepreneur and this funding is only payable upon completion of all other business financing debt being repaid.
“The applicants, or franchisees, are required to undergo a thorough screening process and formal training program facilitated by SA Franchise Warehouse.
This includes ensuring that the entrepreneur is sure of the franchise brand he/she wants to pursue, as well as whether the sector is in fact best suited for him/her.
The Franchise Fund, which officially began the process for applications at the beginning of 2014, has already completed its first few deals and drawn from the Franchise Fund.
For a list of franchise brands which have been accredited in terms of the rules of the Franchise Fund refer to www.safw.co.za
Billionaire Kumar Birla Champions Regional Supply Chains
As the head of the Aditya Birla Group, a US$46bn firm that operates in 36 countries, Kumar Mangalam Birla is no stranger to splashy strategic moves. Yet his recent announcement that he no longer wants to acquire globally distributed supply chains stood out. While many companies have struggled to cope with shipping backlogs, his firm has chosen to pivot and focus on regional networks. Said Birla: ‘We wouldn’t look at a company or a business where you source in one corner of the world and sell in another’.
He cited protectionism, the pandemic, and the limited movement of products and people around the world as ABG’s primary causes of lost profits. And they aren’t alone. Over the past year, 900 of the U.S. and Europe’s biggest IT, defence, and financial services firms have lost an average of US$184mn apiece.
An Era of Global Disruption
Over the past few decades, low shipping rates and rapid delivery times have lulled multinational firms into a false sense of security. In the early 2000s, companies chose to take on significant global supply chain risks in exchange for increased profits. First, it made sense to manufacture higher-value goods, such as electronics, in low-cost regions throughout Southeast Asia, India, and Africa. Second, first-tier suppliers started to outsource the manufacturing of specific components to second-, third-, and even fourth-tiers—leaving supply chains with extremely limited visibility.
So when COVID-19 disruptions struck certain regions, companies were caught unprepared. Usually, these events come few and far between. But over the past ten years, we’ve seen a number of ‘black swan’ events that have thrown the supply chain industry into chaos. Here’s a quick history of the most significant events in recent years, thanks to the MIT Sloan Management Review:
- 2010. China creates export quotas for rare earth elements.
- 2011. The Tōhoku Earthquake hits East Japan; flooding sweeps throughout Thailand.
- 2016-present. Trade wars between the U.S. and China hurt suppliers.
- 2020-present. COVID-19 pandemic shuts down international shipping ports.
Now, Kumar Birla is one of many who want to re-evaluate how we run our supply chains. Though his company has acquired 40+ companies in the last quarter decade, Birla intends to build up local hubs rather than expand operations.
Why Pursue Regionalisation?
Combine Chinese economic dominance, global supply chain vulnerabilities, and major government policy shifts around the world, and you have a storm brewing on the horizon for big multinational firms. As Brookings noted, ‘the biggest risk for trading opportunities in the developing world is growing protectionism in more advanced economies, often dressed up as national security protection’.
Altogether, from the U.S. to the European Union, governments are trying to protect their domestic supply chains, secure adequate stockpiles of materials, and build world-class local networks. Consider Biden’s recent executive order, which seeks to bring semiconductor manufacturing back to home soil, or Japan’s bid to open more memory chip fabrication factories near Tokyo. The Aditya Birla Group intends to react in kind. Said Birla: ‘We’re looking at regionalism as a very big theme’.
Will Others Follow Suit?
In the post-pandemic economy, global businesses must decide whether to expand or contract. On one hand, the Alibaba Group’s Cainiao Smart Logistics Network recently launched a direct flight between Hong Kong, China, and Lagos, Nigeria. On the other, the Japanese government is desperate to make its chip manufacturing domestic. Indeed, as two supply chain strategies diverge in a post-pandemic world, the one businesses take may make all the difference.
Yet Birla is confident that regionalisation is the right call. According to his words at the Qatar Economic Forum, even necessary cross-border transactions should be smaller in scope. And as the Bloomberg Billionaires Index now lists his net wealth at US$10.4bn, up 52% from 2020, he may have the cash to test his theories out. ‘Regional hubs, regional presence, regional employment, catering to regional demand’, he stated. ‘We’re a global company rooted in local economics’.