Across the world, one in seven businesses is a franchise, which equates to approximately 2.0 million franchised companies, employing 19 million people. As per the US Department of Commerce, franchising every year shares a staggering $2.3 trillion in the worldwide economy. For a person, a franchise is a good choice who wants to own a business and has all the resources required for it but doesn’t know how to build it from scratch, international researchers identified. Through investing lesser money than needed for starting a business, purchasing a franchise gives the opportunity of becoming an entrepreneur. Franchise businesses are much easier to finance as compared to independent businesses.
Furthermore, not only on the national level but also at the state level it plays a very important role. National franchising activity in 2021 chiefly rebounded to pre-pandemic levels, but states have experienced divergent economic recovery patterns because of disparities in business climates, migration trends, and changes in consumer choices.
| Pakistan: Components Of Services | ||
|---|---|---|
| Details | Share in Services | Share in GDP |
| Wholesale & Retail Trade | 32.4 | 18.8 |
| Transport & Storage | 17.8 | 10.4 |
| Accommodation and Food Services Activities (Hotels & Restaurants) | 2.4 | 1.4 |
| Information and Communication | 4.6 | 2.7 |
| Finance and Insurance Activities | 3.2 | 1.9 |
| Real Estate Activities (OD) | 9.6 | 5.6 |
| Public Administration and Social Security (General Government) | 8.0 | 4.6 |
| Education | 5.1 | 3.0 |
| Human Health and Social Work Activities | 2.7 | 1.5 |
| Other Private Services | 14.3 | 8.3 |
In Pakistan franchising is among the most appealing sectors for investors and businesses. This concept has steadily gained acceptance in our country, mainly in the hospitality sector.
Through franchisees, various major US hotel chains, along with several major US restaurants and fast-food chains are presently represented in Pakistan.
Statistics showed that US brands have approximately 70 percent market share in this sector in Pakistan. US brands were recorded as the first to enter Pakistan and dominate the sector, backed by strong brand marketing.
US brands such as KFC and McDonald’s had brand recognition in Pakistan even before starting their operations in the country. Their Superior quality control and customer service standards are appreciated by Pakistanis. When seeking a Pakistani franchisee, US firms are advised to identify a number of candidates and evaluate each carefully.
On investors it is said, the Government of Pakistan does not impose any restrictions, but foreign investors are required to inform the Board of Investment (BOI) and the State Bank of Pakistan (SBP), mainly for the purpose of repatriation of franchise fees or any profits accrued. Statistics also showed that presently, greater than 200 Global Brands are in Pakistan, these Multinational firms have collectively invested over $2.5 billion, and their cumulative annual revenue is almost $4 billion in Pakistan.
Every year as royalties, about $900 million is paid through franchisees. There is also growth in the retail sector, with a retail market size of $155 billion, consumer spending in Pakistan has grown 83.4 percent in the past 5 years compared with 48.7 percent in the Asia-Pacific region according to Euromonitor International and is the seventh largest food market in APAC region out of 24 states reported by Planet Retail. Every year moreover, the Pakistan Food Association estimates that Pakistanis spend $6-9 billion on eating out at restaurants countrywide. It is estimated that the average Pakistani consumer spends up to 42 percent of his income on food.
Other factors that make Pakistan a lucrative market is low competition among brands, better margins because of low labor costs, transportation, and low-cost real estate. With franchising gaining such tremendous popularity many prospective Franchisees feel, purchasing into an international franchise is a good investment because they gain a ready-made, proven business model with explained strategies and processes, Ease of operation and probably to have a shorter ROI time. It is said that one main concern in Pakistan’s franchising sector is the State Bank of Pakistan’s (SBP) exchange regulations, which deter sector growth. The Biggest concern is the Central Bank’s principles on commercial remittances, limiting the initial franchise fee to $100,000 for the duration of the franchise. Similarly, the SBP also limits the annual franchise fee to 5 percent of monthly net sales, curtailing franchisors’ ability to charge their regular fees. Usually, Pakistani law offers protection of intellectual property rights (IPR). In Pakistan nevertheless, IPR violations remain widespread. A key consideration in organizing a franchise operation in Pakistan is quality control, chiefly if the enterprise proposes using locally produced items.
All relevant imported food items must be certifiably “halal” in Pakistan. In May 2022, the Government of Pakistan, thru SRO 598, implemented a temporary ban on the imports of 33 categories of luxury/non-luxury items that also impacted the local U.S. franchise industry in the food & beverages sector. Sources recorded that the government removed the ban. Furthermore, Pakistan’s energy crisis and less developed processed food market pose problems to franchisees who rely on the importation of input ingredients.
In last I would like to mention here, franchising offers additional career opportunities as compared to the durable goods manufacturing sector or the financial activities sector of the economy. Franchising has become a major source of jobs, assisting in reducing the unemployment rate and is also a critical engine of economic growth. Studies identified that the National GDP is supported by franchises. An important source of employment and economic output is franchising. Franchise concepts, mainly the service sectors benefitted from low unemployment and increasing wages that drive up consumer spending. Franchisees have to compete for an increasingly limited labor pool because of the tight labor market.