Russian Franchise Association : final report

Over the last 5 years, investment by the most prominent western franchises in Russia exceeded $345 million. There are now 33 franchise systems operating in Russia, representing 440 individual franchise businesses. Growth has come from an enhanced investment climate for franchising, the provision of training, technical assistance and financing, the presence of foreign and domestic franchise investors, and the individual efforts of hundreds of entrepreneurs. This project, designed by the USAID Moscow Office of Economic Reform to strengthen the Russian Association for the Development of Franchising (RADF), was well-timed in that the industry, especially domestic companies, was in dire need of a permanent source of information about franchising in general and, more specifically, in Russia. This project institutionalized, in a financially viable Russian organization, many of the training, education, promotion, and technical assistance activities of earlier projects. It was a 7-month project, subsequently extended to 10 months, implemented between 6/96 and 3/97. The work took place primarily in Moscow, but extended to St. Petersburg, Nizni Novogorod, Voronez, and the U.S. It utilized the services of one full-time expatriate Franchising Expert in-country, and four short-term expatriate Franchise Specialists. The project had three basic components: (1) building the franchise know-how of local professionals; (2) establishing and equipping a local resource and membership institution; and (3) providing general support to the franchising industry and a limited number of firms seeking to expand via franchising. The presence of professionals trained in franchising principles, the availability of well-designed education and promotion materials, and the creation of the Russian Franchise Association (RFA) will accelerate the development of the franchise industry. As the industry expands, it will provide jobs and create numerous investment opportunities for entrepreneurs. The presence of well-managed franchise networks, assisted by this project and the RFA, will continue to restructure collapsed Soviet distribution systems, linking manufacturers and agricultural producers to growing sectors of the economy. Establishment of the RFA as an industry representative organization, equipped with a Resource Center and structured along internationally accepted norms, has ensured that it will be financially viable and effective. While the RFA was only established in 12/97 and has modest resources, it is operating with a full set of financial, management, and membership development plans developed with the Board using project resources. The RFA Board consists of senior representatives of the franchise industry in Russia and related business development organizations, such as the Russian Association for the Development of Franchising (RADF). The RFA"s membership in the International Franchise Association (IFA) links it to over 50 international educational and research institutions and 37 other national franchise associations around the world. There are significant opportunities to use a franchise strategy to extend and deepen the impact of Russian economic reforms. First, franchising remains the most cost-effective means of creating sustainable small and medium-sized enterprises (SMEs) in transition economies. Second, as programs shift their focus to achieve economic growth, they need market-led strategies to link growth sectors to producers. Wholesalers, distributors, and retailing systems perform this function in healthy markets. These are largely absent in Russia, and franchising and other innovative distribution systems are cost-effective means to rebuild quickly. Lastly, the RFA"s current capacity to function as a proactive promoter of foreign franchise investment is limited. Given the massive impact of successful franchise networks on Russian small businesses, and the essential role SMEs play in stable, growing economies, additional support to the industry through the RFA seems warranted. The Project concluded with five lessons for USAID and other projects: (1) donor involvement can pull together diverse business groups; (2) the complexity of NGO registration and management in Russia was underestimated; (3) extending the period of performance was worthwhile; (4) staff turnover in this type of project can inhibit effective use of resources; and (5) it is very difficult to accelerate organizational development objectives.