Hey Government - at the very least, be kind to franchising! - Iridium Partners
Hey Government – at the very least, be kind to franchising!
General News

Wednesday, 25 January 2023

Hey Government – at the very least, be kind to franchising!

I believe it is fair to say business is generally not happy with the government. But there is one business sector, a significant contributor to the economy, which should not only be feeling unhappy, but should also be asking: “Hey Government, be kind, and start by being fair”; That sector is franchising.

I have previously written on Why Franchising Matters to the New Zealand Economy (BBN, June 2022).

Sales in the franchise sector were estimated at $36.8 billion, or approximately 12 percent of New Zealand’s Gross Domestic Product in 2021. Add motor vehicle sales of $13.7 billion, and fuel retail sales of $8 billion, and sales for the entire franchising sector were estimated at $58.5 billion.

So, I find it staggering that the government not only largely ignores franchising, with parts of the bureaucracy ignorant about what franchising is or is not, but worse still, certain parts of the bureaucracy have chosen to unfairly target and penalize franchising.

Two areas in particular where there is different treatment applied to franchises are Accredited Employer Work Visa (AEWV) employer accreditation, and what feels like a targeted vendetta from the Labour Inspectorate.

AEWV Employer Accreditation

The Government has touted the AEWV employer accreditation program as a faster, easier and more efficient way for businesses to employ staff requiring work visas. However, in their wisdom, through MBIE, franchised businesses are treated differently to their independent cousins.

Firstly, where accreditation for an independent business costs $740, for a similar business that is operating under a franchise model that cost is $1980. There’s no additional work on MBIEs part – none.

Secondly, the more significant difference in treatment is the requirement for franchise business owners to have “been trading as a franchisee for at least 12 months”.

This can have a major impact on both new and existing businesses. For a new franchisee this means that they cannot be accredited for 12 months, so are unable to employ anyone on a work visa. MBIE may argue that the business is new and they perhaps don’t have the experience – the very reason many people buy a franchise.

However, these added restrictions extend to where a new franchisee purchases an existing franchised business employing workers on visas. Those employees will lose their visas and in many cases be forced to leave the country.

Impacts of franchisees wishing to sell their businesses can be seen in their investment in accreditation and training staff (and the value they add to their business), as well as impacts on the economy and the community, which can all be eroded.

In essence, the goodwill and value they have built in their business will also be lost. In some cases, these franchisees will either be unable to sell their businesses and or be forced to close.

Unwarranted focus from the Labour Inspectorate

There is another branch of government that has in my view been unbalanced in its treatment of franchises versus independent businesses: the Labour Inspectorate.

Based on a limited number of cases and a limited understanding of franchising, the Labour Inspectorate over the past few years has actively and vocally singled-out franchises as being poor employers, and effectively “put the sector on notice”.

The statistics don’t support the proposition that franchising promotes poor employment practices; In fact there are often processes, checks and balances in a franchise that are not in place for an independent business.

Despite attempted positive engagement by the franchise sector, and its argument that the actions of one franchisee do not represent the thousands of good franchisees, the intense focus on the sector remains.

These two issues have been raised and commented on repeatedly in sector representation. This has largely fallen on deaf ears.

Just “be kind, be fair.”

What if the Government actually wanted to encourage and support SMEs through franchising?

When you’re treated unfairly, as a starting point it would be kind to be fair. Beyond that, what could the government do to support and encourage franchising?

Better understanding and engagement with the franchise sector

As mentioned, much of the bureaucracy does not understand franchising – greater understanding and some appreciation of the significant economic contribution it makes to New Zealand would be a good start.

How about greater engagement from MBIE with the sector, perhaps even a dedicated ministerial appointment or portfolio?

Personally, I think it would have been wonderful if there was sector representation on one or more of the Prime Minister’s overseas trade missions.

Amongst the nearly 600 franchise systems (most home grown) operating in New Zealand there are some very bright people, creating some very interesting, and by their nature, very scalable businesses. Supporting and exporting some of those sounds like a good idea to me.

Create sympathetic immigration policy and settings

It will be interesting to see how many people ultimately immigrate to New Zealand and how many jobs are created by Minister Nash’s Active Investor Plus visa category.

How about a visa category for people willing to immigrate and invest in qualified or accredited franchise systems?

This could definitely encourage new businesses directly employing people, add to the economy and society. Don’t forget, statistically franchised businesses have higher success rates, so why not support and guide immigration investment that way? It could fit hand-in-glove with regional development plans: Qualified, guided and supported investment. Sounds good!

Create financial incentives for franchisees

Franchising is a significant contributor to GDP and franchised businesses have high success rates. Add to that, the New Zealand economy’s reliance of SMEs.

So why not encourage entrepreneurship and SME development within the franchise framework? The options are many – targeted support could provide incentives around investment, tax and in particular depreciation.

And don’t forget employment and training. The latter of course is part of the pathway for creating a more productive workforce – franchising is, at heart, an education and development framework.

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Nathan Bonney
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