Nishant Raj Poudel / Bibash Parajuli–
Franchise business is a rapidly growing phenomenon in Nepal and has developed as a strong option for growth of an economy. For instance, the entry of international brands not only fuels the growth in franchising in Nepal, thereby opening up more possibilities for local entrepreneurs, but also turns out to be one of the main sources for FDI.
Franchising in Nepal: Ascending Horizons.
A boom is expected in the franchise business of Nepal due to the growing middle class, urbanization, and increasing consumer spending.
This is considered very attractive for local entrepreneurs as the risks are comparatively lower due to the use of a tried and tested approach towards business.
Food and Beverage: Food and Beverage is the most conspicuous area in which the act of franchising has already taken off. KFC, Pizza Hut, Baskin Robbins – names do already exist within Nepal, as in other countries of the world, such fast-growing demand for international cuisines and branded food products.
It is also impetus to the franchising business in retail with internationally clothed lifestyle brands in the likes of Adidas and Zara. This trend clearly rides on the back of a consumer’s rising hunger for global brands and modern retail experiences.
Education: Educational sector has tremendous potential for franchising. With competitive and professional aspirations on the rise, the number of students pursuing various types of courses is increasing.
Thus, lots of opportunities are created for franchises, especially in the areas of vocational training and nursery schools. International educational franchises can fulfill the current deficiencies in the system by providing the uniform syllabus or high quality of education, for which many people are looking.
Health and Wellness: While health and fitness are gaining more and more consciousness, the franchises falling under this category will definitely engage the attention of urban populations who are health-conscious.
Why Franchising Matters for Nepal’s Economy
Franchise businesses form an integral part of the economic fabric of Nepal. It is believed that they contribute to the economy on a number of fronts:
Job Creation: Franchises create a number of job opportunities in various sectors. In addition to helping counter unemployment, it also helps in the building up of a skilled workforce.
Entrepreneurship Development: Franchising is a platform that provides an opportunity for local entrepreneurs to move into businesses with lower risk involved.
High chances of success in the new business result from the provision made by a franchisor in training, marketing, and operation.
Brand Recognition and Consumer Satisfaction: Direct franchising of the International Standard brands to Nepal further results in increasing consumer satisfaction and happiness. The level of consumer spending tends to improve which increases economic activity.
Franchising as a Form of FDI
Franchising is the simplest and most structured way in which any foreign firm can easily access the Nepalese market. Therefore, it turns out to be one major potential FDI.
Market Entry: A very low-risk and low-cost entry system for the market in Nepal. In this way, a foreign company would be able to understand better the market, along with its networks and contacts, through a local franchisee in a bid to get better penetration of the market.
Technology and Knowledge Transfer: Through franchising, technology and knowledge are transferred from the franchisor to the local franchisee as a source of valuable technology, best business practices, and managerial know-how. This helps bring up the set standards for businesses locally and, therefore, raise the economy in general.
More FDI: Entry of global franchises in Nepal through franchising brings more foreign direct investment to the nation, thus helping the economic condition of Nepal. The FDI inflow helps by stimulating infrastructure development, larger tax collection revenue, and increased competition within the country.
Remove the Barriers To Harvesting Power of Franchising
Though the outlook of the franchise business in Nepal seems to be on the path to development, there are still a few obstacles to be countered before this business reaches its peak potential.
One such requirement is that related to the regulatory framework—Nepal needs a clear and supportive framework. This would primarily consist of laws that protect the concerns of both firms — the franchisors and the franchisees—with ensured fairness and transparency in the business environment.
Market Awareness: Awareness on the benefits and opportunities within franchising should be harnessed among potential entrepreneurs. In this respect, there is a certain amount of responsibility on the government agencies and those who represent the particular industries of making this information relevant.
Infrastructure Development: To attract international franchises, a country like Nepal has to develop infrastructure, basically for its city parts. Up-gradation of roads, utilities, and communication networks is proposed to be installed in order to make the country more adaptable and attractive for the foreign investors.
An Overview of FDI in Nepal through Franchising
Total FDI in Nepal: Total foreign direct investment inflow in Nepal has been very uncertain during the years, and the data we have obtained from various sources, such as the World Bank and other economic publications, has been very vague. For instance, during the last few years, Nepal is said to have been receiving FDI of around $150-200 million per year.
Total FDI Attributable to Franchising:
2019: Of the total FDI, almost 10-15 % was invested in franchise businesses, somewhere between $15-30 million.
2021: While the inflows of the FDI have been decreasing, with the outbreak of the COVID-19 pandemic, it declined by close to 12% to $18-24 million.
2022-2023: Recent data reveals the share of the sector in the composition of FDI has reached around 14-18%. The data has reflects investor confidence. This means an investment range about $21-36 million actually has been made in franchising.
Some Major Impacts of Franchising must be pointed out:
Infrastructure Development: Investments in franchising have resulted in development of commercial real estate and retail infrastructure that have enhanced local economies.
Employment Generation: The franchise businesses have proven to generate thousands of job opportunity hence new skills added to people of the respective locale workforces.
Market Development on the Consumer Side: International brands now come with their business line via franchising and increased the consumer markets. Economic activity is bound to be high in places where consumer demands are high.
In conclusion, the franchise business in Nepal offers both a massive and promising moment for development. Franchising is known to play a crucial role in the transfer of local entrepreneurship and stimulate the flow of foreign direct investment. It further helps address the present challenges, while simultaneously facilitating a congenial atmosphere for franchising, unlocking other avenues, more potential, and more possibilities for success to create a very prospering economic landscape for years to come.
(Poudel and Parajuli are persuing MBA at Saim Collge, Kathmandu.)