Tuesday, March 9, 2021

Govt defends master franchise, warns it can breed monopolies

Government has defended the master franchise concept which is common in the Botswana market saying the move is not anti-competitive although local businesses see it otherwise.

It is described by Wikipedia as a franchising contract in which the master franchisor (the owner of the brand name) hands over the control of the franchising activities in a specified territory to a person or entity, called the “master franchisee”.

Also it can be a situation whereby the owner of the brand contractually allows enterprises to produce, distribute or provide service in compliance with prescribed strict specifications; master franchise is purely a business strategy or decision which is acceptable.

Answering a question in parliament on Thursday, Assistant Minister of Trade and Industry, Keletso Rakhudu said therefore it is prerogative of the business to become a master franchise and sell production rights to franchisees.

“….the concept of master franchise as practiced by most franchise owners in Botswana is not anti-competition,” Rakhudu clarified. However, he acknowledged that a monopoly can be created if there are no ‘competing master franchises or if the existing franchisee conducts its business in such a way as to block new entrants in the market’.

“When there is evidence that the franchise owner discriminates against franchisee applicants or when the existing franchise agreement blocks new entrants in the market, then the Competition Authority will make an enquiry,” he said.

Rakhudu was responding to question from Shoshong Member of Parliament Phillip Makgalemele, who wanted to know whether master franchise is not anti-competition and could lead to monopoly.

Like the local business community Makgalemele is skeptical about the concept of master franchise as practised by most franchise owners in Botswana arguing is anti-competition and could lead to monopoly.

The MP also wanted to know if the concept is an international practice, casting doubt over the effectiveness of Competition Authority.

An international practice, Rakhudu said master franchising is prevalent in many countries around the world and should be noted is allowed under the international Competition Laws.

“Even under the Botswana Competition Law it is not a prohibited conduct,” he said. He added: The Competition Authority is in the process of completing a country-wide study of the retail sector including the holding of franchises and their effects.”

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