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Scotland lags UK in growth of franchising - but better news predicted for 2014

Franchising, one of the fastest-growing sectors in the UK economy, is failing to make progress in Scotland, according to figures published last week.

However, industry leaders said recent signs of increased activity made it likely that the setback will be reversed in 2014.

The NatWest British Franchise Association Franchise Survey 2013 showed Scotland's performance lagging behind the rest of Britain. While the sector, estimated to be worth £13.7 billion and 250,000 jobs to the UK economy in 2013, grew 2% over the year, in Scotland the combined annual turnover from franchising dropped £100 million, or 13%, to £700m.

Despite showing the strongest GDP in the UK outside London and south-east England last year, Scotland was the only part of the UK outside of Northern Ireland (-25%) where the numbers of franchisees did not show substantial growth.

The diverse "business format franchising" sector now covers areas such as hotel and catering, retail, property services, transport and vehicles and business and communications. It has grown by 20% since the start of the 2008 economic downturn, against a 2.5% decline in the overall economy.

Brian Smart, director-general of the British Franchise Association (BFA), told the Sunday Herald that Scotland's poor performance was a "concern", but expressed confidence in renewed growth next year, and noted that jobs were holding up.

"While we are concerned with the decline last year, it is important to put the results in context. Employment levels are similar to those of 2008, putting the sector ahead of the recovery pace of the wider Scottish economy. That indicates that though there are fewer units than previously recorded, those in operation are successful."

Other industry figures were quick to point out that the relative immaturity of the franchise market in Scotland presented a major growth opportunity as the economy recovers.

David Kaye, lead partner for retail and franchising at legal firm Harper Macleod and one of the UK's leading specialists in the field, said he was surprised by the poor figures, as his own experience suggested that interest in the sector was "going through the roof".

He said: "I've never helped set up as many franchises as I have in recent months. I will be very disappointed if the next survey didn't show a dramatic increase."

Kaye stressed the benefits of the model to creating growing companies "when you can't get money through conventional sources", and as a route to increased exporting on which a sustainable UK recovery depends.

He also stressed the variety in the nature and scale of the sector, saying: "For too long people have thought of franchising in terms of [fast food chain] McDonald's but there has been so much activity in the last five years. Last year was 'year of the dog' for us - we helped set up franchises around dog-walking, dog-sitting and dog-boarding, and other growth areas are martial arts and kids coaching businesses.

"In America they are proud to be franchisees. Here it's getting more acceptable, and you can see why. You get to set up a business you know you can sell on, and you are getting the training and expertise from someone else; you're following a proven model."

The BFA survey suggests that, UK-wide, both franchisors and franchisees are "thriving in the current climate". With an average turnover per unit of £356,000 and one in four running multiple outlets, 92% of franchisees reported profitability. Almost 90% of franchisors said they believe trading conditions will improve in the coming year.

Advocates for the sector claim to see the benefits of the model for Scotland as building the indigenous business ownership at the grass roots.

A BFA spokesman said: "When an overseas corporate brand moves into Scotland, its success can bring jobs, but most of the profit is exported to the originating country. In franchising that's not true; most of the investment and most of the profit remain in Scotland, for Scotland."

The BFA, which co-ordinates with Scottish Enterprise and Business Gateway, runs an annual Scottish Franchise Week every April, which its spokesman said "is always well attended and supported".

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