No more stepping on toes – A challenge for World Intellectual Property Day

On today’s tenth annual celebration of World Intellectual Property Day, it’s worth noting that big multinationals aren’t the only firms that have use for intellectual property (IP) rights. IP also matters for franchising, which is an important step for the growth of small, entrepreneurial firms. Without enforceable intellectual property rights, anyone can simply take a successful name and logo and slap it on counterfeit goods, undermining the original firm’s attempt to achieve scale through franchising.

A report funded by the Templeton Foundation lists poor intellectual property frameworks as one of the obstacles to franchising in emerging markets. It’s hard enough to find profitable and replicable models to expand into franchises; poor supporting policy environments compound the problem. As the report notes:

A first focus on the general factors of access to finance, ease of opening a business, and enforcement of contracts will benefit all scale-up, regardless of whether through franchising or company-owned expansion. If these factors are in place, further measures can be taken that specifically benefit franchising (for example, franchising regulation and IP protection). Policymakers will see greater benefits from building the enabling environment than from “picking winners” and supporting individual chains.

While not every enterprise may expand into franchises, those that would expand have the potential to create wealth and job opportunities that have long been denied many of the world’s poorest people. Such barren opportunities are not as much the result of too few growth-oriented entrepreneurs as they are the result of poor policy frameworks for IP rights and other growth-supporting tools. That said, better policy frameworks for entrepreneurs don’t just fall out of the sky. Where they are present, they’ve emerged over a long, tedious, and sometimes contentious process of back-and-forth open dialogue between the public and private sectors.

At heart, franchising is as crucial to innovation as patents. Wider-reaching business networks accelerate the spread of new goods and services, diminishing what growth economists call the ‘stepping on toes’ effect, whereby competing innovators expend time and effort on a problem someone else has already solved. The faster entrepreneurs find out a problem has a commercially viable and accessible solution, the faster they collectively move on to solve others. If necessity is the mother of invention, commerce is the midwife.

Published Date: April 26, 2010