New Zealand has a well-documented and debated productivity issue. Productivity is broadly defined as the output produced per worker. In 2019 The New Zealand Treasury commented that, “New Zealand’s low productivity growth is a long-term problem that has been an issue across a timeframe of generations, not general elections. Raising our productivity performance is the biggest economic challenge facing New Zealand and will require a sustained effort on a number of fronts.”
It’s perhaps disturbing then that the Treasury website on productivity and the associated whitepapers on the topic has not been updated since 2019! It’s clearly not been their priority to focus on what they defined as, ‘the biggest issue facing the economy’.
But to be fair, it’s not Treasury’s sole responsibility to solve the productivity issue – picking up on the last part of the statement: “… it will require a sustained effort on a number of fronts”.
There are many components and parties that contribute to productivity, it is not just a case of each worker working harder; there’s the ‘smarter, not harder’ cliché, as well as optimizing the use of technology and what (and how) products and services are produced.
The franchising sector I would argue is well and truly pulling its weight in regard to productivity; often being industry-leading in terms of product offering, service delivery and, importantly, innovation.
If we do however come back to a ‘per-worker’ view of productivity, all things being equal, we see the critical role that training and development of workers play in improving productivity. We can identify franchising as a superhero of productivity.
Let’s look at some comparative data: In 2021 there were a total number of 151,975 people engaged in apprenticeships. The New Zealand Franchising Survey covering the same period identified 156,820 employed in New Zealand franchises.
Every single one of those employees would have received training and development of some type, ranging from basic first-start employee training, through to complex, world-leading, best practice methods of providing a wide variety of goods and services.
And then we can look at the franchisees themselves (who are not captured in that data): There are an estimated 32,357 franchised business units operating in New Zealand.
A Grant Thornton 2014 report on productivity suggested, “One of the greatest opportunities for New Zealand to raise productivity lies in educating the owners and managers of SMEs in the fundamental principles of running and growing a successful business.”
Well, it’s the core and essential role of every franchisor to successfully train their franchisees to grow and operate successful businesses.
Government policy settings need to support franchising’s role in training and development
Unfortunately, the current government and policy setting do little to support and encourage the training and development role played by franchising; in some circumstances policy settings such as taxation actually discourage it.
For franchisees, if we look at the apprenticeship schemes, these play a critical role in generating productivity but are in many circumstances not suited to fit hand in glove with the SME business model of many franchise structures, rendering the schemes inaccessible.
The same applies to training wages; they do not apply to employees who are being trained at work outside the parameters of an industry training programme. In a tight labour market, trying to pay less than minimum wage is unlikely to be very successful in attracting and retaining talent. There’s also a social implication that most brands would like to avoid.
I would suggest subsidising training costs along the lines of an apprenticeship model. Alternatively, providing tax incentives would certainly reward and further encourage training and development within the franchise sector. These don’t necessarily need to be on a franchisee level – how about applying a tax credit for employees that complete accredited training?
If we look at how initial franchisee training fees (what a franchisee pays a franchisor to learn and be trained in a system) are treated in terms of taxation, for the franchisor, training fees are at best usually cost recovery but treated as income.
For a franchisee New Zealand tax policy is not as kind as in many other countries where initial training fees (and sometimes initial franchise fees) can generate tax offsets for the franchisee.
Finally, if we look at the Government’s much self-applauded Apprenticeship Boost scheme in relation to boosting business productivity: as of March 2023, there were 57,040 participants.
I’m not sure of the return on investment overall of the Government’s $230 million allocation in the 2022 budget, but a total of 40 of these are in business and management.
Related: Three themes for 2023