Small and medium enterprises are capable of driving economic development in a powerful way. However, starting a business from scratch can be extremely risky, especially during a crisis. That’s where franchising – an industry experiencing rapid growth in Russia – comes in with ready-made solutions to cut risks to a minimum. There is, however, one section of the industry that is underrepresented in Russia: production franchises. Moscow Franchise Expo 2018 participants Roman Alekhin, founder of the Ortho-Doctor Group of Companies, and Ruslan Zeinalov, RosPromEco project manager, talked about their projects and future development.
“We have developed a comprehensive environmental system that completely eliminates uncontrolled formation and uncontrolled discharge of liquid wastes into water bodies and onto the soil,” Ruslan Zeinalov said. He mentioned that the company worked in Russia building receiving and offloading liquid waste stations and equipping waste generation sites in such a way as to have all data collected in a single interactive map. “Unfortunately, very little attention is paid to monitoring liquid household waste, so we have developed a multifunctional system that shows how much waste has been generated in a particular region, where it has been transported, and how it has been neutralized. Absolutely all authorities involved in monitoring this area of focus have access to the map,” Ruslan Zeinalov added.
As for further development, RosPromEco plans to complete a pilot project in Volgograd in three months. Parallel to this, a receiving terminal is being built in the city of Volzhsky, and construction is set to begin in Astrakhan in September. “There are plans for Nizhny Novgorod, Krasnodar, and Rostov; people have already come to talk to us and are waiting for when we are ready,” Ruslan Zeinalov concluded.
Ortho-Doctor Group of Companies Founder Roman Alekhin noted that production franchises can be quite complex. Ortho-Doctor was presented at the Moscow Franchise Expo 2018 at the Kursk Region stand. “We have two types of products: the orthopaedic salon, and our production franchise and social business for the manufacture of prostheses of the upper and lower extremities. I have been in this business since 2002 and decided that I had accumulated enough experience and knowledge in the field to start sharing with others. We don’t even call it a franchise, we have a partnership with a franchisee,” Roman Alekhin said.
The entrepreneur is proud that Ortho-Doctor is one of the few, if not the only, company in Russia that can compete on the market with state-owned enterprises. “There is a Moscow-based prosthetic and orthopaedic enterprise that accounts for about 80% of the market. We have our factories in the Kursk, Belgorod, and Orel regions, and in these regions we hire new people and train them; there are a lot of orders, and my people can’t keep up,” Roman Alekhin added.
The outfit was bundled up into a franchise only recently and presented at the Exhibition for the first time. According to Roman Alekhin, demand from potential franchisees was not great over the first two days – four people in two days of work. The somewhat underwhelming response is due to the complexity of the type of activity, which requires an investment in equipment and in trade. “For production, you need to invest in equipment, which comes in at around 1.5 million roubles, and about 2 million roubles for goods, if we talk about the store. This is no laughing matter where you pay a fee, buy some scissors, and start cutting. But I must say that by noon on the third day of the Exhibition, when we thought that no one else would be coming, four people came and left their contacts; people who really want to open our franchise,” Roman Alekhin said.
The creator of the Ortho-Doctor Group of Companies named the lack of normal legal regulation as one the most acute problems for franchising in Russia. “Many entrepreneurs I know have got burned by franchises. When something new pops up in the industry, frauds who want to get rich quick at others’ expense pop up too. Unfortunately, these people have really tarnished the reputation and idea of franchising. I don’t believe in franchises without royalties. If the franchise calls only for a start-up fee, you should walk away immediately,” Roman Alekhin said, naming a lack of good banking support for financing a franchise start-up as the second significant problem. Recently, however, the state has become much more focused on supporting entrepreneurship, and that includes at the legislative level.
“Ready-made franchise-focused banking products already exist in the US and Europe, along with ratings of franchisors and franchises, and banks assess risks and finance franchises on the basis of these ratings. We really need this. A tool of this sort together with the elimination of fraudulent schemes could really push the development of business in Russia forward and make it more professional. A priori franchising is doing business professionally, and it is the best and most affordable MBA school out there. Find a good franchisor, buy a franchise, and you will get an excellent MBA – a real one, with practical experience,” Roman Alekhin said.
The World Franchise Forum and Moscow Franchise Expo 2018 were held on 30 May – 1 June as part of Moscow Entrepreneurship Week. Events were organized by the Russian Franchising Association with the support of the Roscongress Foundation, the Moscow Government, the Ministry of Industry and Trade of the Russian Federation, the Ministry of Economic Development of the Russian Federation, and the Chamber of Commerce and Industry of the Russian Federation.