Direct sales franchises in the Direct sales franchises in the UK: A self-employment grey areaUK: A self-employment grey area

published in 2002published in 2002

By: Dr. Stewart Brodie (UK), By: Dr. Stewart Brodie (UK), Professor John Stanworth (UK) and Professor John Stanworth (UK) and Professor Thomas Wotruba (USA)Professor Thomas Wotruba (USA)

Jialin & Kewrin

The presentationThe presentation

The growth of self-employment without The growth of self-employment without employeesemployees

A Franchise typologyA Franchise typology Direct selling mini-franchiseDirect selling mini-franchise The Research The Research Research resultsResearch results Conclusion of the resultsConclusion of the results

The growth of self-employment The growth of self-employment without employeeswithout employees

A transfer of public assets into private handsA transfer of public assets into private hands Drive towardsDrive towards ‘‘Down-sizing, Down-sizing, Externalizing, Externalizing, Sub-contracting Sub-contracting Spin-offsSpin-offs

One hypothesis might be that they are located One hypothesis might be that they are located firmly in areas of new economy, using high firmly in areas of new economy, using high technology, teleworking from home, technology, teleworking from home, formulating virtual businesses configurations formulating virtual businesses configurations and pushing forward the outer reaches of and pushing forward the outer reaches of dot.com distribution.dot.com distribution.

Small firmsSmall firms

Marketers; firms which actually competed in the Marketers; firms which actually competed in the same or similar markets as large firms (ex: fashion same or similar markets as large firms (ex: fashion merchandise manufacturers and restaurant)merchandise manufacturers and restaurant)

Specialists: firms which carried out functions which Specialists: firms which carried out functions which large firms did not find it economical to perform, large firms did not find it economical to perform, although large firms may feature as customers ( ex: although large firms may feature as customers ( ex: repair and maintenance in the building industry, repair and maintenance in the building industry, jobbing engineering)jobbing engineering)

Firms are highly dependent upon a single larger Firms are highly dependent upon a single larger business for the majority of their trade. business for the majority of their trade.

FranchisingFranchising

‘ ‘ A business form essentially consisting of an A business form essentially consisting of an organization ( the franchisor) with a market-tested organization ( the franchisor) with a market-tested business package centered on a product or service business package centered on a product or service entering into a continuing contractual relationship entering into a continuing contractual relationship with franchisees, typically self-financed and with franchisees, typically self-financed and independently owner-managed small firms, operating independently owner-managed small firms, operating under the franchisor’s trade name to produce and/or under the franchisor’s trade name to produce and/or market goods and services specified by the market goods and services specified by the franchisor’. franchisor’.

(Stanworth and Curran, 1999)(Stanworth and Curran, 1999)

A Franchises TypologyA Franchises Typology

Direct Selling Mini-FranchisesDirect Selling Mini-Franchises

Around 100 DSCAround 100 DSC Dominated by cosmetics, cleaning products Dominated by cosmetics, cleaning products

and kitchenwareand kitchenware Avon Cosmetics, Amway, Mary Kay Avon Cosmetics, Amway, Mary Kay

Cosmetics, Tupperware, Ann Summers, Cosmetics, Tupperware, Ann Summers, Betterware and Kleeneze. Betterware and Kleeneze.

FiguresFigures

Around 37 mln. Individuals world-wide (2001)Around 37 mln. Individuals world-wide (2001) Annual sales revenue around $ 85 billionAnnual sales revenue around $ 85 billion FR, DE, IT, ES, SWE, and UK 10.8 billion FR, DE, IT, ES, SWE, and UK 10.8 billion

achieved through 1.5 million people (1998)achieved through 1.5 million people (1998) UK 500,000 self-employed’ independent UK 500,000 self-employed’ independent

contractors’ produced £1.3 billion turnover in contractors’ produced £1.3 billion turnover in 19991999

Direct selling’s ‘independent Direct selling’s ‘independent contractors’contractors’

Women with dependent children working part-Women with dependent children working part-timetime

Legal status is self-employedLegal status is self-employed The income based totally one sales The income based totally one sales

commissions commissions Reasons: low earnings, outside the tax net and Reasons: low earnings, outside the tax net and

do not exist for official statistical purposesdo not exist for official statistical purposes

The major differences between conventional franchising and The major differences between conventional franchising and direct selling emerge in the sheer scale of the contrasting direct selling emerge in the sheer scale of the contrasting formats and the low barriers to entry.formats and the low barriers to entry.

Conventional franchisingConventional franchising Direct selling mini-franchisesDirect selling mini-franchises

Initial investments of less than Initial investments of less than £20,000£20,000The establishment of a The establishment of a separate self-employed legal separate self-employed legal entityentityThe leasing or purchase of The leasing or purchase of separate premises, involves separate premises, involves hired helphired helpOperated on a full-time basis Operated on a full-time basis

by male franchiseeby male franchisee

Operated by women on a part-Operated by women on a part-time basis, without paid time basis, without paid assistanceassistanceA minimum of capital outlay or A minimum of capital outlay or legal process is involved, making legal process is involved, making for very low barriers to entry.for very low barriers to entry.

The researchThe research

Involving 4,050 new independent Involving 4,050 new independent contractors from 22 direct selling contractors from 22 direct selling organizations operating in the UK.organizations operating in the UK.

There were 722 responses of which There were 722 responses of which 673 were useable for the analysis 673 were useable for the analysis (17%)(17%)

The variables were: The variables were:

-The gender-The gender

-The operating format-The operating format

The results (N=673)The results (N=673)   Multi levelMulti level Single levelSingle level

MaleMale FemaleFemale MaleMale FemaleFemaleEconomically active at time of joiningEconomically active at time of joining 75%75% 56%56% 46%46% 33%33%

Other income in addition to DSOther income in addition to DS 74%74% 60%60% 21%21% 40%40%DS is primary work activityDS is primary work activity 30%30% 33%33% 83%83% 55%55%Currently involved in more than one Currently involved in more than one

DS operationDS operation19%19% 13%13% 6%6% 13%13%

Commit:Commit:            ·      less than 10 hours per week·      less than 10 hours per week 61%61% 76%76% 15%15% 69%69%·   10-29 hours per week·   10-29 hours per week 31%31% 21%21% 30%30% 24%24%·   30 hours and more per week·   30 hours and more per week 9%9% 4%4% 56%56% 7%7%Household income:Household income:            ·     < £14,000·     < £14,000 31%31% 26%26% 41%41% 47%47%·     £14,000-£21,999·     £14,000-£21,999 22%22% 26%26% 21%21% 33%33%·     > £22,000·     > £22,000 46%46% 48%48% 38%38% 20%20%

   Multi levelMulti level Single levelSingle level

MaleMale FemalFemalee

MaleMale FemaleFemaleAgeAgeUnder 30 yearsUnder 30 years30-44 years30-44 years45 years and over45 years and over

  20%20%44%44%35%35%

  27%27%50%50%24%24%

  28%28%36%36%38%38%

  41%41%43%43%15%15%

MarriedMarriedMarried or living as Married or living as marriedmarried

59%59%68%68%

59%59%70%70%

39%39%58%58%

58%58%71%71%

Dependent childrenDependent children 43%43% 58%58% 33%33% 68%68%

Owner occupiersOwner occupiers 63%63% 68%68% 47%47% 63%63%

Previous involvement in Previous involvement in higher educationhigher education

49%49% 43%43% 36%36% 15%15%

Previous experience in DSPrevious experience in DS 24%24% 21%21% 20%20% 24%24%

Still active after nine Still active after nine months> result if the in-months> result if the in-depth interview sampledepth interview sample

79%79% 76%76% 45%45% 55%55%

The In- Depth Tracking The In- Depth Tracking StudyStudy

82 samples chosen on a stratified 82 samples chosen on a stratified basis for in-depth interview and basis for in-depth interview and tracking over 9 monthtracking over 9 month

In-depth ,taped recorded and face to In-depth ,taped recorded and face to face interviews face interviews

Followed by regular monthly contact Followed by regular monthly contact by telephoneby telephone

Matched-pairs basis:Matched-pairs basis:Useful number in each cellUseful number in each cellRandom basis :sample of largely Random basis :sample of largely female single level operators. female single level operators.

60% single level females60% single level females 5% single level males5% single level males 20% multilevel females20% multilevel females 15% multilevel males15% multilevel males

   Multi-levelMulti-level Single levelSingle level

   MaleMale FemaleFemale MaleMale FemaleFemale

N(82)=N(82)= S (15)S (15) E (4)E (4) S (16)S (16) E (5)E (5) S (9)S (9) E(11)E(11) S (12)S (12) E (10)E (10)

Claimed previous Claimed previous involvement in higher involvement in higher educationeducation

                       

47%47% 75%75% 38%38% 40%40% 22%22% 36%36% 8%8% 10%10%

                       

Proportion working:Proportion working:                        

··          < 20 h. per week < 20 h. per week 100%100% 75%75% 81%81% 100%100% 44%44% 9%9% 83%83% 80%80%

··                20-30 h. per week20-30 h. per week 0%0% 25%25% 0%0% 0%0% 22%22% 9%9% 17%17% 0%0%

··                > 30 h. per week> 30 h. per week 0%0% 0%0% 19%19% 0%0% 33%33% 82%82% 0%0% 20%20%

Proportion with annualProportion with annual                        

household incomes:household incomes:                        

··          < £ 14,000< £ 14,000 27%27% 25%25% 13%13% 40%40% 56%56% 36%36% 33%33% 70%70%

··          £ 14,000-£ 21,999£ 14,000-£ 21,999 20%20% 25%25% 38%38% 20%20% 11%11% 18%18% 18%18% 10%10%

··          £ 22,000 and more£ 22,000 and more 53%53% 50%50% 50%50% 40%40% 33%33% 45%45% 45%45% 20%20%

Proportion married and Proportion married and living as marriedliving as married

                       

80%80% 75%75% 88%88% 80%80% 44%44% 54%54% 100%100% 60%60%

Proportion with prior DS Proportion with prior DS experienceexperience

                       

40%40% 25%25% 13%13% 60%60% 22%22% 9%9% 25%25% 105105

Differences between survivors (S) and exits (E) Differences between survivors (S) and exits (E) among in depth interview, longitudinal sampleamong in depth interview, longitudinal sample

An “independent An “independent contractor” typologycontractor” typology

There were certain similarities but There were certain similarities but also enough differences to facilitate also enough differences to facilitate an attempt to develop an an attempt to develop an independent contractor typologyindependent contractor typology RefugeesRefugees Trade-offsTrade-offs OpportunistsOpportunists

RefugeesRefugees Granger, Stanworth and Stanworth, Granger, Stanworth and Stanworth,

19951995““most clearly characterize the case of most clearly characterize the case of labour market push into direct selling”labour market push into direct selling”

The involvement of the individual in the The involvement of the individual in the economic activity concerned is most economic activity concerned is most frequently one of stark ‘economic frequently one of stark ‘economic necessity’necessity’

Typical quotations from this groupTypical quotations from this group

““After college I got into industry and was salaried. Then I was After college I got into industry and was salaried. Then I was made redundant and for 5 years I was unemployed. I came made redundant and for 5 years I was unemployed. I came across an advertisement in the local paper and ….”across an advertisement in the local paper and ….”

““I got made redundant as a bus inspector. I could have carried I got made redundant as a bus inspector. I could have carried on as a driver but I decided to take redundancy and look for on as a driver but I decided to take redundancy and look for something else”something else”

“ “ I was coming out of the army and this seemed like a good I was coming out of the army and this seemed like a good career with prospect”career with prospect”

““I moved from London to get away from all the smoke and I moved from London to get away from all the smoke and stress basically. I had been a courier and had an accident stress basically. I had been a courier and had an accident which put me off the road. I was looking for a better lifestyle.”which put me off the road. I was looking for a better lifestyle.”

Trade-offsTrade-offs

Who adopt the economic activity in Who adopt the economic activity in question in an attempt to achieve a question in an attempt to achieve a work-life balance of interest between work-life balance of interest between economic and non-economic economic and non-economic objectivesobjectives

DS provide…..DS provide…..

A bridge between the economic A bridge between the economic activity and the non economic activity and the non economic objectivesobjectives

A secondary income for the A secondary income for the householdhousehold

Typical quotations from this groupTypical quotations from this group

““I had just had a baby and was looking for some part-I had just had a baby and was looking for some part-time activity to tide me over until I got back to proper time activity to tide me over until I got back to proper work. It was basically just to earn a little bit of money work. It was basically just to earn a little bit of money and get away from the baby for an hour or two. I and get away from the baby for an hour or two. I could pick my hours to suit the baby”could pick my hours to suit the baby”

““We had just moved into the area and it was a way of We had just moved into the area and it was a way of getting to know local people. I would have done getting to know local people. I would have done anything really, we were desperate for cash, I’d have anything really, we were desperate for cash, I’d have licked stamps to be honest with you.”licked stamps to be honest with you.”

““I just wanted something to do. I was a mother and I just wanted something to do. I was a mother and that is the end of it. I wasn’t too bothered about the that is the end of it. I wasn’t too bothered about the money”money”

OpportunistsOpportunists

Opportunists fitted the case of labour Opportunists fitted the case of labour market pull. market pull.

The ideology of autonomy and The ideology of autonomy and entrepreneurship tended to be linked entrepreneurship tended to be linked with the expectation of financial gain with the expectation of financial gain by building direct selling into a multi-by building direct selling into a multi-level business. level business.

Typical quotations of this groupTypical quotations of this group Female: “ I have various little jobs but DS is the on I want to Female: “ I have various little jobs but DS is the on I want to

make my only source of income. Having my own business, make my only source of income. Having my own business, working my own hours, helping my team grow…. It’s all working my own hours, helping my team grow…. It’s all down to me”down to me”

Female: “I work full-time in the city and I used to look after Female: “I work full-time in the city and I used to look after pop stars. I love meeting people and I love the product. Its got pop stars. I love meeting people and I love the product. Its got everything I love wrapped up in one little business everything I love wrapped up in one little business opportunity.”opportunity.”

Male: “I realize that many people have devoted their whole Male: “I realize that many people have devoted their whole lives to DS and have given up important positions because lives to DS and have given up important positions because they see this had much more potential for them.”they see this had much more potential for them.”

Male: “My family responsibility are all over, my children have Male: “My family responsibility are all over, my children have all got degrees and I want a challenge. Leaving aside the issue all got degrees and I want a challenge. Leaving aside the issue of financial gain, I wanted to be successful”of financial gain, I wanted to be successful”

Conclusion of the Conclusion of the researchresearch

The two single level samples differed The two single level samples differed mostmost

The two multi level samples were The two multi level samples were remarkably similarremarkably similar

The research showed that different The research showed that different types of direct sales format attract types of direct sales format attract different types of people with different types of people with different types of motivationdifferent types of motivation

=The end==The end=