The New Frontier
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Franchising is growing worldwide. From North America to South America and beyond, franchising is emerging as the way to operate and expand successful businesses. Yet the global marketplace remains relatively untapped. In fact, the growth potential for franchising around the world is infinite.
But like any type of business, franchising is no sure thing. Every country has different customs, cultures, languages and laws, making cross-border expansion a challenging proposition. Franchisors must first determine whether their products and services are in demand in the new country. They must also be able to transfer knowledge and provide the necessary training and support to franchisees.
Following are franchising highlights from around the world that reveal the trends, challenges and status of franchising.
Franchising is no newcomer to South America. Blockbuster Video, Sir Speedy Printing and Burger King are just some of the big names succeeding here with tried-and-true concepts. Yet parts of the continent have yet to see their first franchise.
As in most markets around the world, fast food permeates the South American franchising scene. Areas with plenty of room for expansion include residential and commercial cleaning services, hotels, motels, convenience stores, automotive services, cosmetic outlets and rental services. And contrary to popular belief, Brazilians are eager for imported coffee and coffee-flavored products, as most of the high-quality arabica beans produced in the country are shipped abroad, and the domestic brew is made from the lower-quality robusta beans.
Many foreign companies test their products or services in Chile and Uruguay before planting permanent roots in South America. Both countries provide stable environments, which usually produce accurate predictions of success or failure.
The three most heavily franchised countries in South America are Brazil, Argentina and Colombia. With nearly 1,000 franchisors, Brazil is the South American franchise leader. With substantial economic growth and a healthy forecast for the future, Brazil has much to offer foreign investors--including a market of consumers with significant disposable incomes and a keen interest in foreign products and services.
Though Argentina may not boast as many franchised operations as Brazil, it is slightly more advanced in terms of foreign investments. Liberal trade and strong currency make Argentina a solid market for foreign products and services.
With nearly 50 franchise operations, Colombia is South America's third most franchised country. However, there are many drawbacks to franchising here, including a continuing threat of guerrilla- and drug-related violence, a poverty rate close to 40 percent and a small local market.
Many Asian countries are just now discovering franchising as an attractive way to boost their economies. Why is Asia luring foreign franchisors? For one thing, more than half the world's population lives there. China alone comprises nearly one-quarter of the world's population and is considered the most underretailed country in the world.
A soaring middle class and robust economic growth rates are also appealing to foreign investors. The economies of China, Thailand, Hong Kong, Indonesia, Korea, Malaysia and Singapore are all growing at a rate of between 6 percent and 9 percent every year.
Indeed, many Asian countries are rolling out the red carpet for foreign investors. Governments such as those of Malaysia, Indonesia and Singapore are encouraging franchising and foreign investment with laws, organizations and programs intended to support the effort.
Despite promising conditions, franchising in Asia presents new challenges for foreign franchisors. Some markets, such as Manila in the Philippines, are completely saturated, while others--Malaysia, Taiwan and Singapore, for instance--are suffering labor shortages. Cultural differences also present some problems. For example, the term "franchising" is difficult to translate into Chinese, so franchise discussions with Chinese officials and businesspeople are often confusing.
Throughout Asia, the major hurdle is overcoming strict regulations regarding foreign investment. These regulations don't always forbid foreign investment, but they are complicated and can be burdensome to inexperienced overseas companies.
Word is getting out that the Middle East is a potential franchising hot spot. Franchisors are attracted to the Middle East for a variety of reasons. For one, many residents have large disposable incomes and a hankering for American and European goods. They are frequent travelers, aware of the world's hottest fashions and the latest trends in everything from fast food to electronics.
Several countries have lifted restrictions and are encouraging franchising and foreign investment with new laws and incentives. More and more governments have come to consider foreign investment potentially beneficial rather than threatening. Banks, too, have recognized the potential of franchising and are offering financial incentives tailored to this market.
As in many countries, fast-food restaurants dominate franchising in the Middle East, but a multitude of other opportunities exists. Automotive service centers, apparel outlets, beauty shops and educational institutions are all good possibilities, as are quick-printing centers, carpet cleaning services and travel agencies.
Companies considering expanding into the Middle East must identify a well-known company that is economically appropriate and culturally respected to partner with. However, one of the most important things to remember is the Middle East, like many regions of the world, is not a single destination. There are many different countries--each with its own customs, cultures, languages and laws--which makes expanding into this market more challenging than you may think. Products and services that interest Turks may in fact offend Kuwaitis. McDonald's, for instance, adjusted to cultural differences by offering a Kosher menu in Israel and special burgers that conformed to dietary restrictions in Muslim countries.
Despite these drawbacks, franchising continues in the Middle East. Several countries--the United Arab Emirates (UAE), Israel, Saudi Arabia, Kuwait and Egypt--may be the most desirable to foreign investors because of suitable conditions and interest on the part of citizens. Conversely, franchisors may want to avoid Iraq, Iran and Lebanon, where political instability and anti-Western attitudes make expansion difficult.
Franchising is widely accepted and practiced throughout Western Europe, where it has found enormous success. France has more than 600 franchisors, representing nearly $25 billion in sales; Great Britain has approximately 132 franchisors, representing $8 billion in sales; Germany has 265 franchisors; and Austria has about 80. Belgium and Portugal are fairly new to franchising, so there is little franchising information available for these countries, as is the case with Norway, Sweden and Denmark.
We know, however, that conditions are promising throughout Europe. There is accelerated industry deregulation, increasing demand for goods and services, expanding urbanization, increasing mobility, more women in the work force, rising disposable incomes, and a shift toward service-dominated economies.
While the outlook is good in Western Europe, the status of franchising throughout Central and Eastern Europe remains murky as capitalism replaces communism. The consensus is that franchising will eventually proliferate here, but just when it will take hold and begin to prosper is uncertain.
Industries expected to do well in Eastern Europe--particularly in Poland and Russia--include laundry and dry cleaning services, hotels and motels, fast food, book and music stores, auto parts and service, and professional training.
By Karen E. Spaeder
Penetrating the Colombian market is no easy task--just ask Cesar Coriat, a PostNet International Inc. master franchisee. Both consumers and potential franchisees have been slow to accept the concept of franchising, Coriat says, and the country is going through somewhat of a recession.
"We're pioneers here," says Coriat, who opened his first PostNet in Cali in February 1996 after learning about the packing and shipping company at an International Franchise Expo the previous year. "Franchising's not common here; we've been doing a lot of work trying to convince people that franchising is the way to go."
Slowly but surely, Coriat's hard work is paying off: Colombians have taken to PostNet's services. It helped, too, that shipping companies such as United Parcel Service, DHL Worldwide and Federal Express were already working with PostNet in other countries; the Henderson, Nevada-based franchisor only needed to send a letter to these companies requesting help getting the ball rolling in Colombia.
So far, Coriat has sold two franchises, both in BogotÃ¡. Since opening in January, the new stores have been selling beyond projections; Coriat expects combined sales of the three to reach about $900,000 this year. "[The franchisees are] considering opening two more stores each," adds Coriat, 31.
Coriat is confident that franchising is gaining acceptance in Colombia. "The differences in culture can affect the development of any business," he says. "But things are picking up and looking good for the future."
Investors seeking international franchise opportunities can learn more at the International Franchise Expo, featuring exhibitors from all facets of the franchise industry. The expo will be held September 5-7 at the Los Angeles Convention Center. Call (201) 461-1220 for more details.
All Tune and Lube Systems Inc.
Alphagraphics Printshops of the Future
American Dairy Queen Corp.
Athlete's Foot Group Inc.
Bevinco Bar Systems Ltd.
Big Apple Bagels
Color Me Mine
Creative Cakery Franchise Inc.
Discount Party Warehouse
ELS Language Centers
Express Personnel Services
Fastframe USA Inc.
General Business Services Corp.
General Nutrition Centers
Global Travel Network
Grease Monkey International
Home Environment Center
Hungry Howie Pizza/Subs Inc.
IFX International Inc.
Impressions on Hold
Integrity Online International
Jani King International
Joey's Only Seafood Restaurants
Kelly's Cajun Grill Franchise
Kelly's Coffee & Fudge Factory
Kid to Kid
Kott Koatings Inc.
Lox of Bagels Corp.
Mad Science Group
Maids International Inc.
MilliCare Environmental Services
Minuteman Press International
New World Coffee Co. Inc.
New York Burrito
Orion Food Systems
Pak Mail Centers of America
Papa John's Pizza
Round Table Franchise Corp.
Servpro Industries Inc.
Signal Graphics Printing
Signs Now Corp.
Television & Entertainment Publications
Texaco Refining and Marketing
Tony Maroni Pizza
Wild Birds Unlimited
Wings and Rings
World Trade Network
Women's Health Boutique
Leonard N. Swartz, worldwide managing director of franchise services for leading global accounting firm Arthur Andersen, has more than 34 years of international franchise management experience. His areas of expertise include planning, operations, consulting, compliance, marketing and sales in a wide range of industries.
PostNet, Ave. 5 AN #25-55, Cali, Colombia, 57-2-668-3393.