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Franchising is growing worldwide. From North America to SouthAmerica and beyond, franchising is emerging as the way tooperate and expand successful businesses. Yet the globalmarketplace remains relatively untapped. In fact, the growthpotential 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 andservices are in demand in the new country. They must also be ableto transfer knowledge and provide the necessary training andsupport to franchisees.
Following are franchising highlights from around the world thatreveal the trends, challenges and status of franchising.
South America
Franchising is no newcomer to South America. Blockbuster Video,Sir Speedy Printing and Burger King are just some of the big namessucceeding here with tried-and-true concepts. Yet parts of thecontinent have yet to see their first franchise.
As in most markets around the world, fast food permeates theSouth American franchising scene. Areas with plenty of room forexpansion include residential and commercial cleaning services,hotels, motels, convenience stores, automotive services, cosmeticoutlets and rental services. And contrary to popular belief,Brazilians are eager for imported coffee and coffee-flavoredproducts, as most of the high-quality arabica beans produced in thecountry are shipped abroad, and the domestic brew is made from thelower-quality robusta beans.
Many foreign companies test their products or services in Chileand Uruguay before planting permanent roots in South America. Bothcountries provide stable environments, which usually produceaccurate predictions of success or failure.
The three most heavily franchised countries in South America areBrazil, Argentina and Colombia. With nearly 1,000 franchisors,Brazil is the South American franchise leader. With substantialeconomic growth and a healthy forecast for the future, Brazil hasmuch to offer foreign investors--including a market of consumerswith significant disposable incomes and a keen interest in foreignproducts and services.
Though Argentina may not boast as many franchised operations asBrazil, it is slightly more advanced in terms of foreigninvestments. Liberal trade and strong currency make Argentina asolid market for foreign products and services.
With nearly 50 franchise operations, Colombia is SouthAmerica's third most franchised country. However, there aremany drawbacks to franchising here, including a continuing threatof guerrilla- and drug-related violence, a poverty rate close to 40percent and a small local market.
Asia
Many Asian countries are just now discovering franchising as anattractive way to boost their economies. Why is Asia luring foreignfranchisors? For one thing, more than half the world'spopulation lives there. China alone comprises nearly one-quarter ofthe world's population and is considered the most underretailedcountry in the world.
A soaring middle class and robust economic growth rates are alsoappealing to foreign investors. The economies of China, Thailand,Hong Kong, Indonesia, Korea, Malaysia and Singapore are all growingat a rate of between 6 percent and 9 percent every year.
Indeed, many Asian countries are rolling out the red carpet forforeign investors. Governments such as those of Malaysia, Indonesiaand Singapore are encouraging franchising and foreign investmentwith laws, organizations and programs intended to support theeffort.
Despite promising conditions, franchising in Asia presents newchallenges for foreign franchisors. Some markets, such as Manila inthe Philippines, are completely saturated, while others--Malaysia,Taiwan and Singapore, for instance--are suffering labor shortages.Cultural differences also present some problems. For example, theterm "franchising" is difficult to translate intoChinese, so franchise discussions with Chinese officials andbusinesspeople are often confusing.
Throughout Asia, the major hurdle is overcoming strictregulations regarding foreign investment. These regulationsdon't always forbid foreign investment, but they arecomplicated and can be burdensome to inexperienced overseascompanies.
Middle East
Word is getting out that the Middle East is a potentialfranchising hot spot. Franchisors are attracted to the Middle Eastfor a variety of reasons. For one, many residents have largedisposable incomes and a hankering for American and European goods.They are frequent travelers, aware of the world's hottestfashions and the latest trends in everything from fast food toelectronics.
Several countries have lifted restrictions and are encouragingfranchising and foreign investment with new laws and incentives.More and more governments have come to consider foreign investmentpotentially beneficial rather than threatening. Banks, too, haverecognized the potential of franchising and are offering financialincentives tailored to this market.
As in many countries, fast-food restaurants dominate franchisingin the Middle East, but a multitude of other opportunities exists.Automotive service centers, apparel outlets, beauty shops andeducational institutions are all good possibilities, as arequick-printing centers, carpet cleaning services and travelagencies.
Companies considering expanding into the Middle East mustidentify a well-known company that is economically appropriate andculturally respected to partner with. However, one of the mostimportant things to remember is the Middle East, like many regionsof the world, is not a single destination. There are many differentcountries--each with its own customs, cultures, languages andlaws--which makes expanding into this market more challenging thanyou may think. Products and services that interest Turks may infact offend Kuwaitis. McDonald's, for instance, adjusted tocultural differences by offering a Kosher menu in Israel andspecial burgers that conformed to dietary restrictions in Muslimcountries.
Despite these drawbacks, franchising continues in the MiddleEast. Several countries--the United Arab Emirates (UAE), Israel,Saudi Arabia, Kuwait and Egypt--may be the most desirable toforeign investors because of suitable conditions and interest onthe part of citizens. Conversely, franchisors may want to avoidIraq, Iran and Lebanon, where political instability andanti-Western attitudes make expansion difficult.
Europe
Franchising is widely accepted and practiced throughout WesternEurope, where it has found enormous success. France has more than600 franchisors, representing nearly $25 billion in sales; GreatBritain has approximately 132 franchisors, representing $8 billionin sales; Germany has 265 franchisors; and Austria has about 80.Belgium and Portugal are fairly new to franchising, so there islittle franchising information available for these countries, as isthe case with Norway, Sweden and Denmark.
We know, however, that conditions are promising throughoutEurope. There is accelerated industry deregulation, increasingdemand for goods and services, expanding urbanization, increasingmobility, 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 offranchising throughout Central and Eastern Europe remains murky ascapitalism replaces communism. The consensus is that franchisingwill eventually proliferate here, but just when it will take holdand begin to prosper is uncertain.
Industries expected to do well in Eastern Europe--particularlyin Poland and Russia--include laundry and dry cleaning services,hotels and motels, fast food, book and music stores, auto parts andservice, and professional training.
Net Profits
By Karen E. Spaeder
Penetrating the Colombian market is no easy task--just ask CesarCoriat, a PostNet International Inc. master franchisee. Bothconsumers and potential franchisees have been slow to accept theconcept of franchising, Coriat says, and the country is goingthrough somewhat of a recession.
"We're pioneers here," says Coriat, who opened hisfirst PostNet in Cali in February 1996 after learning about thepacking and shipping company at an International Franchise Expo theprevious year. "Franchising's not common here; we'vebeen doing a lot of work trying to convince people that franchisingis 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, DHLWorldwide and Federal Express were already working with PostNet inother countries; the Henderson, Nevada-based franchisor only neededto send a letter to these companies requesting help getting theball rolling in Colombia.
So far, Coriat has sold two franchises, both in Bogotá.Since opening in January, the new stores have been selling beyondprojections; Coriat expects combined sales of the three to reachabout $900,000 this year. "[The franchisees are] consideringopening two more stores each," adds Coriat, 31.
Coriat is confident that franchising is gaining acceptance inColombia. "The differences in culture can affect thedevelopment of any business," he says. "But things arepicking up and looking good for the future."
Show Time
Investors seeking international franchise opportunities canlearn more at the International Franchise Expo, featuringexhibitors from all facets of the franchise industry. The expo willbe held September 5-7 at the Los Angeles Convention Center. Call(201) 461-1220 for more details.
Airsopure Inc.
All Tune and Lube Systems Inc.
Alphagraphics Printshops of the Future
American Dairy Queen Corp.
Athlete's Foot Group Inc.
Berlitz
Bevinco Bar Systems Ltd.
Big Apple Bagels
Blimpie
Bullwinkle's International
Candy Bouquet
Candy Express
Certa Propainters
Choice Picks
Color Me Mine
Connect.AD Inc.
Copy Club
Coverall
Creative Cakery Franchise Inc.
Crestcom International
Cruiseone Inc.
Discount Party Warehouse
Duraclean
ELS Language Centers
Environmental Biotech
Express Personnel Services
Fastframe USA Inc.
Fastsigns
Faux Pas
Frozen Fusion
General Business Services Corp.
General Nutrition Centers
Global Travel Network
Gold Effects
Grease Monkey International
Heel Quick
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.
Manhattan Bagel
Microplay Franchising
MilliCare Environmental Services
Minuteman Press International
Molly Maid
Netpage
New World Coffee Co. Inc.
New York Burrito
O2Zone
Optimax
Orion Food Systems
Pak Mail Centers of America
Papa John's Pizza
Paper Warehouse
Party City
Partyland Inc.
Pizza Inn
PostNet
Quizno's
Rent-a-Wreck
Round Table Franchise Corp.
Servpro Industries Inc.
Shred-It
Signal Graphics Printing
Sign-a-Rama
Signs Now Corp.
Snelling Personnel
Starlite Diners
Sten-Tel
Subway
Supercoups
Taco Maker
Television & Entertainment Publications
Texaco Refining and Marketing
Tony Maroni Pizza
Ultrazone
Wild Birds Unlimited
Wings and Rings
Worldsites
World Trade Network
Women's Health Boutique
Ziebart Corp.
Leonard N. Swartz, worldwide managing director of franchiseservices for leading global accounting firm Arthur Andersen, hasmore than 34 years of international franchise managementexperience. His areas of expertise include planning, operations,consulting, compliance, marketing and sales in a wide range ofindustries.
Contact Sources
PostNet, Ave. 5 AN #25-55, Cali, Colombia,57-2-668-3393.
