Franchise Update Magazine Issue IV, 2016 | Page 64
GROWING YOUR SYSTEM
International
Growing Abroad in 2017?
International franchise development trends
BY BILL EDWARDS
I
nternational franchise development
continues at a fairly high pace, despite
all the challenges around the world
that have little to do with the business climate. Let’s take a run around the world to
see what types of franchises investors and
consumers in various countries are seeking.
The major franchise exporting countries
remain the U.S., Australia, and the United
Kingdom. Asian franchises, like Jollibee
from the Philippines, are also going global
at an increasing rate.
Overall, a recent survey by our company
showed that the most sought-after franchises,
in order of desirability are children’s education, burgers, senior care, coffee, pizza,
fitness, and security services.
In developing countries, consumers
are seeking franchises related to children’s
education, food and beverage, management
training, and retail brands. In developed
countries, consumers still want food and
beverage, but are now more focused on
fitness, home care, cleaning, handyman,
and specialty clothing. A fairly new entrant is franchises that provide security
services, a sign of the times across the
world today.
Asia
Asian families spend an unusually high percentage of their income on the education of
their children to give them an edge when
growing up. For this reason, U.S. education
franchises are highly sought after.
China remains a fast-growing franchise
market with an estimated 300 million
middle- and upper-class consumers. While
the country’s overall annual GDP growth
rate slowed to 6.9 percent in 2015, the
consumer portion grew at an 8.4 percent
rate. The Chinese consumer has become
somewhat picky about food and beverage brands, often looking at homegrown
franchises, which have begun providing a
quality food product.
One interesting trend in China is the
growth of the local I Do franchise, which
provides young couples with engagement
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rings in more than 250 Chinese cities. The
previous generation did not give rings related
to marriage—a cultural shift. Auto repair
franchises are making headway because the
Chinese now buy more cars per year than
buyers in the U.S. and local warranties are
basic and very limited.
China has more than 4,500 franchises and
chain store companies, creating more than 5
million jobs nationwide. The China Chain
Store & Franchise Association (CCFA) says
the country’s top 100 franchises (124,086
stores) generated total sales of RMB428
billion (about US$64 billion), and that 90
percent of these franchises believed their
sales would continue to grow in 2015.
Challenges to U.S. franchise firms in
China include a relatively weak regulatory system, increasing costs of labor and
real estate, and a lack of qualified Chinese
franchisee candidates. The most recent
legislation released by the Ministry of
Commerce stipulates that franchise firms
can start franchising in China as long
as they own and operate two companyowned stores for one year in any part of
the world.
This brings up a new trend that is
perhaps not so positive for international
franchisors: increased regulation in many
developed countries. New franchise laws
and disclosure requirements are popping
up across the globe. Of course, a disclosure requirement also can have the impact
of leveling the paying field between local
franchisees and international franchises
seeking to enter new countries.
Vietnam is another Asian growth market for franchising, especially in the coffee
sector. The Coffee Bean & Tea Leaf is well
established, and PJ’s Coffee of New Orleans
recently opened its first coffee shop in Ho
Chi Minh City (Saigon).
In the Philippines, the Bistro Group,
which owns the country rights to TGI
Fridays, Buffalo Wild Wings, and Texas
Roadhouse, just opened its first Denny’s.
Manila is the headquarters for a large
number of international call centers whose
young employees come off work at all times
of the day and night and want a full meal.
From the outside, Japan would not
appear to be a good market for new franchises because of its very low (or no) annual GDP growth rate. The recent opening
of the first Carl’s Jr. in Tokyo shows that
well-known food brands will still find an
investor in Japan. With its large aging population, Japan offers a major opportunity
for well-established Western senior care
franchises. Right at Home senior care has
opened in Japan.
In Australia, the economy continues to
do fairly well. However, with more than 95
percent of the country’s franchises being
local, it is relatively difficult for foreign
brands to enter the market.
Europe
Since about 2008, Europe has been in a
deep recession following the global financial
collapse. Now, as annual GDP growth is
becoming positive again, investors are once
again seeking new brands to acquire and
develop in Italy, Poland, and Spain. This
interest is primarily in food and beverage
franchises, but fitness franchises are also a
major interest across Europe.
The United Kingdom recent ly voted to
leave the European Union (EU). This does
not seem to have had a negative effect on
the interest in most franchise development.
We shall see what 2017 brings.
The Americas
In the Americas, Peru is the standout economy. Having had a successful presidential
election that brought in a pro-business
government, franchising is once again
prospering in the food and beverage sector.
Brazil has been slowed by an economy
with negative GDP growth and political
changes. But next door, after 20 years of
bad government and economic policies,
Argentina is emerging as a high-potential
market. The new government is pro-business and pro-growth. They also are letting
the local currencies float against the U.S.
dollar so a franchisor can actually be paid
in hard currency rather than soybeans.
A new government in Canada has led
to more taxation and a slowing economy.
Large investment franchises, like in the
food and beverage sector, are finding it
hard to find investors and capital.
Africa
In Africa, there is interest in acquiring new
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