Franchise expert Jason Gehrke offers valuable advice for those considering a move Eastwards.
Exporting a franchise brand internationally can be very exciting, and fraught with the danger of failure. Sometimes the decision to expand abroad is part of a well-considered resource growth strategy, and sometimes international expansion happens reactively in response to unsolicited offers from foreign markets.
Whatever the reason for international growth, the better you know the market beforehand, the more likely your chances of success. If your brand is looking at expanding into South East Asia, then the following is the bare minimum you should know:
The Singaporeans are very entrepreneurial, and connected throughout Asia, especially among ethnic Chinese communities in other countries. Singapore itself is a city state, and has quite a small population, but can be an excellent jumping-off point into other parts of Asia. Be aware though that real estate is limited and expensive, so the site characteristics that work for you in your home market may be different in Singapore (and other Asian markets).
The legal system is based on the English system of law, and English is widely spoken. Singapore is possibly the most western of all Asian cities, with a significant expatriate population accustomed to Western products and services.
TIP: Singaporean-based master franchisees may need to negotiate rights for neighbouring countries to offset their high set-up costs and limited market size in Singapore.
Malaysia is a bigger market than Singapore, but has many similar cultural characteristics. English is still widely spoken, however the largest ethnic group is the native Malays (who speak Bahasa), and the Malaysian government operates a program to actively encourage Malays into small business via franchising as part of its economic development plan. For qualifying franchise candidates, this means government-backed loans at lower rates of interest, among other things.
There is also specific franchise legislation that applies in Malaysia which requires franchisors to lodge their franchise agreement, disclosure document, and if necessary, their operations manual with the Malaysian government for approval before franchising can commence. While this might seem like a barrier to entry to some franchisors, it has not slowed the growth of franchising in the country due to a proactive government policy of support for franchising. There are even government –controlled agencies which have directly invested in franchise brands developed in or imported into Malaysia.
TIP: Master franchisees in Malaysia may do well enough out of their local market alone, but may also seek to negotiate an option on Indonesia too. However a high level of government support for franchising in Malaysia does not necessarily mean full market penetration will achieved rapidly.
Indonesia has a massive population of more than 260 million people spread over a huge archipelago which actually makes it a combination of many smaller markets. The Indonesians also speak Bahasa and culturally are similar in many ways to their Malay neighbours in Malaysia. Indonesia is a country of extremes, and despite being the most populous Muslim nation in the world, Christianity is surprisingly widespread.
English is not used as much in Indonesia compared to Malaysia (especially outside the capital, Jakarta), and overall the country’s infrastructure is much less well-developed than Malaysia. Living standards and average household income is lower too. Like many developing countries, Indonesians have an aspirational interest in Western brands, and there is a rapidly-growing middle class to support them.
The Indonesian legal system is derived from the Dutch legal system (in colonial times, Indonesia was known as the Dutch East Indies), and specific franchise legislation (like Malaysia) requires franchisors to register with the government before commencing franchising.
TIP: Fewer individuals (relative to the population) can afford to buy major, fixed-location franchises in Indonesia, so expect that your master franchisee may wish to develop some or all of the locations under company ownership, or the ownership of related individuals or entities.
Thailand has a rapidly-growing domestic franchise sector, and no specific franchising legislation. Although it borders Malaysia, it is socially and culturally very different compared to its southern neighbour. It also has a much larger population, and has experienced political turmoil and instability in recent years. English is spoken much less widely than in Malaysia and Singapore, and the Thai language is written in an non-Romanic alphabet, unlike Bahasa which uses a Romanic alphabet which allows Westerners to read the language, even if they can’t comprehend it.
TIP: This is probably the most challenging market of those listed in this article, due to language and cultural differences, but potentially can be rewarding. It is advisable to consider entering this market with a highly-experienced local partner.
Australia & New Zealand
Australia and New Zealand both often view themselves as being part of South East Asia, even though some of its South East Asian nations don’t. Despite their relatively small populations (five million and 25 million respectively), New Zealand and Australia have the highest penetration of franchising in their economy compared to other nations of the world.
New Zealand has no specific franchise regulation, whereas Australia introduced the world’s first national regulations for franchising, and has updated these regularly. Unlike other regulated countries such as Malaysia and Indonesia, no prior government approval is required to commence franchising.
TIP: Just because these are the two most Western markets in the region, don’t assume that doing business here will be just like trading in the United Kingdom, the United States, or other English-speaking countries. You should still be prepared to adapt your system to local market conditions, and consider whether you want one operator for both countries, two, or even more by dividing Australia in regions.
Regardless of which country you choose as your jumping-off point for South East Asia, remember to do your homework first, be prepared to open a pilot operation at your own cost to test and modify your system, and select your local partners with great care. Most importantly, make sure your brand values don’t get lost in translation.
ABOUT THE AUTHOR
Jason Gehrke is the director of the Franchise Advisory Centre in Australia. With more than 25 years franchising experience, Jason regularly conducts best practise management training for franchisors throughout Australia, New Zealand and now the United States. He is also a director on the board of two national franchise brands with combined total of 180 outlets, a director of the Franchise Council of Australia and a past chairman of the World Franchise Council. Jason also publishes the most widely read franchise news bulletin in Australia. For more information, visit www.franchiseadvice.com.au
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