As franchising expands across the globe, it is important to assess proposed markets thoroughly to ensure that any specific franchise has a good chance of making money in a particular region. It’s worth bearing in mind, for example, that it takes about the same resources for a franchisor to start up in a new country that might end up having five units as it does to break into one that could ultimately support 25. So whilst the initial franchisor investment is about the same, the long-term income potential is drastically different.
It is critical, therefore, to evaluate countries in a consistent manner to see the risk and reward of various locations side by side before planning expansion.
For more than a decade the fastest growing franchise markets have been developing countries like Brazil, China, Indonesia, India, South Africa and Turkey. This was due to very fast growing GDP in these areas (annual GDP growth of 4% or more), which resulted in more middle class consumers, with money to spend at franchised businesses.
However, GDP growth has started to slow in most of these countries – and as many franchises have already entered them, it’s fair to say the opportunities are now somewhat limited to brands that will be genuinely unique in the region; whilst places like the Philippines, Vietnam, Colombia and Peru are being identified as top target markets for new franchise development.
Countries just beginning to see franchising can promise generous rewards for the entrepreneurial franchisor; but the risks are usually equally strong. Algeria, Nigeria, Iraq, Argentina, Russia and Myanmar (Burma) are examples of countries where there are substantial political, economic, legal and/or financial challenges to be faced, but with offer high potential for franchise expansion.
When it comes to considering the industries likely to be safe franchising bets for the future, the picture can be summed up as follows: burgers, children and senior care. These are quite simply the bottom line top growth sectors in franchising worldwide. People everywhere, it seems, want more and different burgers – and places in which to consume them. Experience shows that anything having to do with children, such as education and fitness, is likely to do well for franchisors and franchisees. And of course, it’s no secret that the world’s senior population is our fastest growth sector.
1. Is there a sufficiently large consumer population that can afford your product or service?
2. What are the government
regulations and/or laws that will determine if your franchise can make money in the country?
3. Is there trademark protection? Without this you have no protection for your brand
4. If your franchise is in the F&B sector, what are the supply chain, food quality and food distribution challenges in the country?
5. How easy is it to start a new business in the country? In some countries this is very quick and simple and, in others it can take one to two years.
6. Can you find out the details of the potential licensee in the country given their culture? Who owns the business? Where does the money for the franchise licence come from?
7. Are there barriers to entry for a foreign business?
Lesley Hawks is International Director at Edwards Global Services (edwardsglobal.com)
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