The supposed Chinese curse ‘May you live in interesting times’ was first documented as being said by Sir Austen Chamberlain in 1936. No matter, we do live in interesting global, business and political times. Will this impact the ability of franchisors to find and sign international licenses?
Whether it is BREXIT, the Trump presidency, Brexit, populism and nationalism in the European Union trade agreements, China or various wars, one might think 2017 would be a difficult year to find international buyers for franchisor licenses around the world. In actual fact, business people around the world turn out to be very pragmatic and tend to get on about the business of doing business. Our company will be active in 21 countries in 2017 for the U.S. franchisors we help ‘Go Global’. But to be successful a franchiser has to look out for the political meltdowns, economic disasters and wars and unrest. And then go to countries that do not have these conditions.
2017 Market selection factors
Given the changing political and business world, it is more important than ever for a Franchisor to carefully choose the countries they seek to license into. The goal should always be to receive an acceptable rate of return on the investment your franchise makes in a new country. Even though the franchisors will receive an initial license fee, they will make considerable investment in the new country, incurring costs such as:
Legal costs to create an agreement enforceable in the specific country
Technology adaptation – web-based business management, Intranet
New licensee training costs in your country and in their country at startup
Travel and staff costs to start up and grow the business in a country
43 years of doing international business across many sectors and in 68 countries informs that a Franchisor should consider these factors when deciding where to take their franchise in 2017:
Rule of law Will you be able to enforce the terms of your agreement and get back the rights to your brand if there is a problem with the licensee?
Country stability Are the politics and economics of the country stable so that a development plan can be realized?
IP Protection Will your franchise logo and other intellectual property be protected and remain the sole property of your franchise?
Good annual GDP growth = investors A World Bank study showed that if there is real annual Gross Domestic Product (GDP) growth of 4% or more there will be considerable new business development in a country
Your consumer market size Is there a sufficient consumer base who can and will want to pay for the products and/or services of your franchise?
Culture Will your product and/or service be acceptable in the country or will substantial adaptation be needed?
Ability to get paid Will you be able to get paid initial and on-going fees and royalties in a timely manner?
Investment risk As the Franchisor is investing time and money into a country license it is wise to consider the perceived risk of doing business in a country. AON Risk Solutions and Eules Hermes publish periodic reports that rank countries as to the risk of doing business in a country. As a franchise license in country can be a 10-20 year ‘investment’ it is important to consider how the country is perceived as a place to invest.
Ease of doing business The World Bank annually publishes the Ease of Doing Business Index which ranks 190 countries on 10 factors key to doing business in the country. A franchisor should consider these factors, the specific opportunity, the quality of the potential licensee and then make a risk decision on a country. And it is very important to keep monitoring such factors to be ready to focus on different countries if conditions change dramatically.
What Franchises Does The World Want in 2017?
Education Children’s, management, coaching
Commercial Services Business services, facilities management, financial, cleaning, handyman, security
Personal Services Handyman, maid, mobile, senior care, personal care, fitness
Retail Special clothing brands, theme brands
Food Well-known food brands, pizza, coffee, burgers, healthy food brands, speciality food brands
The most sought-after franchise types in 2017 will be: children’s education; senior care; burgers; coffee and pizza brands. One sector coming up fast in interest is security franchises.
Where are the best countries for your franchise in 2017?
Considering a wide variety of business, political and economic parameters as well as on-the ground market research, the following countries are expected to see good to excellent new franchise development in 2017:
The Dominican Republic New interest in US franchise investments
Japan Large corporations are seeking large consumer franchises
Peru New pro-business government, US franchise brand friendly
The Philippines Many new US F&B franchises opening
Poland High GDP growth, open to international brands
Viet Nam 6%+ GDP growth, F&B franchises desired
Spain Recovery speeding up, new franchise investment happening
Thailand Starting a comeback from post-coup recession
The United Arab Emirates Many new international franchise brands opening
Countries normally good for franchise development that will be challenging in 2017 are:
Brazil Economy is stalled, inflation up, government problems
Chile 1.8% GDP growth, government regulations and business taxation increasing
Mexico Post-US election new investment slowdown
China There is move towards local Chinese franchise brands
Turkey Political unrest and terrorism = little new investment by local companies
Research the details of each country to ensure the conditions are right for new franchise investment. Focus on countries that have the highest ROI for your franchise. Determine the level of investment risk your franchise finds comfortable. Find and use the best and most cost effective international development resources. Be prepared to change country priorities if internal situations change. Find the right licensees to build a long term revenue stream for your franchise.
ABOUT THE AUTHOR
William Edwards, CEO, CFE, Edwards Global Services, Inc., has worked on projects in over 60 countries and has advised more than 50 U.S. companies on international development. Contact him at email@example.com
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