The new frontier

Entrepreneur, Sept, 1997 by Leonard N. Swartz

Franchising is growing worldwide. From North America to South America and beyond, franchising is emerging as the way to operate and expand successful businesses. Yet the global marketplace remains relatively untapped. In fact, the growth potential 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 anti laws, making cross-border expansion a challenging proposition. Franchisors must first determine whether their products anti services are in demand in the new country. They must also be able to transfer knowledge and provide the necessary training and support to franchisees.

Following are franchising highlights from around the world that reveal 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 names succeeding here with tried-and-true concepts. Yet parts of the continent have yet to see their first franchise.

As in most markets around the world, fast food permeates the South American franchising scene. Areas with plenty of room for expansion include residential and commercial cleaning services, hotels, motels, convenience stores, automotive services, cosmetic outlets and rental services. And contrary to popular belief, Brazilians are eager for imported coffee and coffee-flavored products, as most of the high-quality arabica beans produced in the country are shipped abroad, and the domestic brew is made from the lower-quality robusta beans.

Many foreign companies test their products or services in Chile anti Uruguay before planting permanent roots in South America. Both countries provide stable environments, which usually produce accurate predictions of success or failure.

The three most heavily franchised countries in South America are Brazil, Argentina and Colombia. With nearly 1,000 franchisors, Brazil is the South American franchise leader. With substantial economic growth and a healthy forecast for the future, Brazil has much to offer foreign investors - including a market of consumers with significant disposable incomes and a keen interest in foreign products and services.

Though Argentina may not boast as many franchised operations as Brazil, it is slightly more advanced in terms of foreign investments. Liberal trade and strong currency make Argentina a solid market for foreign products and services.

With nearly 50 franchise operations, Colombia is South America's third most franchised country. However, there are many drawbacks to franchising here, including a continuing threat of guerrilla- and drug-related violence, a poverty rate close to 40 percent and a small local market.

* ASIA

Many Asian countries are just now discovering franchising as an attractive way to boost their economies. Why is Asia luring foreign franchisors? For one thing, more than half the world's population lives there. China alone comprises nearly one-quarter of the world's population and is considered the most underretailed country in the world.

A soaring middle class and robust economic growth rates are also appealing to foreign investors. The economies of China, Thailand, Hong Kong, Indonesia, Korea, Malaysia and Singapore are all growing at a rate of between 6 percent and 9 percent every year.

Indeed, many Asian countries are rolling out the red carpet for foreign investors. Governments such as those of Malaysia, Indonesia and Singapore are encouraging franchising and foreign investment with laws, organizations and programs intended to support the effort.

Despite promising conditions, franchising in Asia presents new challenges for foreign franchisors. Some markets, such as Manila in the Philippines, are completely saturated, while others - Malaysia, Taiwan and Singapore, for instance - are suffering labor shortages. Cultural differences also present some problems. For example, the term "franchising" is difficult to translate into Chinese, so franchise discussions with Chinese officials and businesspeople are often confusing.

Throughout Asia, the major hurdle is overcoming strict regulations regarding foreign investment. These regulations don't always forbid foreign investment, but they are complicated and can be burdensome to inexperienced overseas companies.

* MIDDLE EAST

Word is getting out that the Middle East is a potential franchising hot spot. Franchisors are attracted to the Middle East for a variety of reasons. For one, many residents have large disposable incomes and a hankering for American and European goods. They are frequent travelers, aware of the world's hottest fashions and the latest trends in everything from fast food to electronics.

Several countries have lifted restrictions and are encouraging franchising and foreign investment with new laws and incentives. More and more governments have come to consider foreign investment potentially beneficial rather than threatening. Banks, too, have recognized the potential of franchising and are offering financial incentives tailored to this market.