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Franchisers head East, despite cultural and legislative challenges

Exhibitors at Singapore's Franchising and Licensing Asia had renewed drive to conquer the continent, driven by listless western markets and new ideas – but were all of them culturally compatible or, even, entirely practical?

Photo: Franchising in full flow at the 2013 FLA.
Franchising in full flow at the 2013 FLA.

When it comes to franchising a business, there is still growth to be had in both the US and Europe, but Asia is clearly where the action is. Based on the current showing, the franchising process is becoming more ambitious and more inclusive. Aside from standard franchising fare – food, retail and health for instance – it seems practically anything can now be franchised. Even pest control and girly bars.

The continuing interest in franchising saw some 250 brands from across the world converge on the Marina Bay Sands Convention Centre in Singapore for Franchising and Licensing Asia 2013. As well as a large national pavilion from the host country, there were also sizeable presences from the United States, as well as the largest showing to date from South Korea.

Commenting on the overall support for the show, Albert Kong, Chairman and Chief Executive of Asiawide Franchise Consultants, a Singapore-based specialist management consultancy, said: "The US and European markets are recovering, although they still have a long way to go. From my own observation and from the enquiries I have received, there seems to be more companies now exploring the Asian markets.

"In a territory as vast and diverse as Asia, it is hard to say which markets are hot and which are not. It is also hard to say just which franchise sector will prosper. This is because different markets have different needs, with the spending power of consumers varying from nation to nation or even from province to province.

"A country such as Myanmar, for instance, will not be ready for expensive services for the elderly for a considerable time, whereas this is already very current in Japan and in other developed countries with ageing populations. In another example, in spite of the generally low levels of income in Cambodia, education is still a priority there, so educational franchises remain in demand."

Representing the more traditional franchise sector was South Korea's Food Zone Co Ltd, a company keen to promote its Pizza Maru concept and find more franchise partners, particularly in Asia. Explaining his company's priorities, Lee Young Jon, the Chief Executive, said: "Our pizza dough is very unique and healthy. It is made with green tea, chlorella and 12 kinds of cereals. Our concept is take-away, rather than delivery or dine-in and we look to provide our customers and franchise partners with lower costs.

"We started in 2003 and now have 600 outlets in South Korea and have just signed our master franchise for China. Our targets for 2014 are franchises in Singapore, as well as across Southeast Asia, Japan and Taiwan. We see the US and Europe as more of a long-term goal, one that will require more research before we commit."

Moving on from the conventional world of franchising, one company at the US pavilion aptly represented a new wave of less obvious franchise possibilities – Atlanta-headquartered Orkin Pest Control. With a presence in 26 countries, including South Korea and China, Orkin sees itself as at the forefront of public health franchising.

Addressing the company's long-term goals, Tom Luczynski, Orkin's Vice President, said: "We are here at the FLA to drive our growth in Asia. Our key initial targets are Singapore, Malaysia and Indonesia, with the rest of Southeast Asia and Japan as the next stage. We are a recession-proof business. Over the past five years, we have continued to show strong profits, though we now see strong growth in Asia as our key future driver." 

Photo: Rosenblum: 'Asia is booming'.
Rosenblum: "Asia is booming".
Photo: Coyote Ugly: raising the bar.
Coyote Ugly: raising the bar.

The realisation that Asia was now the Next Big Hope for the world's franchisers was commonplace among attendees at the event. Steve Rosenblum, Co-founder of The Kase, a French company specialising in the provision of high-quality smartphone cases, was in Singapore specifically to boost his company's presence across Asia. Currently, the company operates 120 stores across Belgium, France and Germany, plus a small number in the US, Singapore and Hong Kong.

Explaining his plans for Asia, Rosenblum said: "We plan to have 3-5,000 stores globally by 2023, roughly one-third of those in Asia. We can open 1,500 on our own. To grow quickly, lock out competition and to provide case designers with a stable platform, we have now opted for the franchise route.

"Asia is now a booming market, with a growing middle class and increasing discretionary income. In general, it's also easier to do business there than in Europe. You could even say that a number of the Asian markets, notably Singapore and Hong Kong, are more developed than France. These two markets are the hubs for the rest of Asia and, thus, have become our priority markets. From here, we will target the mass markets of China, Indonesia, Japan and South Korea."

Aside from Asia, the emerging markets of the Middle East have also proved fertile ground for a number of franchise operations. Natural Looks, a 25-year-old UK-based company providing natural hair and skin products, now has twelve shops in the Middle East, six of which are franchised.

Jim Bullen, a director of the company, said: "Some 80% of our turnover now comes from the Middle East. Europe is very flat right now and likely to remain so for at least five years. A number of Middle East markets, however, are doing very well indeed. Asia, too, is far more vibrant than Europe and we have to be where the markets are growing and developing."

Despite the obvious allure of the Asian markets, they also represent very different challenges for western companies looking to sell franchises. Spain's Naturhouse, for instance, a specialist provider of healthfoods and dietary advice, acknowledges that China, in particular, posed a number of unique problems in terms of developing its business.

Explaining the challenge, Vanessa Revuelta, the company's Vice President, said: "We are attending the FLA to establish our presence in Asia, especially in Singapore and Southeast Asia, but also in China and Hong Kong. While there is still a lot of potential in Europe, there is a lot of future development in this part of the world and we want to be part of it.

"The US is set to be a key market for us for the future, and we are also likely to expand into Latin America. China is also a very important market, however it represents a real challenge. We have to register all of our products with the Chinese Ministry of Health, a process that is proving far more difficult than in other countries."

Cultural and legislative difficulties were also facing one of the more unusual FLA participants – Coyote Ugly, the New York bar franchise made famous by the 2000 movie of the same name. Addressing the difficulties of franchising such a singular operation, Leejon Killingsworth, the company's Director of Retail and Media, said: "Coyote Ugly was set up in 1993 and we now have 23 bars in five countries, with 14 of them in US cities. While Asia is booming, Europe is still struggling financially – in light of that our one European opening in 2014 will be in London. We are also planning on launching in Australia, Canada, and Mexico.

"In terms of Asia, we are looking to expand into the more cosmopolitan, tourist-friendly cities, such as Hong Kong, Singapore and Tokyo. Singapore is the springboard to South and Southeast Asia, while Hong Kong is the springboard into China."

"We are finding China a tough market, though, due to its various restrictions. Other markets in the area, such as Macau, we feel are just not quite ready. In general, a number of countries are less of a priority due to the restrictions on alcohol and their attitude to women – alcohol served by beautiful and entertaining women is not something all of the Asian markets are ready to accept."

Photo: Korea opportunities: Seoul traders make their case.
Korea opportunities: Seoul traders make their case.

FLA 2013 took place at the 3-5 October 2013 at the Marina Bay Sands Conventions Centre in Singapore.

Ronald Hee, Special Correspondent, Singapore

Content provided by Picture: HKTDC Research
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