Franchisors are always on the lookout for the next territory, the next region to expand their brand into. The nature of the franchising model means that it must always lay the groundwork for the next region well before it’s sold out in the territory it is concentrating on.
There’s one part of the world that is primed for international brands: Southeast Asia. Southeast Asia is one of the fastest-growing regions on the planet, outpacing much of the world in GDP growth and many more indicators that suggest this part of the world is on the way up. It’s also home to a very young population; who are normally a great source of innovation, and are very receptive to new, foreign brands.
Southeast Asia is also covered by the Association of Southeast Nations (ASEAN), a successful economic union of 10 Southeast Asian nations. ASEAN is touted as a success for promoting increased economic integration between union members, and creating real growth amongst the union.
Franchise brands are recognizing this region as one they need to expand into with its growing GDP per capita and young population. The interconnectedness of the area means that brands are faced with fewer challenges when growing into more countries in the region, and are more likely to offer products and services across most of the ASEAN countries, though there are sufficient differences between individual nations to rule out a ‘one-size-fits-all’ approach.
“Years ago, when we first started the franchise market, western brands were all super-keen to have a presence and measure their success by opening branches in Dubai,” said Patrick Mauser, founder and CEO of the Asian Franchise Academy.
“Well, the market has changed a lot. There are great brands evolving right here in Asia with the prime players from Korea, Taiwan, Japan and Thailand not far behind.”
The domestic franchise landscape isn’t to be balked at either; numerous homegrown concepts have found takers across the region; with a loosely common cultural bond between the nations making the translation of a concept from one country to another a little easier. The plans being drawn up by ASEAN in regards to banking, trade zones and tariffs will create an ease of doing business in the region that is necessary to attract certain international brands.
Why is the region so attractive?
The economic fundamentals of a region are what underpins its potential, and they’re very strong in Southeast Asia. It’s difficult to put 655 million people in the same boat, but the region shares a lot of characteristics.
Demographically, the region is coming to the point where the population isn’t growing at the same rate, and is very slowly beginning to age. This is a negative if it continues unabated, but there are a number of positives to this trend. More and more workers will migrate to urban centers for work and the young, cheap labor that helped to industrialize much of the region will slowly wind down.
Workers who have moved into urban centers will have access to higher-paying jobs, and can be more productive. It also creates new markets for brands to sell their products and services into.
ASEAN can claim a lot of credit for the development of the region, taking a collective approach to economic growth in the region, without favoring or staking any one nation against the other. It continues to promote inter-nation trade policies that have helped every country prosper and in turn, make it an attractive destination for franchise brands.
“Outside of the continent of Africa, Southeast Asia represents that fastest-growing region economically. Currently, Singapore is the only developed nation in the bloc, but that will soon change with Malaysia and Thailand gaining upper-income status within the next decade and two respectively,” said Sean T. Ngo, CEO and co-founder of VF Franchise Consulting.
“Younger consumers mean even higher future spending power in the years to come. In fact, many global franchisors prefer to enter Southeast Asia before they tackle more difficult markets like China, Korea, Taiwan, and Japan.”
While the pandemic affected every country negatively, some Southeast Asian countries were able to tackle the scourge effectively, and minimized the negative consequences of COVID-19 on the economy. In 2020, Vietnam was the best-performing economy in the world, growing at 2.9 per cent last year. It demonstrated the course it was already on, and the smart policy-making required to minimize COVID-19 to the extent it has.
Current state of franchising in the region
Southeast Asia will be, if it isn’t already, an extremely attractive destination for international franchise brands. The region benefits from real improvements in GDP per capita, a rising middle class and a relatively young population. It’s a part of the world that is seeing economic development for the first time, and with that comes new aspirations and wants.
The rapid development of Southeast Asian countries and the move away from agriculture into more well-paying and productive jobs have left people with more disposable income and time. This is where franchise brands can step in and provide people with the products and services they now want. This is reflected in the type of brands that are in demand across the country.
“Food and beverage franchises, including but not limited to fast food, family and casual dining, desserts, coffee chains, bakeries and more continue to interest investors and consumers alike,” said Ngo.
“Other franchise brands that are sought after are retail franchises, fashion brands, education franchises, services, automotive, lifestyle and fitness, and others.”
Consumer-facing, product-based brands appear to perform very well. The largest American F&B franchises made their way into the region some time ago. Their growth can be reflected in the region’s first unicorn, Grab. Grab is a food delivery and payment service app, and its growth demonstrates the rise of the region and possibilities for brands around the world.
While the region shares similarities and proximity, franchisors should not get ahead of themselves and treat it as a single market. There can be vast differences in culture, law and business practice amongst countries.
“It is a misconception by western brands to think of Southeast Asia as one market. What works in one country may not work in another,” said Mauser.
“Although the countries are only a short flight from one another, cultures vary immensely. To think ‘one serves all’ is probably one of the most fundamental errors an incoming brand can make.”
The future of franchising in Southeast Asia
As more of Southeast Asia moves into urban centers and leaves behind the agricultural lifestyle, economies will continue to grow. This, coupled with the young population of the entire region will create an attractive proposition for international brands.
Increased disposable income, and further refinement in tastes, wants and needs will contribute to the growth of the type of businesses that were not facing the same level of demand 20-30 years ago. The likes of training, extra-curricular education, fitness and service franchises will see more and more demand.
“We have experienced a major shift from food and beverage brands just a decade ago to now the education, training and consulting sector where we see the biggest demands,” said Mauser.
“For example, English language schools are in demand, not only for children but also adults. We see the education and training sector as the biggest opportunity of this decade and beyond.”
A rising middle class’s ambition is often reflected in their spending habits, and educational franchises are well placed to benefit in Southeast Asia. Lofty aspirations are becoming more and more practical in real life in the region, so parents will set their children up as well as they can with supplemental education, as is happening around the world.
The only limiter to the growth of franchising in the region is access to capital. While great strides have been with the availability of credit, it could go further.
“Financing for franchise business owners would certainly drive the growth for this sector even higher if it were available throughout the region,” said Ngo.
“In markets like Singapore, Malaysia, and Thailand, it is oftentimes easier for franchisees to borrow capital for their franchise business, while it is more challenging for franchisees based in other countries.”
Get in on the ground floor
For well-capitalized franchises, expanding into Southeast Asia should be a no-brainer. While it may not currently be the hottest destination in the world, it’s on the right trajectory. It’s a region that sees a lot of collaboration and has found a great amount of stability through ASEAN. Even for smaller franchises, Southeast Asia could be a primary growth market.
The economic indicators suggest it’s one of, if not the fastest-growing region in the world. Coupled with its young, aspirational population, it’s exactly the right place for forward-thinking brands to enter into.
