Competition can be rife in countries with long-established traditions in franchising, so it may be worthwhile looking too at some less obvious locations
When we think of international franchise opportunities today we often think of Australia, Brazil, China, India, Mexico, the Philippines, the Gulf Cooperation Council countries in the Middle East, Indonesia, Spain, and the United Kingdom to name just a few. But there are other countries that can also make sense considering taking your franchise into.
This analysis looks at key factors about a country that help decide whether this is the right country for your franchise to expand into.
Argentina
After 20+ years in the economic, exchange rate and political wilderness, it was hoped that Argentina would see a new period of extended, stable economic growth. Structural reforms and business-friendly policies and regulations have the potential to result in good Gross Domestic Product (GDP) growth in the coming years. But the economy is fluctuating due to the government trying to overcome decades of bad economic policies and the specter of the Populist party retaking the presidency later this year.
Country population: 44,300,000
Median age: 32
Exchange rate: 42 Pesos per US$ 1
GDP per capita: $20,500 (2017)
Costa Rica
Costa Rica takes second place within the Central American region and has seen the greatest growth of the franchising sector after Guatemala. In recent years, there are 321 franchises operating here of which 245 (76 percent) were international brands. US franchise brands are well-established and well represented. The Ease of Doing Business and investment risk rankings for this small country are excellent. There is also a large US expat retiree population that appreciates their US F&B brands locations.
The retail sector predominates in the international franchises established in the country. Fashion brands rank the highest, with 32 perecent, followed by the food sector with 24 percent. Hotel franchises are third, with 14 percent of the total. Most franchises are in malls and other commercial centers.
Country population: 4,930,000
Median age: 31
Exchange rate: 565 Costa Rican Colons per US$1
GDP per capita: US$17,200 (2017)
Italy
In the past three years, the number of franchisors grew by 15 percent with annual sales of $268 billion (US$32 billion) or 1 percent of the entire Italian GDP. There are 950 franchises in Italy, of which 90 percent were Italian. Northern Italy has the highest concentration of franchise networks, primarily found in city centers, commercial districts and shopping malls.
The best prospects are in food franchising and distribution (3.5 percent), clothing (7 perecnt), fast food and street food (7 percent) and non-food distribution (5.9 percent). The U.S. is a leader in the Italian franchise market, with U.S. companies ranking in first place among foreign firms.
Country population: 62,138,000
Median age: 45.5
Exchange rate: 0.89 Euro per US$1
GDP per capita: US$38,000 (2017)
Kazakhstan
Perhaps surprisingly there are more than 495 franchises operating in Kazakhstan, most of them located in Almaty, making Kazakhstan the franchising leader in Central Asia. Kazakhstan is characterized by a large number of franchisees working on the basis of sub-franchising agreements with master franchisees based in Russia, Turkey, or elsewhere. Only a few foreign franchisors work directly with Kazakhstani partners but their numbers are growing.
U.S. franchisors have developed well in Kazakhstan, which include around 2000 franchised outlets. U.S. share is the most significant in total franchising turnover. Kazakhstani companies have accumulated financial resources that, combined with a lack of available investment instruments, are stimulating interest in franchising. Regional centers of franchising in Kazakhstan are Almaty, Astana, Atyrau, Karaganda, and Shymkent. Major international brands are concentrated in Almaty and Astana.
Country population: 18,744,548
Median age: 31
Exchange rate: 383 Tenge per US$1
Netherlands
According to ING Bank, the Netherlands is a particularly attractive market for U.S. franchise systems looking to test the European market before rolling out to the rest of the continent. This is attributed to the openness of the Dutch towards new concepts as well as the transparent nature of the market and the rules governing franchises.
The Netherlands also offers U.S. companies the advantage of being home to a population that is well educated and relatively fluent in the English language. The Dutch market is considered saturated in many areas, making it necessary for foreign systems to differentiate themselves from existing franchise concepts. Master franchise fees tend to be generally lower than is typical for U.S. franchise brands. The clear majority of franchises present in the Netherlands are Dutch (90 percent).
Country population: 17,085,000
Median age: 43
Exchange rate: 0.89 Euros per US$1
Panama
Panama is very receptive to U.S. style franchising. Recreation, entertainment services, fast food, automotive, and hotel and motel franchises are readily marketable, as the local market demands better facilities and services. Key factors for market success in Panama are high quality, customer service, brand-name recognition, and attractive packaging. U.S. products targeting the middle to upper-middle income market are usually competitive. Panamanians have a penchant for high quality U.S. products. Consumers with high disposable income follow sophisticated U.S. and European consumption patterns. Many high-end U.S. and foreign brand names are represented in Panama.
Country population: 3,753,000
Median age: 29
Exchange rate: 1 Panamanian Balboa per US$ 1
GDP per capita: US$24,300 (2017)
Peru
Peru has usually been the fastest-growing economy in Latin America over the past decade, with a 6 percent average annual growth rate coupled with the region’s lowest inflation rate. Prudent macroeconomic policies and structural reforms have boosted Peru into the middle-income country status and slashed poverty in half from 56 percent in 2005 to 22.7 percent in 2016. In its Doing Business 2016 publication, the World Bank ranked Peru 50th among 189 countries. Within Latin America, Peru is ranked third.
The franchise sector in Peru has 434 companies, primarily concentrated in food services. 216 companies are foreign-owned, 81 by U.S. companies. The sector has grown very fast over the last 10 years and presently is growing around 20 percent per year.
Country population: 31,037,000
Median age: 28
Exchange rate: 3.28 Peruvian Nuevo Sols per US$ 1
GDP per capita: US$13,300 (2017)
New Zealand
The New Zealand economy has generally offered political stability and solid financial performance in recent years. Franchising has become an important business model in New Zealand. By purchasing a franchise, New Zealand investors take advantage of the benefits of scale offered by a larger corporation such as brand recognition, marketing, operations support, and training. New Zealand boasts one of the world’s highest per-capita ownership of franchises.
There were 631 business format franchisors in New Zealand in 2017, up from 446 in 2012. More than 124,200 people are employed directly in business format franchises. Sales turnover for the entire franchising sector was estimated at $46.1 billion. Seventy-two percent of franchise brands originated in New Zealand.
Country population: 4,500,000
Median age: 38
Exchange rate: 1.48NZ$ per US$ 1
GDP per capita: US$38,500 (2017)
South Africa
There are about 625 franchised systems operating in the country that contribute around 12.5 percent to South Africa’s GDP. Food franchises make up about 25 percent of the total franchises. Several U.S. brands have made their entry in the last few years, namely Burger King, Pizza Hut, Krispy Kreme, Domino’s and Starbucks.
Approximately 40 percent of franchises are located in Johannesburg and Pretoria, the economic powerhouse of the country, and of the African continent. Almost 90 percent of franchises are locally developed and only around 12 percent of master licenses are international. High unemployment (25 percent), low new investment, corruption and entrenched local brands are a challenge for entering this market.
Country population: 52,842,000
Median age: 27
Exchange rate: 13.9 South African Rand per US$ 1
GDP per capita: US$13,400 (2017)
Thailand
The recent election should mean a turning point for local businesses to start investing again in franchises. There were 550 franchise brands operating in Thailand in 2017. That year the franchise market generated a total of US$5.6 billion revenue with 95 percent from local franchises and 5 percent from international franchises.
Food restaurants, quick service and casual dining have the largest market share of about 24 percent, while ice cream and beverage (including coffee shops) are second with about 22 percent. Though international franchise systems are few in number, they control 60 percent of the total market value. The United States is the leader among international franchises and controls 65 percent of the international market. Thailand’s growing affluence and the increasing popularity of American products also enhance the growth potential for American franchises. Demand for American food franchises also exists among expatriates and tourists.
Country population: 68,414,000
Median age: 38
Exchange rate: 30.7 Thai Baht per US$ 1
GDP per capita: US$17,800 (2017)
Bottom line:
These are countries where franchising is flourishing and/or coming back that you should consider when weighing where to use your limited resources to franchise your brand around the world. Look carefully at the various factors that impact franchising and new business development in the country before spending time and money in these markets. And always before entering any country, file for registration of your trademarks and local URLs so that your brand is protected.
The information for this article came from a number of sources including the World Bank, the International Franchise Association, the U.S. Commercial Service and the EGS GlobalTeam™ on the ground in countries around the world.
ABOUT THE AUTHOR
William Edwards CFE, is CEO of Edwards Global Services, Inc. (EGS). From initial global market research and country prioritization to developing new international markets and providing operational support around the world, EGS offers a complete international operations and development solution for franchisors based on experience, knowledge, a team on the ground in over 40 countries, and trademarked processes based on decades of problem-solving.
Contact Bill Edwards at bedwards@edwardsglobal.com or +1 949 224 3896.
