Are you looking for the most promising franchise sites overseas? Bill Edwards offers his expertise
The International Monetary Fund (IMF) predicts 3.7% global growth for 2018, the highest level in 10 years. While risks to global growth include political meltdowns, economic disasters, wars and unrest, investment risk, intellectual property concerns, the state of franchise development is robust in many parts of the world. Here are some opportunities and challenges of franchise development in 10 countries in the Americas, Asia Pacific, Europe and the Middle East.
Gross Domestic Product (GDP) growth is estimated to be 1.8% in 2018 after many years of negative growth. In 2016 the franchise sector grew by over 8% despite the slow growth of other industries. Over one-third of the 207 million people in Brazil are middle class consumers. About 95% of the franchises in Brazil are local brands. While Brazil has a franchise disclosure law and it can take quite a while to get government approval of new license agreements, international franchisors should once again consider seeking licensees in this huge market.
The IMF has revised China’s growth forecast for 2018 to 6.4%. There are an estimated 300 middle class consumers in China and they like to shop at franchised businesses. YUM China® has over 7,700 restaurants in 1,100 cities with 420,000 employees. There are over 125 cities with one million or more population. Today’s Chinese middle class consumer communicates through social media and shops on line more than US consumers. But the Chinese consumer also shops at malls that are everyone where in all sized cities. New international franchise development in China is, however, hindered by increased government regulation of foreign brands and the emergence of strong local franchises.
With 2018 expected GDP growth of 3.3%, this market offers good opportunities for U.S. franchisors. Growth of franchising in Hungary took off after the fall of communism 25 years ago and entrepreneurship is popular according to the U.S. Commercial Service. Hungary is also franchise friendly when it comes to laws and regulations. The sophisticated middle and upper class consumers are very savvy as to the value of shopping at franchised businesses. There will be an IFA / US Commercial Service Franchise trade mission to Hungary in October 2018.
The world’s fourth most populous nation is experiencing a rapid expansion in the middle class, which includes over 30 million households. Like many other Asian countries, the middle class in Indonesia is characterized not only by their purchasing power, but also their generally higher levels of skills and education. Most international franchises are in the food and beverage sector. It is still early days for service franchises. There are both franchise laws and regulations and disclosure requirements in Indonesia. Many members of the Indonesian middle class are educated at universities in the West and often know and prefer US brands and business models.
An expected GDP growth rate of 2.2% in 2018 should provide better opportunities for international franchisors than 2017, which was a down year after the 2016 U.S. elections. Franchising is a very well accepted way of doing business and represents about 6% of the country’ total GDP. Franchise opportunities are present in the food and beverage, beauty, education, fitness and children’s sectors. With over 60% of population aged between 15-60 and with 80% living in cities there is a huge consumer class that understands the value of franchises brands.
The Franchise Association of New Zealand recently published a survey showing that 11% of its GDP is from franchising, versus 3% in the U.S. In a country of 4.7 million people, there are more than 630 franchises. New Zealand is known for early adoption of new technology and trends, has a strong economy, fair laws and is very foreign franchise brand friendly. There are no government laws related to franchising.
GDP growth is expected to be 3.9% in 2018. This has been the fastest growing economy in Latin America for many years. The government is pro new business creation because this means new and better jobs for their people. International food and beverage franchise brands have been well-received in this country with its fast-growing middle class. The franchise sector is growing at about 20% per year. The growth of malls has resulted in many new venues for franchises.
This Southeast Asian country continues to be the star for international food and beverage franchise brand development. Franchising is well acceptable and is a major growth sector of the economy. Growth in disposable income has resulted in a more comfortable and better lifestyle. This has contributed to the growing sophistication of consumers across age, income and gender groups. A very strong acceptance of social media allows businesses to connect with the young middle class consumer. Laws and regulations are friendly to franchising in the Philippines. The Philippines Franchise Association graduates more Certified Franchise Executives (CFEs) than any other country but the USA.
With 2018 GDP growth estimated at 2.7%, Spain is benefiting from a dynamic economy, record levels of tourism and domestic consumption and new business investment. New franchise growth was about 5% in 2016 and 2017. Food and beverage as well as beauty sector franchises are the focus of new growth. International franchise brands are well accepted and the franchise regulatory environment is franchise- friendly. New franchise development is now limited only by the availability of cost-effective retail space for new franchise locations.
United Arab Emirates
The United Arab Emirates continues to be the place in this region where international franchise brands first enter because of the positive and open business environment and the receptivity to new brands. This is also a safe place in the Middle East to show off a brand before it enters other nearby countries. In addition to just about every global food brand there are a strong presence in the retail sector due to the very large malls where people shop due to the weather. The IMF expects GDP to recover from recent oil and gas price woes to grow at 3.4% in 2018. The UAE has three major consumer types: (1) the local Emiratis (about 400,000); the expat foreigners who work at the regional headquarters of international companies; and the high number of tourists who come to the UAE because it is fairly open for a vacation and is a shopping opportunity.
ABOUT THE AUTHOR
William Edwards is CEO of Edwards Global Services (EGS). You may contact him at bedwards@ edwardsglobal.com or +1 949 224 3896.