U.S. Commercial Service to Franchisors: Seize the Trends and Grow Globally
Find out where your best opportunities for strategic growth are and build a global support network to help you get there, says Kristin Houston, leader of the U.S. Commercial Service Global Franchise Team. Learn more in this Franchising World Q&A.
By Kristin Houston
FW: Why should franchisors go international?
Houston: Given that 95 percent of the world’s potential consumers are beyond U.S. borders, there’s a lot of market potential yet to be tapped. When you look at U.S. exporters as a whole, 58 percent of them only sell to one market. If you’re a franchisor already doing business in an overseas market, why not discover other similar markets? Overseas expansion is a natural strategy for franchisors to pursue.
FW: What are some international trends in franchising?
Houston: In an IFA survey, 74 percent of respondents indicated they plan to start or accelerate international operations. According to the U.S. Commercial Service of the U.S. Department of Commerce’s International Trade Administration, more franchisors are becoming keenly aware of the value of building a global network and critical connections through consultants, brokers and strategic partners. The U.S. Commercial Service is a key part of this, providing great resources through its global network of trade professionals in 109 U.S. cities and U.S. Embassies and Consulates in nearly 80 countries that connect U.S. companies with international buyers. We’re seeing growth and expanding opportunities in many places worldwide, including India, Brazil (and the rest of South America), Vietnam, Eastern and Western Europe and throughout the Middle East/North Africa. Here are a few highlights:
India’s franchising sectoris growing at a rate of approximately 30 percent per year, rapidly becoming the business model of choice, most noticeably in the following sectors:
• The $2.68 billion beauty and wellness market in India is estimated to grow to $4.6 billion by 2013.
• The $520 million Indian fitness market is growing at 40 percent annually.
• The organized food and beverage retail sector is worth approximately $280 million and is growing at 25 percent-30 percent annually, with franchisees constituting 17 percent of this growth.
• Additionally, as per the Indian government’s liberalized policy, no prior approval is needed from Government/Reserve Bank of India for royalty payments and franchise fees.
Brazil’s franchise sectoris among the world’s largest and most sophisticated in its business practices and growth, consistently growing faster than the overall Brazilian economy. In 2009, The Brazilian franchise sector grew by 14.7 percent while the country GDP growth for the year was close to zero. Total sector revenue was about US$ 36 billion.
• Franchises account for approximately 25 percent of gross revenue in the retail sector. Local Brazilian franchises dominate the market at 90 percent; however, foreign groups, particularly from the United States, are making headway.
• The Brazilian Association of Franchising or ABF projects sector growth of 10 percent in 2010, once again outpacing the GDP.
• Sectors that grew the most in 2009 were personal accessories and shoes with an increase of 41.2 percent, clothing and fashion grew 37.5 percent, and new to the top three is informatics and electronics with a an incredible 28.9 percent growth.
• In line with The US-Brazil Commercial Dialogue, IFA and ABF will be working together on the April 1-3, 2011 International Franchise Expo in Washington, D.C. and the June 8-11, 2011 ABF Franchising Expo in Sao Paulo, Brazil.
• Other growing markets in the region are Chile, Ecuador and Panama.
Vietnam’s franchise markethas experienced a recent surge with an average growth rate of 30 percent, opening more than 530 franchise enterprises in recent years.
• A 2006 commercial law provided a more conducive climate for the sector to grow.
• Sectors for greatest growth potential include: food and beverage, supermarkets, (cash and carry) retail and real estate. (See Vietnam Webinar on March 23 @ export.gov)
Eastern Europe’sgrowth areas include Ukraine, Slovakia, Poland, Hungary and Czech Republic, which have grown 67 percent in the past three years.
• Analysts estimate that the market potential amounts to 300 brands for the Czech Republic, the number of brands similar to neighboring Austria.
• Sectors most in demand include retail, automotive industry services, real estate, education/training, hotel and hospitality and quick- service restaurants.
Londonis an important venue for European and other investors looking to meet U.S. franchisors. The recent Franchise Show in London provided country-wide promotion for U.S. brands at the show, with brand descriptions placed on U.S. Embassy Web sites in the local languages inviting investors from the region to meet with them in London.
• Due to the ease of travel to London, investors are coming from Africa, the Middle East, Eastern and Western Europe and India.
• Sectors of particular interest include food and beverage, education, elder care and automotive.
The U.S. Commercial Service has seen an increase in investors from other countries at overseas trade events looking to find U.S. franchisor partners. Overall demand for U.S. franchise concepts includes food and beverage, health beauty wellness and fitness, professional services, education, apparel/textile and retail. Also, we’re seeing more proactive outreach among U.S. franchisors.
For example, food and beverage franchisor Kahala has relied heavily on the U.S. Commercial Service to help build its network of contacts. “The help, support and relationship with the Sao Paulo U.S. Commercial Service office has played an instrumental role in the education and familiarization of the market and has given Kahala an understanding of what it takes to be successful there,” said Eddy Jimenez, vice president of international development and logistics. “Through this relationship, we’ve found a great master franchisee that will soon deliver the ultimate ice cream experience of Cold Stone Creamery to the ice cream aficionados.”
Another trend we have been seeing is high-value investment firms contacting U.S. Embassies directly for assistance connecting with U.S. concepts to bring to their markets.
FW: How can your Global Support Network help increase the chances for success?
Houston: International franchising is not without its challenges. Franchisors need to seek counsel because going international takes twice as much money and time as domestic expansion. Getting exposure to the right partners, potential investors and understanding the marketplace, rules and regulations need to be carefully considered. Also, you’ll need expert guidance with local franchise laws, as well as assessing and doing proper due diligence on your potential investors. Your global support network will be critical to help avoid mistakes and increase your chances for success in the marketplace. Local partners, lawyers, consultants, brokers and the U.S. Commercial Service can assist in each of these areas.
FW: How do you maximize your resources for overseas success?
Houston: U.S. franchisors need to get connected to overseas networks even in their initial fact-gathering stage. The U.S. Commercial Service and IFA can help direct you toward respected service providers in most markets. The assistance you will receive includes market research, identifying and qualifying partners, regulatory requirements, customs issues, cultural aspects of doing business abroad, assistance with staging your grand opening events and more. .
Kristin Houston is a senior international trade specialist with the U.S. Commercial Service in Newport Beach, Calif. and leads the U.S. Department of Commerce/International Trade Administration’s Global Franchise Team. She can be reached at Kristin.Houston@trade.gov.