Franchising is a business format with American roots that has grown globally by a considerable amount, particularly in the past couple of decades.
Consider this, fifteen years ago relatively few franchisors were operating internationally, and the ones that had gone International were typically the large-scale ones. Nowadays, 32 percent of the franchise units operated by the top 200 franchisors in the United States are located outside of the U.S. That number represents a 33 percent jump in the number of international units operated by those franchisors in the past 10 years.
In addition to the United States, countries such as England, Australia and Canada have found a high level of success in spreading their franchise concepts domestically and around the world. And additional players like France, Spain, and Germany are getting into the international franchising game, and also experiencing marked success.
With the launching of our new franchise portal for Mexico within the past month (and another soon launching for South Africa), it’s obvious that a worldwide financial malaise hasn’t stopped the growth of franchising. But where are some places where franchising may “boom” next?
The U.S. Department of Commerce estimates that over 75 percent of the expected growth in the world's trade over the next two decades will come from developing countries, specifically emerging markets. Eighty percent of the world's population lives in these emerging markets, but they currently only combine for an estimated 25 percent of the world’s gross domestic product.
When you hear the phrase “emerging markets” typically the first countries to come to mind are the larger ones such as the “BRIC” countries of Brazil, Russia, India and China, along with maybe a couple others. However, smaller countries have future growth potential that simply shouldn’t be ignored.
Many of the countries that warrant consideration are part of regions once unified, but have since dissolved into historically-new entities. Places such as the former Soviet Union, former Yugoslavia, and other countries in Eastern Europe fit into this description.
According to the East Europe Franchise Association, the region – that also includes some countries geographically located in central Europe as well – is a vast and emerging marketplace for franchising consisting of 30 countries with over 450 million people.
So where are the main growth areas within this vast and emerging marketplace? Kristin Houston, leader of the U.S. Commercial Service Global Franchise Team, points to the countries of Ukraine, Slovakia, Poland, Hungary, and the Czech Republic. These five countries have grown 67 percent in the last three years alone. The sectors of retail, automotive services, real estate, education/training, hotel and hospitality, and quick-service restaurants are currently the most in-demand franchise areas.
Here are some additional quick facts on the franchise landscape in these specific countries:
- Around 42 percent of the Ukrainian franchising market consists of non-Ukrainian franchising brands
- Fast food is the predominate franchise industry in the country
- Some areas Ukrainian franchising businesses have been successful in include office supply delivery, outsourcing services, staff and management training, copy and printing services, and translation services
- Other franchise sectors with a strong base in the country are in customer service such as cleaning and washing services, repair, tourism, ticket delivery, organization of entertainment, etc.
- Banking and financial-related systems are newer areas gaining traction
- Franchise relations are regulated by the Civil Code of Ukraine and the Commercial Code of Ukraine, with special chapters of these acts dedicated to franchising
- Hotel and hospitality is highly regarded as a future growth area
- There are over 100 franchising models are present in the Slovak market, of which about two-thirds are within the retail trade sector and about one-third in services
- The Slovak Franchise Association has adopted the European Code of Ethics for Franchising
- There are currently no specific regulations in Slovakia in regards to franchise agreements
- Has some of the most developed franchise systems in Eastern Europe
- There are over 300 franchising brands in Poland and more than 13,500 franchising outlets
- Around 30 percent of the franchising systems in Poland come from foreign countries with most foreign-based franchise systems coming from Germany, France and the U.S.
- Popular franchise sectors include the following: textiles, retail food sales, professional development services, body care salons (hairdressers’ services and beauty salons), fuel stations, financial services and fast food
- The majority of regulations applicable to franchise agreements are found throughout the Polish Civil Code, the Commercial Companies Codes, the Act on Abatement of Unfair Competition and many other laws since Polish law does not specifically regulate franchising agreements
- The Hungarian franchise market consists of approximately 300 brands, 50 percent of which are Hungarian owned
- The other 50 percent of the Hungarian franchise market are either subsidiaries of international companies or Hungarian master franchisees
- Some of the first franchises in Hungary included popular hotel chains and fast food franchises.
- Several Hungarian franchise companies are active internationally.
- Under Hungarian law, a franchise agreement is considered an atypical agreement, and neither any specific law nor the Hungarian Civil Code regulates these agreements
- There are around 150 franchise brands are in the Czech Republic
- Like many other European countries, the Czech Republic lacks legal regulation specifically applicable to franchising
- About 62 percent of the franchising concepts are in the service sector, and 38 percent are in retail
- Almost 50 percent of franchise concepts operate in food and beverage, real estate or clothing/shoes sectors
To fully find success internationally, a franchisor will have to adjust and adapt their model to not only the regulations (including currency exchange and tax laws) of where they desire to operate, but also that area’s language, working hours, and culture.
In addition, the fact that there are few established franchise laws in many of these countries shouldn’t discourage franchisors from establishing outlets in these countries. Organizations such as the International Franchise Association and the International Trade Administration branch of the U.S. Commerce Department offer franchisors who seek to operate internationally many of the resources needed during the process.
Also, although they are becoming more financially-sound and developing a stronger middle class, these countries still haven’t been cultivated by a high number of franchisors. Consequently, hopeful entrepreneurs within these countries are generally eager to learn business principles through the methods and procedures franchisors have to offer.
Franchise businesses have quite a bit to offer emerging markets because they are designed to be replicated. Thus, they require less experienced entrepreneurs to begin, and provide business-learning opportunities within a support structure. All of this can help emerging market countries further develop their economies.
According to Houston, “95 percent of the world’s potential consumers are beyond U.S. borders.” Going International is a way for franchisors to sustain growth opportunities for their business for years to come, and it wouldn’t be surprising to hear of major franchise growth in the East Europe region in the not too distant future.
Sources: Franchising World Magazine (March 2011), U.S. Commercial Service, East Europe Franchise Association, International Franchise Association, Australian Trade Commission