“Franchising is a tremendous export. In emerging countries [where there is] urbanization, there's more desire for higher-quality products, especially U.S. brands.”~ Aziz Hashim
A mature U.S. franchise market combined with a sluggish, still recovering national economy makes international franchising an appealing strategy to create stability for franchise companies. According to Franchise Times, since the year 2000 the average number of locations a franchise system sustains outside the U.S. has grown from 27% to 36% of its total units. This year, we focus on a trio of areas that are high on the list of desirable franchise expansion locations.
Any time franchisors, U.S. Embassy officials, U.S. Commercial Service officers, government officials, and (pre-screened) local investors make a concerted effort to get together, you can be sure that the area is ripe for franchise development—especially when it means braving a typhoon to meet.
This past July, shortly following the appearance of Typhoon Rammasun, representatives from 14 U.S. franchise brands risked harsh weather conditions to visit Manila, the nation’s capital, to explore opportunities (some franchise representatives were actually in the Philippines when the typhoon hit). These franchise brands included Edible Arrangements (#75), Jan-Pro (#26), Panda Express, Tilted Kilt, Title Boxing Club, Tutor Doctor (#80), and more.
An estimated one million people in the Philippines are employed by franchise businesses. Use of the English language is widespread and the Filipino affinity for American goods, as well as about 400,000 U.S. citizens living in the country, provides an ideal market for incoming American brands.
Currently, American concepts make up approximately 45% of the franchise market in the Philippines. While it is down from the 60% market share once enjoyed, the decline is actually a good strength barometer of the expanding Filipino franchise industry with more and more local concepts finding a foothold.
Food and beverage is currently the top sector for Filipino franchise opportunities. For franchisors considering the Philippines, commerce is largely concentrated to mall settings because of space, weather, and traffic factors.
While it didn’t receive a dedicated mission trip this year, India is on the radar of many franchise systems for expansion.
Changing tastes are part of the reason for an influx of American franchises into the 2nd most populous country in the world. According to Samir Chopra, group chairman of Cybiz Corp, burgers are fast replacing pizza as the fast food of choice in India. Burger brands that have entered the Indian market recently include Carl’s Jr., Wendy’s (#27), Burger King, Fat Burger, and Johnny Rockets (#97). Even Dairy Queen (#33), known more for its ice cream, has plans to open around 100 burger stores in the country, altering its menu to satisfy the local palette.
Altering the menu of a franchise isn’t straightforward, even for very experienced brands. To underscore the challenge of adapting to another culture, consider the case of Dunkin’ Donuts in India.
In 2012, Dunkin’ Donuts entered the Indian market but quickly found itself languishing. As it turns out, customers were treating the outlets as pastry shops—a place to enjoy a treat, but not a regular restaurant. As customer Diksha Sharma said in an interview, “I don’t think anyone would come just for a doughnut. My grandmother only recently found out what a doughnut is.”
That’s when company executives realized their plan for entering India’s market and creating a menu suitable to local tastes needed adjustment if they wanted to endure. “[It’s] when we decided the role of the brand needs to change, [going from a] predominately a.m. brand to a p.m. brand,” said president of Dunkin’ Donuts India Dev Amritesh.
Changing a brand role in diverse markets requires much research and development. In the case of Dunkin’ Donuts, the company spent roughly one year developing a menu that could function independently from its hallmark of donuts. Wraps and burgers were added to the menu, including four beef-free options—an essential decision because many Indians don’t eat beef. Operations were also shifted forward for later opening hours. All of the changes necessitated an amendment to the brand’s name. In India, the company goes by “Dunkin’ Donuts & More” and the changes are working so far. The company expects to grow to 100 Indian outlets by 2017.
Closer to home, Mexico is another country continuing to draw intrigue from expanding franchises. The Mexican franchise market is the 5th largest in world, accounting for 6% of the country’s GDP. According to Mexican franchise consultant Ferenz Feher, franchising in Mexico grew almost 12% in the past year. Like in the Philippines, American goods are overwhelmingly well received in Mexican culture. “It’s almost a status thing,” says Rebecca Torres, Commercial Attaché for the U.S. Embassy.
Over the years, many laws have been passed to facilitate business between the U.S. and its southern neighbor. For instance, there is a treaty between the U.S. and Mexico that forbids double taxation. As with all international franchising efforts, precautions need to be taken by franchisors because of regulatory differences between countries. Pablo Hooper Ramirez, a Partner with Gonzalez Calvillo, recommends that—if possible—U.S. franchisors should have their franchise agreements signed in English if their franchisee can understand English.