Creating the Winning Formula to compete with Global Franchises

Indonesia Franchise Conference(IFC2014)12-13 September 2014 Jakarta Indonesia

Presented by Dr.Peerapong K.Business Coach and Consulting Co.,ltd.

www.peerapong.com

BackgroundFranchising refers to an agreement under which a

parent company (the franchisors) grants an individual or another company (the franchisee) the right (the

franchise) to do compensation called management fees.

The franchise includes the right to:

- sell the franchisor’s product & intellectual property,

- use its name, trademark and service,

- adopt its business and technical methods,

- copy its symbol or architectural methods,

- use it procedural system etc.

Foundation for Successful FranchisorsFoundation for Successful Franchisors

FranchiseFranchiseSystemSystem

Documented and effective

Business Model and System

Dedicated and Strong network

of Franchisees

Customer Loyalty-repeated order-good referrals

Experienced trainingand support Team

Strong Brand

Leadership Ability

-Proven prototype-Proven prototype-Strong management team-Strong management team

-Repeated services-Repeated services-Source of referrals-Source of referrals-Market demand-Market demand

Questions

Why are Franchisors more able to do this today than in previous decades?

What are the factors that encourage a Franchisors to move out of their domestic market?

What are the factors that attract a foreign Franchisors to a specific overseas market?

Why are Franchisors more able to do this today than in previous decades?

• International Franchising as a method of market entry & distribution has experienced a remarkable growth for the last 2 decades.

• Dynamic growth in service industry brought about by government deregulation policies and removal of trade barriers

• Provision of readily available financial assistance for small/medium businesses to create jobs.

• Dramatic changes in retail marketing structure has favored franchising over “Being your own Boss” alternative as it does not require a huge amount of capital.

Why are Franchisors more able to do this today than in previous decades?

• Technological progress in global telecommunications which engendered significant rise in global advertising which enabled customers around the world to recognize famous brands

• Popular adoption of international franchising as a form of economic development (Technology and Know How transfer).

• Employees from middle and upper management positions be alerted to invest their severance packages in franchising activities.

• The Internet enables easy access to a wide variety information and facilitates communication between franchisees and franchisors. Such developments have made franchising just about available to anyone on a world-wide basis.

What are the factors that encourage a Franchisors to move out of their domestic market?

Factors Underlying International FranchisingFirm’s resource endowments : Financial, human, technology.

Domestic Market Characteristics (Push Factors)

- Market saturation

- High level of competition

International Opportunities (Pull Factors)

- Profit & Growth

- Low level of competition

- Favorable legal & monetary framework

(no severe restriction on profit repatriation)

What are the factors that attract a foreign Franchisors to a specific overseas market?

Franchising is no longer confined to national boundaries Internationalisation is increasingly common activity;

Significant activity throughout Asia;‘Asian growth key to global status’ T.Leahy former CEO Tesco plc

•Favourable Financial Conditions (exchange rates).

Consequences of Internationalisation

Increases competitiveness in the market;Operational standards increased;Reputations do not pay the bills;

Previous experience no guarantee of future success; Size is no protection against failure;Need for clear retail strategy;Innovate or perish;

General Franchise Business’s Problems

• On-going management fees are contingent upon continuous and rigorous control, operational back-up, marketing/promotional support.

• Not an appealing method of foreign market entry at the early stages of the internationalization process. The method is adopted once it has proven successful.

• Franchisor’s reputation and corporate image could be undermined in case of failure (Referred to 4.4% failure rate was found in the USA but in Asia, this failure could be more than 20%)

Franchise Internationalization

Companies are getting better at it;Learnt from the mistakes of the past;Display better understanding of consumer needs;One size does not fit allAcknowledgement of cultural, racial and religious diversity;

Ability to identify local demands and global aspirations - availability, choice and value.

Franchise Internationalization

Do many companies strategies involve elements of both global and multi national approaches?•Gather data on market trends.•Study direct and indirect competitors.•Develop profile of prototypical franchisees.•Understand real estate and size challenges.•Any discussions with prospective candidate must be very preliminary.

•Time

•Stage 1•Reluctance

•Stage 3•Ambition

•Stage 2•Caution

• Geo

grap

hica

l Pre

senc

eIn practice..

• Stages in the development of International Franchise Businesses

• Geo

grap

hica

l Pre

senc

e

•Stages in the development of International Franchise Businesses

•Stage 1Domestic expansion

•Stage 3•China, Japan

•Taiwan, Singapore•Korea, UK

•Stage 2•Neighbourhood Countries

•AEC

•Time

In practice..

In practice..Learn about partner

- Personal relationships, notPersonal relationships, not contracts, often morecontracts, often more important to successimportant to success- “Airport” deals (single- “Airport” deals (single meeting to sign agreement) aremeeting to sign agreement) are often inadequateoften inadequate

Learn about partner – InvestigateInvestigateCredit report

Private investigator- Use negotiation of agreement to learn aUse negotiation of agreement to learn about your partner

What is important to your partner

In practice..

Focus & Cluster- Often best to have

10 units in 1 countryNOT 1 unit in 10 countries

Daily Presence- Especially in beginning, often crucialEspecially in beginning, often crucial to have to have franchisor representative on the foreignfranchisor representative on the foreign groundground

International operations – in thein the beginning are going to take beginning are going to take longer andlonger and cost more than you may expect. Don’tcost more than you may expect. Don’t count on inflows from count on inflows from overseas tooverseas to compensate for shortages at homecompensate for shortages at home

Law and RegulationsLaw and Regulations

• Trade mark Law• Antitrust Law• Consumer protection Law• Industry specific regulations.– Real estate ,finance ,food handling, health care,

liquors– Labor, health and safety.

TaxationLabor

TerminationAnti trustLaw

DiscontinuecontractContract lawConsumer

protection

Trade Mark Law

US -14 registered states

Business opportunity Law

Liquor

Regulation flow chartRegulation flow chart

Franchise Law

Business Regulations

Relationship Law

Case Law

Renewal

US - FTC rule436

Finance Support for International FranchiseFinance Support for International Franchise

• Solid Capital Structure– Start up Cost

• Research• Operation Manual • Training Programs• Sales and Marketing Material• Personal Recruitment• Accounting/Legal Fee

– Prototype Unit– Consulting Fee– Travel Cost

• Sales Rep.• Trade Show

Indonesia FranchiseIndonesia FranchisePresent by Dr.Peerapong K.Present by Dr.Peerapong K.

www.peerapong.comwww.peerapong.com