24 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2015

AnAlysis: frAnchising And licensing

Survival of the fittest in Singapore’s franchising sceneAs businesses chase after local dominance and international expansion, franchising has become a glorious but also increasingly ruthless arena

In 2004 SoulKids began teaching life skills to children to help them become happier

and more confident, and the results impressed parents so much that they clamored for founders Sally Forrest and Vikas Malkani to pass down their effective methods. This was the start of the franchising journey for SoulKids as the two founders trained to become Certified Franchise Executives and spent the past decade developing a successful licensing model that earned them last year the prestigious Licensor of the Year award from the Franchising and Licensing Assocation of Singapore.

SoulKids is now looking at international expansion also through franchising, as Forrest revealed plans to participate in business matching meetups in

Thailand this year. Franchising has also served to

rev up brands which have run out of gas. “We realised that we were hitting a plateau in organic growth, made difficult by local manpower and rental concerns,” says Ian Choo, director of sales and marketing at Saybons.

“By devoting time to participate in this franchise development project, Saybons is able to sieve out excesses in operational methods, consolidate, and document an extremely replicable and af wfordable franchise system that will help accelerate future growth for both the company and its franchisees.”

Jumping on the bandwagonFranchising has fueled the aspirations of SoulKids, Saybons and other brands in Singapore to

grow fast locally and eventually become global brands despite Singapore’s increasingly harsh operating environment.

In fact, the franchising and licensing industry is now growing as fast as education, according Donna Lee, founder and CEO of KinderGolf and chair of Singapore’s Franchising and Licensing Association (FLA).

“We have seen our membership numbers double in the past 12 months and we anticipate this number to continue growing,” says Lee. “This is partly due to an increase in awareness in franchising and licensing as an option in greater understanding of the relevance of franchising for international development.”

Signarama is another brand that has leaned on franchising to expand rapidly to become the largest full service sign franchise brand in the world with ten franchisees.

Signarama owes part of its leadership status to the distinct advantages given to franchisers based in Singapore, according to Signarama president and founder Alex Butt.

Singapore’s unique model“Singapore has a more liberal franchising and licensing business model. Singapore has a strong intellectual property law and enforcement regime,” says Butt. “The government encourages franchising and licensing to develop and expand through the hands of market and capitalist forces.”

Butt argued that Singapore’s less interventionist approach and easier market access has made the environment stronger overall. In contrast, governments of neighboring countries like Indonesia and Malaysia heavily intervene to prevent franchiser and franchisee failures.

“I personally like the Singapore business model and believe the market forces should dictate the success or failure

In contrast, governments of neighboring countries like Indonesia and Malaysia heavily intervene to prevent franchiser and franchisee failures.

SoulKids’ franchising leap took them places

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2015 25

AnAlysis: frAnchising And licensingof franchise brands and not rely on governmental interventional policies alone,” says Butt.

Franchising highs and lowsFranchiser concepts rise and fall in a matter of a few years, and those that fail to take advantage during that small window may not have another chance to do so. Likewise, entrepreneurial franchisees will not be able to count on government to save them if their franchise business turns out to be a dud.

“We do expect to see a shorter life-cycle for concepts before the next trend comes around. We can expect to see more openings and closings of concepts, which may not favour the business brands but instead bring advantage to consumers,” says Joshua Chia, consultant at Achievus Consulting.

“As the window for innovative concepts to prosper gets shorter, the franchisor will want to launch their franchise before the euphoria dies down. At the same time, franchisees will like to ride on the bandwagon at the same time before the next new concept hits the consumers.”

Going the risky pathDespite its glowing potential, franchising is fraught with risk, warn analysts, and brand owners and entrepreneurs would do well to take off their rose-tinted glasses.

For brand owners, partnering with the wrong entrepreneurs can become a headache, if not outright lethal – and brand owners primarily take a bigger share of the blame because of their lack of strategy and training. Brand owners must be able to honestly assess whether their businesses are ready to adopt franchising and licensing.

“There are some ingredients that a company needs to ensure successful adoption of a franchising or licensing business model,” says Meow Ling Yeo, director, capabilities development at SPRING Singapore.

“Examples include possessing strong and quality processes and systems, proprietary products and/

or technologies, and distinctive branding that invokes brand recall among consumers,” says Yeo.

Given these ingredients for success, Yeo says that companies that have achieved a certain level of sustained success and are not easily replicated are most suitable for the franchising business model.

Entrepreneurial paradise or trap?Brands like SoulKids and Signarama have pulled ahead of the pack by meticulously creating franchising and licensing systems that help entrepreneurs, especially young and relatively inexperienced ones, each step of the way.

“By creating systems and processes that are easy to follow, new business owners can simply plug into our established systems,” says Forrest, who on top of being a founder is also a managing director at SoulKids.

Aside from setting up reliable and easy-to-use systems, a franchisor must build a strong relationship with each franchisee to ensure the success of both parties.

“While the franchisor can leverage on business development and marketing services, they cannot outsource franchisee relationships and support to others,” says Butt of Signarama.

Singaporean entrepreneurs that are on the fence with regards to franchising or setting up their own brand must take into account the major trade-offs, says Raymond Foo, franchise manager and

learning & development at Evorich Holdings.

An established franchise brand offers stability but comes with a larger upfront cost to set up and more limited control, while a new brand will be harder to take off the ground but is more nimble and flexible.

“If you are looking towards having a well-coordinated business system, a franchise business is a definite choice,” says Foo.

“The decision to take up a franchise is dependent on the degree of control you are willing to surrender to the franchisor,” says Foo.

Zeroing in on staffFranchisees must also pay considerable attention to rents and staff recruitment which can account for up to 30 to 50% of business costs, says Forrest.

“Site selection is key. Do not just choose a site that is inexpensive as the probability is that it will not be best for business,” says Forrest.

“Do not compromise on staff. Pay a fair wage and recruit the best team you can afford. Do not cut corners to suit short-term needs,” she adds.

Franchisees that want to survive must also realise that success is hinged on synergy and shared vision between the franchisee and franchisor founders.

“Choose a brand that allows inclusion and direct contact with the founders,” says Forrest. “Only then can the passion be truly and

Donna Lee

Joshua Chia

Yeo Meow Ling

Franchising is still fraught with risks

Sally Forrest