VF Franchise Consulting

Asia Strategy Myth

Jan 30, 2013  |  Strategy  |  Comments Off on Asia Strategy Myth

asia_map_standardAsia is primed to be the economic powerhouse this decade. Contributing to more than half of the world’s population and a growing middle income society, Asia’s economies are set to keep pumping with China at the heart of the region’s growth.

The World Bank predicts that by 2025, China will contribute one-third of the global economy, more than any other economy in the world.

Together with ASEAN and the Indian Sub-Continent, Asia is seen as the key region for many new entrants, mainly in retail, food-service and hospitality sectors. Franchised restaurant chains from the United States and the European Union are making a bee-line to establish footholds as the cost of operating these businesses are more affordable in Asia compared to their own domestic markets. Today, major US franchise restaurant chains like KFC and McDonald’s have larger sales contribution from their Asian operations compared to US although their presence in Asia is relatively shorter than their home markets.

Hence, many US franchise owners are under the impression that developing in Asia is more straightforward and easier. In fact, many franchise restaurant chains after KFC and McDonald’s have used a singular Asian strategy to develop their presence in Asia. It primarily focuses on a large population base, growing disposable income, low labour costs, affordable rentals and food costs, with cheap utilities.

Today, while the Asia region still offers a large growth potential for such business franchises, it is actually a myriad of very diverse complexities. Each emerging market in ASEAN is different from the other in terms of culture, tradition, race, religion, eating-out habits, local dietary and staple items. Whilstsome ASEAN countries continue to offer low wages and rent, their supply chain and utilities infrastructures are weak and not well developed, giving rise to higher operating costs than expected. This is especially prevalent in some of the land-locked markets of Indo-China.

Hence, the barriers to entry in establishing a presence in Asia is different from one country to another. Some like Singapore, which offers convenient legal and business entity set-ups, have high labour and occupancy costs. Whilst in markets like Thailand and Philippines, where wages and commercial rents are still very affordable, it takes longer periods to obtain the necessary regulatory approvals from authorities. With others, supply chain infrastructure can be a logistical nightmare as in Indonesia, which traverses four time zones, has more than thirteen thousand islands and over thirty dialect groups.

Ultimately, overseas business and franchise owners will find it more difficult to establish a presence in Asia if they continue to see Asia as a single territory with very large business potential, but discounting the complexities of managing some of the diverse differences mentioned above.

In the end, building and developing success in Asia will require expert assistance and knowledge from groups who possess an intimate understanding of operating in these markets. Even then, the continuing changes in market trends and economic growth will mean that such challenges will have to be treated with greater care before a business can be successful.

Contributed By: KHOO Teck Kim – Director, Vietnam Franchises Ltd.

Comments are closed.