Perennial media coverage of franchised businesses moving into China and other Asian countries is misleading the investment community and retail businesses into thinking Asia offer easy growth and easy profit.
As a result, says Khoo Teck Kim, a Singapore-based director of Vietnam Franchises, too many companies are adopting a one-size-fits-all strategy to entering Asia. It won’t work, he counsels.
ASEAN, the Indian Subcontinent and China is seen as the key region for many western companies looking at expanding offshore – mainly in retail, foodservice and hospitality sectors.
“Franchised restaurant chains from the US and the European Union are making a beeline to establish footholds as the cost of operating these businesses are more affordable in Asia compared to their own domestic markets,” says Kim.
“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 in their home markets.”
And there is no end in sight for the 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.
“Asia 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,” he says.
That means franchise owners from the US, Europe – and a steadily growing number from Australia – are under the impression that developing in Asia is becoming 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.”
But while the Asia region still offers a large growth potential for such business franchises, it is actually a myriad of diverse, complex markets and administrative models.
“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. Whilst some 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,” Kim told InsideRetail.Asia.
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