As this is being written, countries across the region are starting to open up for business.  Businesses are open or opening in Thailand, Vietnam, Philippines, Indonesia, and many other countries around Asia.  International travel will begin again for fully vaccinated people within the next month or so for most places.

As companies now begin to look for opportunities in 2022, it is a good time to discuss the topic of “Why buy a franchise?”  Why do companies buy franchises?  What advantage does buying a franchise give them?  Are those advantages worth the cost?  Finally, let’s look at what brands are available for the Middle East and Asia.

Why Do Companies Buy Franchises?

As most of you know, franchising is about one company sharing their intellectual property with another company through an agreement of some kind.  The franchisor will share the rights to use their brand name, logo, and historical reputation with their franchisees.  They also share their processes, systems, recipes, material, products, and other things required to do the specific business.  We normally call this the Operation Manual (or ops manual for short).

Franchisors do this for several reasons.  Typically this is to expand their brand faster, to expand into territories they are not capable or confident of handling, and of course as an additional revenue stream.  But, why do investors and businesspeople become franchisees?

Starting a new brand, regardless of the industry, is a long process and involves significant investment in capital, time, energy, focus, and other resources.  It also has a very high-risk percentage as it is untested and unproven.  Companies can skip all those things and significantly reduce the risk involved by purchasing the franchise rights of an existing brand and launching it in their local market.

What Advantage Does Buying A Franchise Give Those Companies?

We can generally categorize the advantages of buying a franchise into 4 components.  The brand, the ops manual, training, and support.

• Brand.  Getting the rights to use an established brand, includes their name, logo, history, and reputation.  Even if it is not already in your country or city, it gives you a small to huge advantage depending on the size/popularity of the brand name.  People in your city or town may have been to the brand locations in other countries during their travels.  As people see your locations opening and start to search out the brand on the web or social media, they will see it is much more famous (and therefore more interesting) than a simple new homegrown concept with its first location.
• Operations Manual.  The ops manual includes step by step instructions on everything needed to run the brand.  This might include things like construction guidelines, brand guide, marketing strategy and resources, daily operational procedures, checklists, recipes, guidelines, quality control and assurance methods, HR structure, job descriptions, and many other things.  It will tell you everything you need to know about launching and operating the business.
• Training.  Manuals aren’t everything.  Most brands will have a training team that will share their knowledge and demonstrate how all those materials are used.  For most brands there is some business training given to the owner/franchisee/GM/CEO on how to manage the business.  There is also operational training given to the initial team.  This can be chef or server training for a restaurant, teacher training for an educational concept, merchandise training for a retail brand, or whatever else the front line staff need to know to do their jobs.  This often involves training in existing locations owned by the franchisor or other franchisees and then on-the-job training just before and during your opening in your own territory.  Many brands will also have annual follow up training that franchisees can take advantage of.
• Support.  It is impossible to define all the specific support a franchisor will give its franchisees and it varies widely by industry, brand, and circumstance.  However, I like to think of it as a parent raising a child.  In literally hundreds of ways that parent will support and guide a child through their life.  This involves a lot of time and effort by the parent, but does slowly dwindle as the child matures and becomes able to guide themselves.  This is very similar to how franchisors guide and assist franchisees, maybe day by day in the beginning, then slowly less and less as the franchisee and their team gains experience.  

Are Those Advantages Worth The Cost Of Franchising?

Most companies are satisfied about their decision to become a franchisee.  They see the advantages far outweigh the costs they have paid to their franchisor.  There are some companies who are not interested in buying franchises, and want to do it themselves.  The decision of course will be yours, but let’s do a little exercise as an example.

Let’s say that 2 companies both see a market gap in the fitness industry.  Company A decides to open their own gym on their own.  They start looking at the market, working out initial budget and strategy, search for supply chain, start building a team, and try to choose the right first location.  Since they are learning as they go, it may take them 6+ months to finalize all those steps.  They will also make a lot of mistakes, especially on their first center.  Simple things like the supply chain can be very challenging.  What if service isn’t available for the equipment you bought?  What if you didn’t choose the right equipment, or the right amount of each piece of equipment?  How much space do you lease?  How do you lay out the center to be efficient and keep members happy?  How many staff do you need?  What skills do they need to have?  It goes on and on …… over time the company will learn and figure it all out … or they will fail and close the project.  A failure might cost the company $1-2 million usd.  Even a single bad location choice might cost them $400-500k usd, by the time you total lost operating expenses (opex) during the lease, lost construction (capex) investment, and moving costs.  Many experts give a new business about a 25% or less chance of success due to all these variables.

Now, let’s look at company B in our exercise.  They start looking at franchise brands available for their market.  They contact a qualified franchise consultant or franchise broker to help their search, which costs them nothing since they are paid by the franchisor.  Eventually they choose a fitness brand like Go Fit or Fire Fitness which seems right for their market and buy the rights to the brand.  Included in their franchise fee is a “business in a box” package that tells them everything they need to do from step 1 all the way to the day to day operations of running the brand.  It also includes a complete team of experts to act as mentors and guides through the whole process.  They open in 3 months, with the right location, the right equipment, the right design & layout, and marketing plan.  By the time company A opens its first center, company B is already on its 3rd location and has already filled the market gap they both originally noticed.  Maybe company B is one of the reasons company A failed.

Conclusion:

My point should be clear, company A ended up spending 3-5x more money and more than double the time as company B.  It is also quite easy to see why they had a much higher risk of failure than company B.  While just a simulation, these final numbers are well documented average results.  We see it all around our region again and again, as companies open and close.  How often do you see a Starbucks, McDonalds, Little Caesars, Mathnasium, ACE International, or Mango Tree close?

Most companies simply can’t reproduce the results of a good quality international franchise with a proven track record which may include thousands of units in countries all around the globe.  Their R&D, history, brand reputation, efficient processes, experienced team, and proven marketing methodology is simply invaluable.

And, that is why such a high percentage of companies starting a new venture will buy a franchise.

Please look out for our next article which will examine what international brands are available for the Middle East and Asia, and why we think so.

You may find a previous article “Are you ready to be a franchisee?” enlightening if you are considering buying a franchise within the next year.  You can find that article here:

ARE YOU READY TO BE A FRANCHISEE? (FRANCHISE OWNER)

There are many amazing franchise brands in the F&B, Education, Retail, Fitness, and services available region wide.  To see some available in your country, check out our website:

Franchise Opportunities – VF Franchise Consulting

Robert Beausoleil is a franchise consultant and has been visiting Asia for 25 years, and has lived in Vietnam for more than 12 years.  He works as the Director of Business Development and Franchise Operations for VF Franchise Consulting.  He has extensive experience in franchising, both as a franchisors and as a franchisee.  You may contact us at info@vffranchiseconsulting.com