Business is down in the developed world, as recession in the US is not helping matters. Labour cost is also one good reason to move out. Chinese companies are currently moving out too, on account of this.
If you are wondering why we have a good number of companies opening up franchises in Nigeria and other parts of the developing world, excerpts of a story written by Angus Loten of Wall Street Journal presented here, explain it.
The hospitality sector has the likes of the Protea franchises all over the place. In Lagos alone, you can count close to half a dozen or more. Protea is a South African hotel. Radisson Blue, along Ozumba Mbadiwe in Victoria Island, Lagos, is from the US. We also have Southern Sun, Oriental, Four Points, and many others in Lagos and across the country. We also have several eateries and super/mega marts of all kinds.
Business is down in the developed world. Recession in the US is not helping matters. Labour cost is also one good reason to move out. Chinese companies are currently moving out too on account of this. Labour cost in China has risen 15-20 percent annually over the past couple of years.
Over the past month, a Smashburger outlet in Denver, US, has had some unusual help in the kitchen: a group of Kuwaiti entrepreneurs.
The burger flippers were prospective franchisees looking to open Smashburger outlets back home - and the fast-food chain hoped the hands-on experience would help them better serve customers.
Kuwait might seems a remote target for a franchise that’s not anywhere near the size of, say, McDonald’s. But Smashburger’s chief executive Dave Prokupek has big plans for international expansion - not only across the Middle East, but also Asia and Central and South America.
Why? Those regions were largely unscathed by the recession, as well as being places where middle-class consumers have a growing appetite for American goods and services. “Western premium brands have done extraordinarily well in the Middle East and elsewhere,” Prokupek says.
It’s a small world
Before the downturn, small US franchises typically wouldn’t stray far from an original location. Now, economic uncertainty at home, and in other western economies, has prompted a growing number of franchises to look farther afield. They’re turning to markets in the developing world where credit continues to flow, as franchise buyers face fewer barriers to financing, and American goods and services are in high demand.
“Five years ago, few smaller brands would have considered these markets,” says William Edwards, CEO, Edwards Global Services, an Irvine, Calif., global franchise consulting firm. “The big challenge now is that in the US, it’s very difficult for new franchisees to get financing. Money is not a problem in emerging markets, and there’s a lot of demand.”
In a recent survey by the International Franchise Association, nearly 85 percent of more than 150 US franchisers — including chains with fewer than 50 locations in the US — said they planned to start or accelerate international operations within the next few years. Most were led by direct inquiries from abroad, the attractiveness of global markets and an opportunity to turn a profit.
“Younger and smaller franchise companies are jumping into the global market,” states Scott Lehr, vice president, international development, IFA. “They’re looking at markets where it’s possible to grow sales in double digits. That’s pretty enticing.”
Knowing the territory
Still, setting up global operations is a “big financial and operations commitment,” especially for smaller chains with limited resources, he notes.
Smaller brands can face unexpected challenges in these regions, where a business system developed back home can be difficult to reproduce with limited infrastructure and an unfamiliar business culture.
“Nothing is easy in this,” says Edwards, whose firm has shepherded dozens of US brands into foreign markets over the past decade.
For starters, franchisers can expect heavy training costs for franchisees and partners who know the local market but might be less familiar with the American approach to brand awareness or customer experience, Edwards states further.
That’s what Pinkberry has discovered. In just six years, the California frozen-yogurt shop has grown from a single location to more than 175 stores in 17 countries, including Bahrain, Jordan and Peru.
Ron Graves, the company’s chief executive, says its business systems are stringently maintained through a full-time global team and a network of handpicked global partners who have experience working with U.S. brands and who share the company’s core values.
“We do our homework,” Graves says of the process of whittling down thousands of franchise applications to just a handful of capable partners who oversee dozens of outlets across a given region. “We’re not in the business of selling franchises, we’re in the business of finding partners,” he says.
Edwards says better communications systems and Web-based business applications are making it easier for franchisers to keep a close eye on far-flung operations. Still, he says it’s essential for companies to have boots on the ground in these regions to make sure that a brand is being successfully duplicated and maintained.
Smashburger’s Prokupek says after the Kuwaiti franchisees are finished training here, company officials will follow them back to the Middle East to oversee the new restaurant, which he expects to launch in late March.
“We want to hit the ground running,” Prokupek discloses.
Edwards, who isn’t affiliated with Smashburger, says that sort of exchange between smaller U.S. chains and international partners can be a boon for the global economy.
“What we’re really doing is exporting American business know-how,” he says. “And that’s exciting.”
They want to hit the ground running; right. That is soft landing for them like it has been observed with many franchise arrangements here in Nigeria. And it is good business opportunities for Nigerians to tap into. The contracts are flexible, our investigation has proved. Most of the staffers are local hands and the top level management cadre positions are eventually taken over by indigenes or other foreign experts of the franchisees choice, following discussions. All depends on the negotiating ability of the franchisees.
