19 Jan 2015
Asia's Appetite for Franchising Exceeds Expectations in Singapore
The Franchise & Licensing Asia 2014 exhibition experienced a 26% increase in the number of attendees, underlining the growth potential of the Asian market, with Vietnam and Indonesia currently cited as particularly promising territories.
Teo Ser Luck, Singapore's Minister of State for Trade and Industry, plucked some telling facts from a global survey as part of his keynote address at the recent Franchise and Licensing Asia Expo in Singapore. Addressing attendees, he said: "The figures show that some 21% of respondents from Singapore want to start their own business, a figure second only to Taiwan. In 2013, 39,000 new companies were started here, including franchises. Significantly, franchise outlets now represent about 22% of all retail stores.
"In light of this, this year's theme of "Entrepreneurship through Franchising" is very much a reflection of Singapore's own focus on entrepreneurship."
Luck may well have been right in his assessment of the country's – and the wider region's – increased appetitue for business ventures. The latest iteration of the show saw a 26% increase in the number of brands participating, with its 2014 figure up to 313, compared to 249 in in the previous year. In addition, while two-thirds of the participating brands in 2013 were from Singapore, for 2014 there was a fairly even split between local and overseas exhibitors.
It appeared, in particular, that this was a big year for South Korea. Of the nine overseas pavilions, South Korea's was the largest at 270 square metres, about double the size of the previous year, and second only to Singapore's own pavilion. The Korea Franchise Association (KFA) and Korean Agro-Fisheries & Food Trade Corporation jointly organised the pavilion's 22 booths. Explaining the country's enhanced presence, Min Jae-ki, General Manager of the KFA's business planning team, said: "Last year, the companies that came were very pleased by the event, so this year we have doubled in size to meet the interest from Korean brands.
"Although Singapore is relatively small, its location is superb, its tax benefits are excellent and it is very developed and stable compared to the rest of Southeast Asia. So, it is the ideal place to establish a presence first, prior to expansion into the region. Hong Kong is in a very similar position for North Asia, and we are planning on also attending the franchise event in Macau."
Adding to the Korean feel were companies such as the KC Group from Singapore. Inspired by the South Korean budget haircut chain Blue Club, which has 130 domestic outlets, the KC Group has opened 15 outlets in Singapore. Branded as kcuts10, it plans to expand to 20 outlets by the end of 2015. The group also has plans for aggressive growth across Southeast Asia, Australia, New Zealand, Hong Kong, and even into South Korea and Japan – where the practice of dedicated salons offering quick and cheap haircuts first originated.
Taiwan's Ministry of Economic Affairs also had a pavilion. According to Wu Dai Lun, Project Manager for the Business Services Team at the Taiwan Institute of Economic Research, franchising is now a priority for the territory. He said: "An increased emphasis on franchising is part of a major policy move by the government to promote industry. We are here to showcase 61 Taiwanese brands and to promote the industry as a whole. The uniqueness of some Taiwan companies lies in their ability to adapt to local conditions, such as our bubble tea and snack franchisors. They are able to provide customised solutions, such as changing the formulas to cater to local tastes."
From further afield – and Attending the FLA for a second year – was Attirance Natural Cosmetics, a 10-year-old Latvian company. The company sells cosmetics, oils and scents and has now has 34 franchise stores in Europe, the Americas and Africa. According the Atis Liepins, the company's Chief Executive, the master franchise for China has now been taken up and he was at the FLA to explore franchisees for Hong Kong, Singapore and Southeast Asia. At the 2013 FLA, Attirance had secured a Singapore The Soul Centre and Strategic Capital booths.
Commenting on its progress to date, Liepins said: "We have a very wide range of more than 400 products in our stores. Two years ago, we pioneered a new spa concept, building and extending our brand. Franchise partners can now either take up a store or a spa. Or both."
Despite the many and varied viewpoints expressed at the show, there was consensus on at least one thing – the market potential of Vietnam. Sean Ngo, Managing Director of Vietnam Franchise Ltd, was not alone in seeing the country as the Next Frontier. He said: "We have a population of 93 million, a young population, a middle class and an average income that will double by 2020.
"In 2013, retail sales grew by 12.6% to US$124.7 billion, and the franchise industry is still very young. There are only 130 franchise brands in Vietnam, compared to over 500 in Singapore. Various trade and legal agreements currently in the works will further liberalise the market. It is little wonder that, in a recent survey by CBRE Research, Vietnam was ranked second only to China among the top destinations for retailers in Asia."
Striking a note of caution, however, Ngo emphasised that Vietnam has its own distinct way of doing business. He said: "Agreements must be in Vietnamese. Mall retail spaces are very few and far between, though this is improving. You often have to deal with shop owners, so prices can vary and contracts can be broken. Inflation has been very volatile, and the Vietnamese currency has been depreciating against the US dollar, on average, by 2.5% a year. Lastly, qualified personnel, while low in cost, are hard to find, especially those with experience, so you may have to import middle and senior managers from across the region."
Advice on investing in another Asian market – Indonesia – was also on offer, this time from Widiantoro Baroto, a Director of Capital Strategic Indonesia. He said: "The country has huge potential, with a population of 245 million and a middle class of 134 million. While it is possible to quickly make back your investment, there are challenges. You need to have authorised capital of US$1 million and need a local partner, for which you have to pay US$2,500 a month.
"Documentation will take six months to complete, plus you need local advice to deal with tax, labour, and accounting regulations – all of which change every two years. You will have to pay for these services as well. In a country that is 90% Muslim, you will also need halal certification. Finally, it is difficult to exit, as you will need to be audited and wait a year for approval."
Staying in Asia, Yap Yen Tse, Chief Executive of YLabs, a traditional Chinese medicine chain, spoke of his franchising experience in Malaysia. He said: "There are 30,000 franchise outlets in Singapore, but only 6,000 in Malaysia, although its population is six times the size. So there is definite room for growth.
"Recent changes in Malaysia's franchise laws, however, have increased the cost and complexity, while spawning a franchise consultancy industry. They, however, are expensive, don't bother to understand your business, over-promise and under-deliver."
Yap favours the joint venture model, something he is exploring for his own chain, as well as wholly-owned stores. Nonetheless, he is continuing to look into franchising opportunities, both in Malaysia and in neighbouring Singapore.
In terms of overall lessons for would-be franchisees, Vikas Malkani, founder of SoulCentre, a children's educational franchise in Singapore, said there are seven Ps to success in franchising: "The product must be good, unique, and difficult to copy. The processes must be sound – if the franchisor restrains you, that could good thing as it means the brand is not diluted.
"The track record or performance of the franchisor must be strong. There must be passion for the business. The business must have potential to expand or extend. You need to have persistence to overcome difficulties, and you must never forget, we work with people, always. Have all these in place, and the eighth P – profits – will surely follow."
Franchise & Licensing Asia 2014 was held at the Marina Bay Sands Exhibition Centre in Singapore from 16-18 October.
Ronald Hee, Special Correspondent, Singapore