15 Aug 2016
Philippines Looks to be Net Exporter of Franchise Brands Across Asia
While once something of a passive repository for US brands, the Philippines' franchise industry is now both welcoming in pan-Asian brands while also actively seeking to export its own highly-successful range of home-grown business models.
With a long history of US brands thriving in the country, the Philippines is far from being a stranger to the franchise market. As its economy is now widely perceived as being on the up, the country is attracting more Asian brands, all keen to take advantage of both its rising affluence and its familiarity with the franchising model.
Essentially, its strong and growing economy, population of more than 100 million people and its rising middle class are all combining to drive the Philippine franchising industry to new heights – that, at least, was the theory put forward by exhibitors at this year's Franchise Asia Philippines 2016 Expo. Filipino entrepreneurs have money to invest and are extremely open to the franchise model, twin developments that have not been lost on a number of aspirant Asian brands.
One such brand was Marrybrown, Malaysia's largest quick service restaurant chain. Explaining why his company was attending the expo, Kairul Azman, the company's Franchising & Field Services Manager, said: "There is a huge opportunity in the Philippines for our business to grow. We are talking about a population of 100 million people and we believe that there won't be any problem for our brand to become successful here."
Although the Philippine's fast-food sector is dominated by local players, Marrybrown believes it brings something new to the market. Azman said: "We are trying to differentiate our brand by targeting the halal market, one of the most promising sectors here."
Malaysia's Marrybrown was not the only Asian brand at the show, with Singaporean, Taiwanese, Indonesian, Japanese and South Korean businesses, as well as a host of other Malaysian companies, all strongly in evidence. Despite this clear enthusiasm, though, it will not necessarily be easy for overseas businesses to enter the Philippines' market. Indeed, Rudolf A. Kotik, the Founder and Chief Executive Officer of the RK Franchise Consultancy, a franchise development consultancy, sees a number of problems ahead.
He said: "The Philippine franchising industry used to be dominated by foreign brands, especially US ones. After the Asian financial crisis in 1997, however, Filipinos started to switch to local brands as the dollar became more expensive. It was this that jumpstarted the local franchising industry.
"When franchising started in the Philippines, it was all about bringing in foreign brands. Now, though, we are actually a net exporter of franchises."
One example of a local brand with ambitious overseas expansion plans is Macho Mucho, a three-year-old barbershop salon for men that started life on the island of Mindanao in the Southern Philippines. Explaining his ambitions, Ralph Oliver Layco, the company's Founder, said: "We hope to bring the brand to other Philippine locations and also to the Asian market. We believe that the best way for the Philippines to really compete is at the Asian level."
Macho Mucho currently has three successful branches in Davao City and General Santos City. It is now looking at Indonesia as the site for the company's first expansion into the wider Asian market, citing the country's similarity with the Philippines in terms of economic growth as the reason behind its choice. Layco said: "Filipinos are by nature caring people and we have that reputation outside of our country. I think that is unique advantage for us as we expand across Asia – we bring with us something we are already well-known for."
The Philippines' burgeoning economy is creating a rising middle class across the country, which, in turn, is playing major role in the growth of the local franchising industry. Joy Sulit, Business Development Manager at the Mandaluyong City-headquartered SumoSam Franchise Corporation, said: "There is a rise in the middle class right now, so plenty of people are spending money that they traditionally would have saved, but now want to put into a business.
"You see them roaming around the expo hall, looking for the best franchising opportunities. When they approach us, they really have the money. This expo opens our door to serious investors."
Sumosam Franchise Corporation operates one of the leading Japanese chain restaurants in the Philippines – SumoSam. The restaurant has 12 branches around the country, with Sulit seeing the expo as also opening doors into the international market. The company says it has already received enquiries from would-be franchisees in the Middle East, India, and even Japan. At present, a SumoSam franchise costs around Php10 million (US$212,000).
Carl Balita is Chairman of the Philippine Chamber of Commerce and Industry – Quezon City and also the owner of the Pedagogy Learning Center, a pre-school centre franchise. He believes that domestic brands must first get substantial local patronage before they try to expand globally. He said: "If a local brand fails here, I don't expect it to be successful elsewhere. There has to be local patronage first. Filipinos should also be encouraged to patronise more local brands."
Noting how the expo has now become a major international franchising event in Asia, he said: "In the past, this expo was held in a much smaller venue, with mostly foreign brands in attendance. Now, though, you look around the show and you can see plenty of local brands, with some of them having grown as big as the foreign brands. This event now also showcases the creativity and innovation of the Filipino businesses in this sector."
Big Apple Express Spa is an innovative business concept that combines the ancient art of massage with a convenient modern business approach. Victor Fernando, the company's Franchise Director, again attributes the success of the local franchising industries to the knock-on effects of the strong economy.
He said: "People now have better jobs, more opportunities and more savings. A lot of them are now interested in investing and the franchise business is a very good way to grow their money.
"The traditional investment option might have been to start a business, but franchising has a big advantage – the business already has a name, a system and proven market appeal."
Vina Millado, General Manager at ActiveFun, is broadly in agreement with Fernando. Based in Global City Taguig, part of the Metro Manila area, her company has been offering safe and kid-friendly recreational facilities since November 2011.
She said: "If you buy a franchise, you are actually buying the name and the system. You can be more confident of success as the business has already been tested in the market."
In 2015, while attending last year's Franchise Asia Philippines Expo, ActiveFun signed up a franchisee and this year, Millado says, the business has received inquiries from a number of investors outside the Philippines.
Caution is required, however, at least according to Ivan Boey, Franchise Manager at Nippon Delicious, the company behind Kodawari Menya, a popular Japanese noodle house. He says those who are planning to invest in a franchise need also consider a number of other business issues, including cash flow, managing the business and choosing the right location.
According to Boey, his company sees huge growth opportunities for the business in the Philippines, but is highly selective when it comes to choosing suitable partners. He said: "Not everybody can come and sign up. A potential partner must know the system and how to operate it."
ActiveFun's Millado, also thinks that choosing the right business to franchise is very important for investors. He said: "In the industry, there is a lot of competition. What makes your brand different? What will make you stand out? These are some of the things that you will have to look into."
Despite these challenges, the franchising industry in the Philippines remains vibrant and continues to grow, with no ceiling presently in sight. Summing up the current situation neatly enough, Kotik said: "The economy is doing well. People have money to invest. This is why the franchise industry is growing so fast."
Franchise Asia Philippines 2016 was held at the SMX Conventional Center in Pasay City from 22-24 July. The event attracted more than 500 participating franchise brands from the Philippines and from the wider Asia Pacific region.
Geoff de Freitas, Special Correspondent, Pasay City