Thursday, February 25, 2010

Franchise is the best way to expand into the emerging economies of the world.

Franchising your existing business might be the best possible way to take the opportunity to enter emerging markets. Markets like India and China have complicated rules and regulations about who is entitled to own and operate a business there. The best way often to circumvent these rules is by franchising your operation in these markets.

By using franchising the franchisee owns the business whilst the franchisor takes a share of the profits. Why does an established business want to deal with headache of red tape and restrictive trade practices when with a leap of the imagination the franchise model allows them to achieve the same profitability without the same hassles?

Many British retailers including Argos and Mothercare have used the franchise model to dabble in new emerging markets. The franchise leaders that are quick to carve out major niches in these new emerging markets will grab unprecedented market share before their slow and sure footed competitors move in.

The largest emerging market place is China with India being a close second. China could become the largest market place in the world within the next ten years and overtake the USA.

Franchising is the ideal route for many US and UK companies who want to test the water without expending large sums of capital. This gives them a chance to dip their toes in the water without risking large sums of capital.

Once large organisations find that their business model does actually work in the new, exciting and dangerous market place they can dedicate their resources to find better ways to keep a higher percentage of long term profits for themselves.

China and India are very unique marketplaces. Unlike say for instance Australia not everybody in China speaks the same dialect. The divide between rich and poor is also vast. Tastes vary enormously as does buying power.

In India there are literally hundreds of different languages whilst admittedly the main bulk of buyers with money can be targeted by 2 languages… Hindi and English. Again here spending powers vary and so do belief systems.

In reality trying to expand new emerging marketplaces without testing the waters first is fraught with danger. Franchising offers a real solution to test out the marketplace, learn the structural issues and change your products and marketing so that it identifies with the local marketplace. This does not mean that you can not enter the marketplace independently. You can franchise x numbers of units and then create non franchised units in other territories.

Throughout history economic powers have grown and declined. Asia is growing rapidly and will play an ever increasing role in the ever demanding need for companies to find new customers. The buying power of Asian consumers is rising at a dramatic pace and the consumers are demanding better products and improving service. The opportunity is there now for Established US & Europe brands to market their brands and test the waters before entering fully.

To sum up, the emerging markets are predicted to compete with the western powers in terms of buying power and economic strength. Any company which ignores this is turning a blind eye and letting its competitors expand, gain a foothold and exploit the opportunity whilst they watch and wait.