Creating the Winning Formula to compete with Global Franchises Indonesia Franchise Conference(IFC2014) 12-13 September 2014 Jakarta Indonesia Presented by Dr.Peerapong K. Business Coach and Consulting Co.,ltd. www.peerapong.com

Background Franchising refers to an agreement under which a parent company (the franchisors) grants an individual or another company (the franchisee) the right (the franchise) to do compensation called management fees. The franchise includes the right to: - sell the franchisor’s product & intellectual property, - use its name, trademark and service, - adopt its business and technical methods, - copy its symbol or architectural methods, - use it procedural system etc.

Foundation for Successful Franchisors Documented and effective Business Model and System Strong Brand Dedicated and Strong network of Franchisees Leadership Ability Franchise System Customer Loyalty -repeated order -good referrals Experienced training and support Team -Repeated services -Source of referrals -Market demand -Proven prototype -Strong management team

Questions Why are Franchisors more able to do this today than in previous decades? What are the factors that encourage a Franchisors to move out of their domestic market? What are the factors that attract a foreign Franchisors to a specific overseas market?

Why are Franchisors more able to do this today than in previous decades? International Franchising as a method of market entry & distribution has experienced a remarkable growth for the last 2 decades. Dynamic growth in service industry brought about by government deregulation policies and removal of trade barriers Provision of readily available financial assistance for small/medium businesses to create jobs. Dramatic changes in retail marketing structure has favored franchising over “Being your own Boss” alternative as it does not require a huge amount of capital.

Why are Franchisors more able to do this today than in previous decades? Technological progress in global telecommunications which engendered significant rise in global advertising which enabled customers around the world to recognize famous brands Popular adoption of international franchising as a form of economic development (Technology and Know How transfer). Employees from middle and upper management positions be alerted to invest their severance packages in franchising activities. The Internet enables easy access to a wide variety information and facilitates communication between franchisees and franchisors. Such developments have made franchising just about available to anyone on a world-wide basis.

What are the factors that encourage a Franchisors to move out of their domestic market? Factors Underlying International Franchising Firm’s resource endowments : Financial, human, technology. Domestic Market Characteristics (Push Factors) - Market saturation - High level of competition International Opportunities (Pull Factors) - Profit & Growth - Low level of competition - Favorable legal & monetary framework (no severe restriction on profit repatriation)

Significant activity throughout Asia; What are the factors that attract a foreign Franchisors to a specific overseas market? Franchising is no longer confined to national boundaries Internationalisation is increasingly common activity; Significant activity throughout Asia; ‘Asian growth key to global status’ T.Leahy former CEO Tesco plc Favourable Financial Conditions (exchange rates).

Consequences of Internationalisation Increases competitiveness in the market; Operational standards increased; Reputations do not pay the bills; Previous experience no guarantee of future success; Size is no protection against failure; Need for clear retail strategy; Innovate or perish;

General Franchise Business’s Problems On-going management fees are contingent upon continuous and rigorous control, operational back-up, marketing/promotional support. Not an appealing method of foreign market entry at the early stages of the internationalization process. The method is adopted once it has proven successful. Franchisor’s reputation and corporate image could be undermined in case of failure (Referred to 4.4% failure rate was found in the USA but in Asia, this failure could be more than 20%)

Franchise Internationalization Companies are getting better at it; Learnt from the mistakes of the past; Display better understanding of consumer needs; One size does not fit all Acknowledgement of cultural, racial and religious diversity; Ability to identify local demands and global aspirations - availability, choice and value. 11

Franchise Internationalization Do many companies strategies involve elements of both global and multi national approaches? Gather data on market trends. Study direct and indirect competitors. Develop profile of prototypical franchisees. Understand real estate and size challenges. Any discussions with prospective candidate must be very preliminary.

In practice.. Stage 3 Ambition Geographical Presence Stage 2 Caution Stages in the development of International Franchise Businesses Stage 1 Reluctance Stage 3 Ambition Stage 2 Caution Geographical Presence Time

Neighbourhood Countries In practice.. Stages in the development of International Franchise Businesses Stage 1 Domestic expansion Stage 3 China, Japan Taiwan, Singapore Korea, UK Stage 2 Neighbourhood Countries AEC Time Geographical Presence

In practice.. Learn about partner - Personal relationships, not contracts, often more important to success - “Airport” deals (single meeting to sign agreement) are often inadequate Learn about partner – Investigate Credit report Private investigator - Use negotiation of agreement to learn about your partner What is important to your partner

In practice.. Focus & Cluster - Often best to have 10 units in 1 country NOT 1 unit in 10 countries Daily Presence - Especially in beginning, often crucial to have franchisor representative on the foreign ground International operations – in the beginning are going to take longer and cost more than you may expect. Don’t count on inflows from overseas to compensate for shortages at home

Law and Regulations Trade mark Law Antitrust Law Consumer protection Law Industry specific regulations. Real estate ,finance ,food handling, health care, liquors Labor, health and safety.

Regulation flow chart Franchise Law Liquor Labor Taxation US -14 registered states Business opportunity Law Franchise Law US - FTC rule436 Liquor Labor Taxation Business Regulations Trade Mark Law Anti trust Law Termination Renewal Relationship Law Consumer protection Contract law Discontinue contract Case Law

Finance Support for International Franchise Solid Capital Structure Start up Cost Research Operation Manual Training Programs Sales and Marketing Material Personal Recruitment Accounting/Legal Fee Prototype Unit Consulting Fee Travel Cost Sales Rep. Trade Show

Present by Dr.Peerapong K. www.peerapong.com Indonesia Franchise Present by Dr.Peerapong K. www.peerapong.com