Franchising as a means to create wealth

Nov 21, 2007

Franchising a growing option for overseas expansion
Firms find it more feasible than direct investments, as it reduces business risk

KINDERGOLF was expanding fast, but it wanted to do so faster.

About three years ago, the firm, which teaches golf to children between the ages of two and seven, chose the franchising route to take its brand overseas.

The franchising option - licensing other entrepreneurs to use a firm's business template - is cheaper than pouring the company's own cash into expansion.

Back in 2004, revenues at the home-grown firm were growing at 20 per cent a year, on healthy demand for golf lessons.

Founder and chief executive Donna Lee was keen on the franchising concept, so the firm took the plunge with a United Square outlet, then went regional through franchised businesses in Indonesia and Malaysia.

'In terms of expansion, it reduces your capital outlay,' she says, as each franchisee pays its own way.

Typically, a franchised outlet will use the branding and products of the original business. The franchisor receives franchise fees from them. KinderGolf had three self- owned outlets before franchising. It now has 12 outlets - four self- owned and eight franchised.

Next year, it will add a franchised outlet in California, said Ms Lee, whose business has been growing by 30 per cent to 40 per cent a year since it embraced franchising.

Firms such as KinderGolf are now more keen on using franchisees to take their brands abroad, as opposed to expanding there themselves, a new survey has found.

Conducted by Franchising and Licensing Association of Singapore, Singapore Business Federation and FT Consulting, the survey has found that 77 per cent of 61 Singapore-based firms strongly agree or agree that franchising is more feasible for overseas business expansion than adding their own outlets.

The survey participants, mainly existing and potential franchisors, say franchising is a highly viable option for overseas business expansion, as it reduces the business risk of investing in a foreign market.

China was identified as the top country targeted for recruiting new franchisees within the next year. This was followed by India and the United Arab Emirates. Still, franchising has its challenges.

'You need to make sure you get the right franchisees,' said Mr Patrick Chai, chairman and chief executive of Blush!, the local lingerie retailer.

'Some franchisees hope to make a quick return and are not willing to follow your strategy to grow the business further,' he said.

'Then others do not have staying power, as maybe they do not have enough reserve capital,' he added.

Blush! has franchises in Singapore, Malaysia, Dubai, Indonesia and Macau.