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Supply chain collaboration: It's not a choice
02/05/13
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February 01, 2011
BY VICTORIA T. VIZCARRA Special Features Writer
Chain Reaction
An international franchise tends to enjoy extra attention from local consumers upon hitting Philippine soil, but this shouldn’t be taken as a sign of success by its owners.
“The novelty may last for six months or a little more, but its survival will highly depend on the commitment and hard work of the local franchisee,” says Armando Bartolome, president of GMB Franchise Developers. After the initial fanfare wanes, he says the brand will have to compete against other retailers much like any of its local counterparts.
Whether they're surfing franchise websites online or jetsetting to international expos, the hopeful entrepreneur will do good to take a peek at a franchisor’s requirements. Its investment package will dictate the venture’s pace—specifically, how many such shops franchisees should open as part of their development schedule. Fifty branches in five years, for instance, might not be feasible for those who want to go slow.
Also consider the franchisor’s fee structure: this includes the recovery time, the currency exchange rate for payment, as well as supply costs and price points. For anything short of a superbrand, the franchisee may have shell out more to market a shop’s products. "If people don't know the brand, it’s hard for them to buy it," says Andrea Amado, president of Etude House Philippines. "If you bring in a brand and it turns out the company is not ready to expand, that’s a problem that you cannot control."
While it still takes thorough analysis to assess a chain’s potential for success in a new market, a few are said to have developed a knack for spotting any as-yet unfilled gaps in local demand. "They bank on their gut feel and see what they feel will be acceptable to the Filipinos," he shares, but adds that such sharp instincts are honed only through years of experience in the field.
"Ask yourself if it's something you’d buy yourself," suggests Ms. Amado, who decided to bring in a Korean retail brand only after it scored high in a market survey she had conducted. "It’s cheaper to have a thorough study rather than open stores and just say you’ll figure it out later."
The franchisee is also faced with the task of localizing the operations of an international venture on their own. "With a foreign brand, the franchisor is a thousand miles away," says Mr. Bartolome. "They will support you, but not the way a local franchisor will. [They must have] a genuine commitment to see the franchisee succeed."
Some companies, like hotel chain Marriott International, have management contracts that can help their franchisees churn out highly-skilled staff. Others may even give concessions on fees, if only to speed up the financial return on the new branches. "Veer away from franchisors who will keep referring to the arrangements in their own country," said Mr. Bartolome.
Published in 2009, a report entitled “Frontier Markets: What’s Working, What’s Not, and Why” by Dalberg Global Development Advisors points out that franchising distinctly "requires, rather than generates, a profitable business model."
The franchising format common to many overseas brands requires a specific economic environment for it to flourish—and in a developing country like the Philippines, risks like insufficient market density or lack of access to capital are ever-present for the aspiring entrepreneur.
On a broader front, the presence of imported brands has helped to raise the bar for home-grown competitors. "Foreign franchises have become the benchmark for them," says Mr. Bartolome. "They have contributed to [upping the competence of] local retailers in their own sectors."
This is a positive development. Fifteen years ago, international players had a clear upper hand as their local counterparts were not as well-equipped to compete with them head-on. "Now, we can be proud of our Filipino food and non-food retailers, a good number [of them] are world class."
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