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Jan, 16 2010

Asia - the emerging economy

Being the world’s largest and most populous continent, having 60 per cent of the world’s current human population and covering 29.9 per cent of the earth’s total land area, the countries in Asia, except Japan, are still not considered developed economies,

Being the world’s largest and most populous continent, having 60 per cent of the world’s current human population and covering 29.9 per cent of the earth’s total land area, the countries in Asia, except Japan, are still not considered developed economies, though they are regarded as developing economies. Japan, in terms of nominal GDP, is the largest economy on the continent, whereas other countries like India and China have begun ranking in the world economy list.

Recently, the World Bank has raised its forecasts for Asia’s economic growth for 2009 to 6.7 per cent from 5.3 per cent and to 7.8 per cent in 2010. Other reports from the World Bank reflect India as the fourth largest economy in the world with the US, China and Japan trailing. Among the top four economies, three are from Asia which is a positive sign for this continent.

Asian countries, which is still an untapped business market, has a huge potential and most successful entrepreneurs have realised it and are exploring it. Though franchising is in its infancy here, it is being rapidly accepted in the market. Asia has the potential to serve as a strong customer base and this is ample reason for potential entrepreneurs from across the world to make Asia as their business destiny. Today, many famous chains of restaurants, products/services have opened outlets in Asia, raising the profit graphs of the continent.

“There is a huge potential in Asian markets in terms of franchising. Today, the US market is so saturated that new companies are not able to penetrate much in that market. Asian market comes as an opportunity for them,” says Joseph Cherian, CEO, Global Franchise Architects (GFA). On the other hand, Don Fertman, Director of Development, Subway chain, finds entrepreneurial spirit building up in many Asian markets. “Grasp of small business opportunity is part of the Asian culture, especially of India. Applying the franchise model to what already exists seems like a logical next step.” Although Japan is the only country that forms a part of the developed countries, there is no denying the fact that countries like India, China and Malaysia are also in their growth stage. Economists believe that if India grows at the present rate, its name will figure amongst the leading economies of the world.

Says Sudhir Sinha, CEO, Best Western, “Franchising is now catching up very fast in the Asian market. With the growth of the economy and increasing purchasing power in the Asian markets, the expectation is changing very fast and consumers are increasingly asking for the best of products available in the market.”

Adding on the potential of this market, he states, “As regards potential of franchise type, the Asian markets need franchise relationships for brand representations, technology transfers and marketing support.” Chetan Mahajan, UEI Global, erggruen Education Pvt Ltd says, “The potential is very high in the Asian countries. Potential of a country depends on its market size. I also expect Asians to questions the norms defined in the west and come up with innovative models.”

Pessimist approach to hardships

Although, the Asian countries have a huge potential, it still has a long way to go. To succeed, is to travel through risks. Profits have always been equated with risk and the entrepreneur will have to meet many challenges in order to suceed. The challenges faced in franchising in Asia mostly relate to the expectations of the franchisors and the brand. Since Asia is a group of developing economy, companies may have to work hard to convert potential customers. As compared to Asian countries, European countries’ living standard is very high and they are more aware about different brands.

Development and brand awareness run parallel. Adding thoughts to this, Sinha says, “Band awareness is widespread in the developed countries but in the Asian market it is still in the initial stages. But, we do think that this would get better in the coming years.” Brands like McDonald’s, Subway, Dominos, Boost Juice, Jus Booster Juice, KFC, Cream and Fudge, Baskin Robbins, Häagen-Dasz, The Donut Baker, Krispy Kreme, Pizza Inn, Pizza Hut, Pizza Corner, Coffee World, Coca-Cola, Barbie Doll, Nike, United Colors of Benetton, Versace, Apple, Johnson and Johnson, Nokia, Cannon, Cartridge World, Rosebys, Café Jubilee, Portico, Gautier, Sony, Samsung, Hamleys, Disney, Archies, Hallmark, Best Western Hotels,, Inter-continental Hotels Group and Starwood Hotels are eager to penetrate Asian market through the franchising route. Brand development and building brand awareness is an ongoing process. In such a situation, finding a right partner is also a challenge. Getting a right master franchisee acts as a pillar to success in a foreign country.

“When a company forays into a new market, it doles out huge investments in terms of training, branding, supply chain and others. It’s challenge is to make good business return over a period of time,” says Cherian. “Finding the right partner in the Asian economies is the main challenge. I feel the Asian region has a great number of talents, but at the same time franchising is still to be fully accepted. Therefore, finding the right partner, especially master franchisees in those regions, is a challenging task.”

Language is also a hurdle. “In some countries, we face significant language barriers, therefore, we have added local and regional training centres that teach franchisees in the language of that country,” says Fertman. Supporting these views, Cherian says, “If you are in China, you have to have communications in Chinese.” For Subway, “the main challenge is training its customers about the benefits of its products and how to order. We give them reason to eat it,” he added.

Different Asian countries have different culture. No two countries are alike. For eg. although India and Pakistan are neighbours belonging to the same continent, their culture differs. It is like two opposite side of the same coin. “The biggest differences are cultural and legal status. Enforcement of contracts and how humans interact are fundamentally different. These can be overcome by customisation and localisation,” says Mahajan. Therefore, companies are required to follow different strategy in different country. “A franchise company needs to take extreme precaution while designing and packaging a product to a particular market. This may apply more to products with regard to the brand. A strategy or products that may have worked in one region or market may not necessarily bring you the same desired result in another region,” opines Sinha. “We are global company, but at the same time we act locally. That is the key to our success,” adds Cherian.

On the contrary, Fertman says, “We approach franchising in Asia in the same way we have in North America, and at this point we are not finding significant differences. There are a few issues that Subway needs to customise or change based on legal requirements, but otherwise we are following the same model and methods.”

Customer’s behaviour differs from place to place and is affected by the local environment and culture. So, prior to making entry in any new market, it is always advisable to research on customer’s behaviour. “I think it is important to understand the preferences and likings of the people living there. For eg, in China, we have tommy and groom flavour in Pizza menu, while in India, we provide paneer kali-mirch. So, you have to adapt to various markets,” says Cherian.

Asian competitors & their rank

India, being a developing country, has made a position in the world economy. Apart from agriculture, India is competing successfully with global brands in various sectors. With the coming of different consultants and regular franchised-based events and exhibitions, the franchise concept is certainly on move. “Knowledge of franchising is being provided as various franchisors expand. We can see the impact with the expansion of the QSR (Quick Service Restaurant) market in China and our own progress in China, India, Taiwan etc.,” said Fertman.

In terms of franchising business, apart from India, other potential markets in Asia are Japan, Sri Lanka, Singapore, Malaysia, Indonesia, Nepal, Pakistan, UAE and China. “China has been the fastest growing country in this region with the highest GDP growth rate brought about mainly by its export markets. Today it has become one of the largest consumer markets in the world and with an accelerating economy to this size it undoubtedly is the most exciting franchising market in the world,” said Sinha. “Most of the countries have a great deal of potential, with our top priorities being Japan, China, Philippinnes, South Korea and Hong Kong,” said Fertman. On the basis of their likings and observing the potential of the Indian market, Joseph Cherian has ranked India as number one. According to him, “India and China share this position. The rate of development in these two countries presents a greater opportunity. Countries like Sri Lanka, Indonesia, Malaysia, UAE and others are also good for franchising. All these markets have great opportunities. But, Japan is similar to the European market. It is very mature and dense with existing companies. There is greater competition and lesser chances for penetration.” Cherian has also named Vietnam as a key market for franchisors. The franchise market in Vietnam is still in its introductory stage with good potential to magnify its franchise market. The living standard is growing steadily, stimulating the consumer demand for western and high-end products.

On the basis of Subway’s history and experiences, Fertman has ranked India as number three. First and second position is with Japan and China respectively. He has ranked Indonesia as fourth, UAE fifth, Malaysia sixth, Singapore seventh, Pakistan eighth, Nepal ninth and Sri lanka on the tenth position.

Sinha of Best Western says, “We rank the Indian market only second to China. Today, India is a growing economy and is showing all positive vibes required to grow. While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level by the year 2004-05. It is predicted by most Wall Street companies that India’s GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it is projected that India will be the third largest economy of the world, behind US and China.” Mahajan has also ranked China and India as first and second, respectively. Since he does not find any growth in the Japanese market, he has kept Japan on the fifth position. Indonesia and Malaysia is his third and fourth preferences. According to him, Nepal is smaller in size but it has higher growth potential than Singapore. Looking at this aspect, he has ranked Nepal as seventh and Singapore as eighth. He has ranked UAE as ninth and Pakistan as tenth position.

According to the International Monetary Fund’s World Economic Outlook, the global output is expected to mature by 3.1 per cent in next year led by emerging economies like India and China. The present state of the economies in Asia, changing trends in its business and commercial structure and positive thoughts of entrepreneurs for this continent from across the world points towards it’s a bright future.

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