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Sense of Place

Don’t underestimate the locals when investigating abroad


Published:

Philip Zeidman

Dateline:  Brussels, Belgium

In this gray city—perennial gray skies, gray buildings housing art and sculpture, gray civil servants from the European Union and the North Atlantic Treaty Organization—there is high culture aplenty. 

But tucked among the museums and historic squares there are occasional flashes of distinctly low culture: the city’s red light district, with prostitutes displayed behind plate glass windows; the centuries-old Manneken Pis, the city’s most recognizable statue, of a young boy relieving himself; and...this restaurant where I am sitting now.

The sights, sounds and smells are indistinguishable from thousands of similar establishments in America. Hamburgers. Cheeseburgers. French fries (a Belgian invention, incidentally). Bright lights. Big crowds at lunch, but the service is fast, and friendly.

But where are the Golden Arches? Where’s the Whopper? Nowhere to be seen. For this is not one of the countless overseas outposts of American fast-food restaurants. It is Quick.

Never heard of it? If you lived in any of a dozen countries and territories, you would have. It’s the first fast-food chain of European origin, with 500 restaurants and sales of more than 1 billion euro. Quick, although thought of as French, was founded here in Belgium and is now more than 40 years old. It’s the third-largest fast-food hamburger chain in Europe, and it more than holds its own against those names much more familiar to Americans.

Statue in Brussels

Brussels culture includes its famous statue.

Is this a local oddity, an isolated example?  No, but many U.S. franchisors conduct their business as if it were.

Ask the typical U.S. franchisor expanding internationally who will put forth the biggest competition. The odds are strong the reply will be the same names seen all around at home. And to an extent that’s understandable. After all, the United States was not only the home of franchising, but remains the home of the most famous franchises as well. It is estimated that 90 to 95 percent of the leading franchises of the world are U.S.-based.

But in an increasing number of individual foreign markets, that’s not a useful guide to the true competitors for an expanding U.S. franchisor. Consider just a few other examples: 

• The overwhelming number of franchise operations in Brazil—by some estimates as high as 95 percent—are purely homegrown businesses.

• The largest fast-food chain in Canada (more than 3,000 stores) is Tim Hortons, now almost 50 years old.

• Until acquired by Yum, Little Sheep received 2 percent of all the dining-out receipts in China (more than 2 billion yuan), and operated 300 restaurants in China and five other countries.

• Jollibee’s, operating for almost 35 years, now runs the largest restaurant network in the Philippines (2,000 units), with another 500 in other countries.

• The quick-service chain Herfy’s, with 200 units in Saudia Arabia, is the fourth largest in terms of sales and units in the entire Middle East-Africa region.

• The powerhouse in South Africa is Nando’s. Now a quarter of a century old, it has locations throughout the country and in 32 other countries. (How many U.S. franchisors approach that kind of footprint?)

• The largest and most rapidly growing franchise company in Vietnam is not American, but Pho 24, started from scratch by a young Vietnamese native. He has even written franchise guides and has expanded elsewhere in the region.

With this ample evidence about foreign-based competition, what leads to the collective myopia about them?  There seem to be at least three factors at play.

Habit, or less tactfully, an element of laziness. Franchisors can become so accustomed to thinking of a small number of traditional, familiar, domestic competitors that it becomes easy to slip into the assumption that the same list of companies characterizes an international market. What naturally follows is a business plan based on that assumption, with the selection of products or menu items, marketing, advertising, site selection and other features structured accordingly.

One hesitates to raise the cultural factor, because it is especially delicate. But there is no polite way to phrase it: cultural arrogance. Precisely because America has been the epicenter of franchising for so many years, and because widespread efforts to ape the offerings of U.S. franchisors have become almost common in many foreign markets, a kind of condescension takes over (sociologists call it the soft bigotry of low expectations). The notion that a local franchisor can be a fierce competitor to virtually every U.S. import simply doesn’t register as it should, or as soon as it should.

Finally, a peculiar sort of statistical distortion. It is true that a small number of giant, multinational U.S.-based franchisors dominate in terms of global presence: number of units, number of countries in which represented, consumer recognition and the other macro measurements. But that may have little to do with the relative competitive strength in a particular market—where cultural roots and a sense of belonging may more than counterbalance any of those worldwide rankings.  

Extrapolating from statistics based on the entire universe to the circumstances in an individual situation is not, to be sure, unique to franchising; statisticians liken the phenomenon to recognizing that “it is possible to drown in a body of water, the average depth of which is only one inch.” Just ask the guy in the deep end. 

Or, for that matter, ask the customers crowding in here. 

Philip F. Zeidman is a senior partner in the Washington, D.C., office of DLA Piper. He can be reached at Philip.Zeidman@dlapiper.com.

 
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