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Ready for the world

Talking international franchising in Wyoming


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The annual IFA summer board meeting included a rare but good discussion on issues involved in international franchising. But that didn’t stop the introduction of one proposal to change the IFA’s name to the American Franchise Association.

The Annual Summer Board Meeting of the International Franchise Association has traditionally been reserved for different discussions than those at other board meetings. Swept aside are the (if truth be told, sometimes tedious) reports of committees, or at least relegated to rapid-fire treatment, in favor of more discursive and in-depth discussion of significant, longer range issues. At a magnificent setting on Wyoming’s Snake River, one of those subjects was international franchising; that topic had never been accorded as much concentrated attention in the history of the association.

 

Philip K. Zeidman is a senior partner in the Washington, DC office of DLA Piper US LLP.  He is general counsel to the International Franchise Association.

Phil can be reached at Philip.Zeidman@dlapiper.com

One reason was the guest speaker and discussion leader, Professor Jeffrey Rosensweig of the Goizueta Business School of Emory University. Rosensweig has twice spoken at the IFA’s Annual Convention, but had never before met with the association’s leadership. It was no surprise that his remarks were penetrating, and his gift for stimulating discussion was put to good use. What was as striking, however, was the range of comments from the leaders themselves, both at the session and throughout the meetings.

Here are a few of the international nuggets mined from the mountains of Wyoming:

World economic growth continues to provide encouragement to expansion-minded franchisors. For the first time in history, that growth has occurred in every major market for four years. The trend bodes well for the growth in the potential pools of both consumers and franchisees.

But it is necessary to drill down beneath the numbers to identify those products and services for which there is greatest promise. Examples of how shifting economic and social patterns may point the way to growing markets: travel; healthcare; services for the elderly; emerging environmental awareness.

What is notable about geographic comparisons is how often the predictor of consumption is not nationality but age. Younger generations may have greater similarities with their counterparts in other countries than with their own parents. China’s urban teens, for example, trust foreign products more than their parents do.

The strength of the “Big Emerging Nations” continues unabated, and beckons franchisors from other nations.

What is frequently overlooked is the growing presence of indigenous franchisors, which in the past had often been dismissed as meaningful competition.

Gross numbers can be dangerously misleading. Different costs of living, social attitudes and currency exchange rates can all lead to apple-orange comparisons. As a consequence, it is essential to convert the number to create a parity of purchasing power. In some countries, certain categories of expenditures may be far less then elsewhere—for example, in some countries grandparents routinely provide childcare.

While sophisticated tools can identify promising markets, the value of common sense should not be underestimated. Rosensweig uses the fascinating teaching tool of a composite set of photographs of the earth from space at 9 p.m. The number of places where there is no electricity—and therefore nobody buying products or services— is startling.

It’s important to liberate ourselves from some stereotypes: Colombia is not simply a haven for drug traffickers, but increasingly the home of highly educated consumers. Some smaller countries in the former Soviet Union have made dramatic strides as a result of joining the European Union. And note the occasional disconnect between religion and social attitudes: Italy, perhaps the most Catholic country on earth, has one of the lowest fertility rates.

Potential franchisees can be found in unexpected places: Consider the reinvestment in India by the single wealthiest group in this country, Indian-Americans.

The pace of change in China remains extraordinary, and will continue so for years into the future. The ramifications for unique products and services may be different, however. While hundreds of millions are moving from poverty status to more than subsistence levels, within less than 20 years the “upper middle class” will be more than half a billion strong. At the same time, the staggering dimension of the migration from the country to the city is creating targets of population density (along with mind-numbing traffic jams).

Notwithstanding the seductive vision of a single European market, it has never been realistic to think of “Europe” as a target for sellers. There are surely at least two Europes: One, characterized by the decline of population which we have come to expect (the Mediterranean, central and eastern Europe, and notably Germany); the other, where a recovery from those patterns can be discerned (Scandinavia and France).

Amidst the ferment of these absorbing discussions, it was almost jarring to hear one member’s suggestion that the IFA change its name to the “American Franchise Association.” It will be interesting to see how the board will receive the proposal.

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