Tariff Tussles, Brexit Impact International Franchise Outlook
Tariff wars, Brexit, election wins and losses. These are just a few of the factors impacting the outlook for international franchise development but, as international franchising expert Bill Edwards says, “It’s not about the countries that other brands are expanding into, but rather finding the best country for your particular brand.”
Edwards, of Edwards Global Services, which helps take franchise concepts abroad, says India, for example, isn’t exactly known as a hotbed for U.S. brand expansion, “but we’re beginning to see more professional operators there.” The country’s increase in the number of people with higher disposable incomes also makes it more attractive, and franchisors should look for similar indicators in any region they’re considering.
“What we see it coming down to in emerging markets is the middle class,” says Edwards. “Once they get money, they spend.”
Since 2001 EGS has published GlobalVue, its ranking of 50-plus countries in more than 10 different business parameters such as projected GPD growth and investment risk level, plus an overall country ranking that ranges from 1 (best) to 4 (worst). The mid-year report lists Ireland, New Zealand and the United States as the top three, while China, Italy and Mexico all saw their overall ranking take a hit. China in particular was downgraded in the area of “ease of international brand entry,” due in large part to the country’s back-and-forth tariff battle with the U.S.
The Boiling Crab, a California-based seafood restaurant concept, is one brand EGS worked with last fall to sign a franchise deal for China, fortunate timing because, “after that the Chinese government got a little more difficult to deal with,” says Edwards.
“They’ve been very open about it,” he continues, “saying our countries are in a tariff war and so they’re slowing people down.” China’s Ministry of Commerce, which regulates franchisors and their operations, hasn’t been in any hurry to approve the necessary registrations.
“Typically it’s two-to-four weeks but now it’s taking 90 days to get registrations,” says Edwards, who adds there’s also some concern that Chinese consumers could turn against American brands. “In China, one of the challenges is there’s no media other than government media, so consumers are only see what the government wants them to see.”
In the United Kingdom, meanwhile, the saga that is Brexit is giving franchise investors pause, despite the country’s low unemployment rate and acceptance of U.S. brands. “If there is a hard Brexit at the end of October, it’ll put a hold on all investment, at least for a period of time,” says Edwards. “Investors don’t like uncertainly, that’s the big thing.”
Southeast Asia, particularly Thailand and the Philippines, and Peru are bright spots, meanwhile, on the GlobalVue report.
“If it’s a U.S. brand, yes, they want it,” says Edwards of Southeast Asian consumers, and that’s especially true of restaurant brands. “They love to eat out and they love U.S. brands,” particularly because of their reputation for quality and food safety.
And in Peru, “a very pro-business government is in charge now,” says Edwards, one that’s “encouraging entrepreneurship and new development.”
Check out the full Mid-Year GlobalVue report HERE.