The Inside Scoop on Expanding to Mexico
Ferenz Feher, CEO of Feher & Feher Consultancy addressing the group at his offices in Mexico City.
One of the first questions a franchisor may encounter from a Mexican investor is whether he or she will have first right of refusal for other countries in Latin America.
It’s a legitimate question, since a “natural way to enter Central America is through Mexico,” Ferenz Feher, CEO of Feher & Feher, a consulting firm in Mexico City, told franchise trade mission participants at a morning briefing. Whether a franchisor should offer those rights right off the bat may not be wise, but it’s a good heads up for heading into negotiations.
The trade mission, sponsored by Franchise Times, the International Franchise Association and the U.S. Commercial Service, made its first of two stops in Mexico City October 6-7. The second city was Monterrey, a more Americanized market.
“Mexico is a free-market economy with a mixture of modern and outdated institutions,” Feher said. “Have patience. We have high inequities in education and wealth distribution.”
Mexico can claim the richest man in the world—Carlos Slim—but also vast poverty. According to Feher, there are only 25 families in Mexico who are in the millionaire ranks. The middle class is growing, about 44 million people fit into this desirable category for franchisors, but another 53 million are considered living in extreme poverty, he said.
“We don’t have 118 million consumers,” he says, referring to their population figure. “Don’t get excited unless you have something to sell for a dime for every Mexican (to buy).”
Currently, about 80,000 people are employed by franchising in Mexico. The franchise model is well known there and even the universities are teaching classes in it.
There is a reason Feher advised franchisors to be patient, a deal in Mexico requires a long-term commitment of both human and financial resources. “It can take a year to a year-and-a-half to make a deal,” he warned. In addition, he added, a franchisor must be willing to adapt its concept to both the Mexican business culture and its local tastes.
The good news is that the president, who is two years into his six year term, is pro-business and has an agenda to do the things required to grow Mexico’s economy, such as raising taxes, deregulation, investing in health and education and improving labor laws, Feher said.
The bad news is most partners will try to negotiate upfront fees. “It’s not a matter of devaluing your franchise,” Feher explained. “It’s a matter of culture.” Mexican business people want to feel good about having input into what they will pay. You can say no and the prospect won’t go away, he said, but a better plan is to come up with some creative ways around haggling over price.