By: Prof. Enrique Soriano
Are you confronted with a dilemma to invest in a franchise or set up your own business? When in doubt, think of Jollibee, a ubiquitous brand and a franchise phenomenon that started in Quezon City as an Ice Cream house in the 70’s, and went on to open more than 4000 stores under different brands! It has leaped frog to many countries with the United Kingdom as its most recent line of conquest in the European market and a slew of more openings in the US and Canada.
Jollibee is now the largest fast food chain in Asia after outperforming Japan’s Yoshinoya and Hong Kong’s Café de Coral for many years.
Franchising in the Philippines can be traced backed to 1910 when Singer, the sewing machine manufacturer, sold distribution licenses to Filipinos. In the ’60s, A&W Restaurant came into the country also through franchising.
But it took decades before Filipinos caught on to the benefits of franchising.
It was not until the ’90s when international companies realized the viability of franchising their brands in the Philippines. A study commissioned by the Philippine Franchising Association showed a 97% success rate for franchises.
Despite its status as an emerging economy, Filipinos are known for their penchant for shopping, especially when it comes to international name-brand items.
Today, PFA pegs the success rate of entrepreneurs who operate a franchise at a high of 90%, compared to the 25% for traditional retailers or independent startup businesses.
“A franchise is for people who are not entrepreneurs – those who don’t know how to start their own business,” said Samie Lim, considered the father of franchising and chairman emeritus of the PFA as well as president of consulting firm Francorp. Philippines, Inc. “A franchise is for people who will follow rules, comply with a proven system because that is the core of the business model. It is the formula and if you deviate or fool around with that formula, you will not succeed. A non-conformist or a creative person will not be successful as a franchisee because he will likely insist on tinkering around with the formula.”
Lim noted that franchising has caught the attention of Filipino entrepreneurs because this type of business poses less risk than most other businesses.
PFA historical data showed that the Philippine franchise industry grew from only 50 franchises in the early ’90s to over 500 in the year 2000. Franchise industry sales grew from PhP30 billion in 1997 to PhP63 billion in 1999.
“Since 1997-’98, people say businesses went down. I think most of the other businesses were affected…they stagnated after the Asian crisis. But franchising continued to grow and it is still growing,” Lim noted. That was the phase where the growth grew exponentially and started the spectacular rise of the franchise business.
Ironically, Lim also attributed the boom in franchising in recent years to the Asian financial crisis and the global economic slowdown that followed thereafter. He noted that “franchising tend to perform even better when the economy is bad” because when factories closed and people are laid off, they turn to entrepreneurship.
Going the route of Franchising will be a wonderful direction for business people who have excess money or those who are in the crossroads (retirement or embarking on the path towards setting up a business).
With 2018 coming to a close, choosing the right franchise system must be strategic. In the last 10 years, I have personally helped a handful of emerging franchise businesses expand with some scaling up in overseas markets like North America, Singapore and emerging growth areas like Indonesia and Vietnam.
Prof Enrique Soriano is a World Bank/IFC Governance Consultant, Senior Advisor of Post and Powell Singapore and the Executive Director of Wong + Bernstein, a research and consulting firm in Asia that serves family businesses and family foundations. He was formerly Chair of the Marketing Cluster at the ATENEO Graduate School of Business in Manila, and is currently a visiting Senior Fellow of the IPMI International School, Jakarta.
He is an associate member of the Singapore Institute of Directors (SID) and an advisor to business families worldwide, a sought after governance speaker at conferences, and book author, more than 200 articles and publications, including two best-selling Family Business books (Ensuring Your Family Business Legacy 2013 and 2015). You can read Prof Soriano’s business articles for free at www.Faminbusiness.com