new market entry - the smart way to expand your food and beverage franchise
TRANSCRIPT
New market entryThe smart way to expand your food and beverage franchise
grantthornton.com/industries/hospitality-and-restaurants.aspx
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INTRODUCTION
Expanding abroad can be lucrative —
and risky.
Here are some useful tips to
maximize your success…
Know the target market
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INTRODUCTION
Consider:
• Long-term need and demand for your offering
• Consumers’ purchasing power
• Levels of disposable income
• Interest in Western foods
• Cultural or religious customs affecting your offering
• Level of competition and saturation
Maintain supply quality to
protect your brand
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INTRODUCTION
• Monitor your supply chain through surprise audits
and close supervision of your partners
• Perform due diligence investigations into
franchise partners and vendors
• Send auditors with local knowledge to review
accounts to ensure franchise partners follow
policies and procedures
Adapt your product line to
local preferences
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INTRODUCTION
Cinnabon in the Middle East offers sweeter
rolls with added caramel. Cinnamon doesn't
appeal to Chinese markets, so the company has
not moved into China.
Read the full article for more insights and best practices >
Choose the right
franchise type
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INTRODUCTION
Options:
• Joint ventures
• Master franchising agreements, which require a
partner with operational and business experience to
build a network of franchisees
• Deals with area developers who locate business
partners, which gives you more control over brand
but requires more on-the-ground work.
Franchise agreement tips:
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INTRODUCTION
• Pay close attention to monitoring and compliance
• Specify what happens when disagreements between the two parties arise, since local courts can be ineffective at resolving contract disputes
More tips here >
Minimize risks of fraud
and corruption
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INTRODUCTION
• Set a tone at the top that corruption is not
tolerated
• Establish a strong compliance program
• Put in place rigorous controls to prevent or
deter improper transactions
• Perform periodic risk assessments to
identify opportunities for corruption
Stay on top of taxes
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INTRODUCTION
Consider:
• Value-added taxes, withholding rates
• Bilateral income tax treaties, where relevant
• Hiring a tax professional with knowledge of
the local laws to help structure and review
agreements
Know the infrastructure
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INTRODUCTION
• How will you safely, reliably and affordably
get product to where it needs to be?
• Are there high-quality warehousing and
distribution networks?
• How are roads, transport options,
security?
Find out more here >
Protect your brand
from piracy
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INTRODUCTION
on potential corporate risks.
File trademark protection as soon as possible – before
pirates do.
Proactively market your product to help educate
consumers about what sets it apart.
Require franchisees to sign nondisclosure agreements
to protect trade secrets.
Where in the world
should you go?
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INTRODUCTION
Here are a few thoughts on
some popular markets…
Spotlight on China
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INTRODUCTION
Opportunities:
• Huge network of manufacturers
• Robust IT networks
• Bilateral income tax treaty with U.S.
The full picture of expanding to China >
China risks
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INTRODUCTION
• Fraud and corruption
• Brandjacking by rogue companies
• Tax inconsistencies due to recent tax reform
• Foreign exchange control restrictions limit the movement of currency beyond its borders
• Stringent rules for foreign franchisors, including the 2+1 rule
What you need to know
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INTRODUCTION
• “Nothing is agreed until everything is agreed.” Chinese
business partners may continue to negotiate even
after signing a contract.
• Set clear parameters for negotiation, and take an
active role in negotiations with landlords, suppliers,
government officials.
• Chinese businesses need to get approval or perform
foreign exchange control procedures to make or
receive foreign payments.
Spotlight on India
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INTRODUCTION
Opportunities:
• Robust IT networks
• Bilateral income tax treaty with U.S.
The full picture of expanding to India >
India risks
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INTRODUCTION
• Fraud and corruption
• No specific regulations related to franchising, so
franchisors have to comply with various layers of
regional regulations
India bans importation of beef and strictly controls other
products, which can lead to long delays while customs
samples and tests products.
• Legal system not very developed, so it can be time
consuming and costly to rely on local courts to resolve
contract disputes
What you need to know
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INTRODUCTION
• Restaurants do well in malls and near
entertainment venues
• Relationships are critical in business
• Business partners don’t need tangible gifts.
“Thank you” or “you did very well” is better.
Spotlight on Dubai
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INTRODUCTION
Opportunities:
• No corporate, personal income taxes
• Local government exercises no control over foreign exchange, so investors in foreign-owned businesses to repatriate 100% of their profits
• UAE Dirham is pegged to the U.S. dollar so foreign investors can easily predict and track expenses
The full picture of expanding to Dubai >
Dubai risks
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INTRODUCTION
• High startup costs
• Stiff competition
• Commercial laws require that only UAE
citizens or corporations wholly owned by
such citizens operate businesses in Dubai.
(Companies operating in the tax free zones
are exempt.)
What you need to know:
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INTRODUCTION
• High startup costs — Rents in malls can be very
expensive (up to $200 per square foot), and some
leasing companies also take a percentage of profits and
command a surcharge
• Master franchise agreements are challenging,
given Dubai’s relatively small geography
Want to learn more about
new market entry?
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Kelly Rodriguez
Industry Leader
Restaurants
Grant Thornton LLP
T +1 303 813 3944