23/06/2015
How to enter the Philippine Market (mode of entry) Part I
“The Philippine market offers an innately large consumer base that is attractive for franchise operators. Its strategic location makes the country an appealing option as a franchise hub to launch a future Asia-Pacific expansion.” That’s how Ilan Alon, author of the Book, “Service Franchising: A Global Perspective”, summed up the Philippine market.
In this same book, he cited the favorable factors for the Philippines: wide use of the English language, cultural affinity with American values, low labor cost, large pool of skilled labor and management talent, and moderately well-placed infrastructure. The competitive climate that exist in the more urbanized locations in the country forces new entrants to creatively innovate and adapt quickly to the environment in order to succeed.
His book revealed that countries that offer a high level of economic market potential, a low level of political instability and risk, a legal environment that protects intellectual property, an efficient court system, and a social environment that is auspicious to franchising are more likely to attract franchising investment.
Alon cited four fundamental ways where foreign franchisors may chose to enter the Philippine market: 1) sole ventures, 2) joint ventures, 3) direct international franchising, and 4) master franchising
Quoting the Australian Trade Commission, said Alon: “the most viable franchising entry modes in the Philippine market is through the use of joint venture with a local firm, or appoint a local company to act as a master franchise and lead the network expansion in the country.”
A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets while Master International franchising refers to the contractual agreement between the franchisor and an independently owned sub-franchisor to develop a specified number of franchises in a given area in exchange for the exclusive right to use the business format for a specified period.
Be it a joint venture or master franchising, entering the Philippine market requires careful planning and preparation. Alon recommended the following approaches:
1. Find a Suitable Partner. There are several instances worldwide where international franchising operations were marred by an error in partner selection. Hence, selection of a partner should be done judiciously as it makes a large impact on the success of a foreign franchise. The American Chamber of Commerce, Philippine Chamber of Commerce and the Philippine Franchise Association are ideal starting points to meet and gain information on potential franchisees.
2. Identify and Utilize Strategic Control Measures. Establishing ventures in foreign locations often necessitate some form of adaptation and adjustment. The fact that the culture, market and business conditions, socio-political landscape, and infrastructure could be different from home markets thorough contractual safeguards have to in place. Sensitivity to existing disparities has to be factored into the company’s strategic planning.
3. Use the National Capital Region as Entry Point. The supporting infrastructure and distribution systems in the Philippines are well developed in urban locations, such as the National Capital Region. The cities of Manila, Quezon City and Caloocan are in the national Capital Region and have a population of over 1 million. These locations also have a wide presence of world-class advertising and marketing support facilities. It makes strategic sense to establish the initial franchise in these locations while further gaining an understanding of the business dynamics of the country.
4. Set Up Mall Stores. A number of western franchises have experiences success a result of their presence in major malls. Benefits associated with a mall presence include: high visibility, large foot traffic, convenient consumer access, image building, and easy to complement with national advertising campaigns. Though, space availability and lease rates may be issues to consider, select opportunities do exist and can prove beneficial.
5. Expand Selectively to Provincial Area. The Philippine population is spread out across different provinces. Several provinces have population of over 1 million. There are issues to consider with regard to infrastructure development, peace and order, and ease of product distribution in certain provinces. Nevertheless, a well-thought out expansion strategy allows an international franchisor to tap into unique market opportunities that may exist in these developing locations.
Source:https://trademarks.ipophil.gov.ph/tmonline/TM_Online_FAQs_14Feb2012.pdf
