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Published on March 17, 2008

This will be a year of readjustment for franchise businesses in Thailand.

Narratchai Leeraphante, president of the Franchise and Thai SMEs Business Association, said the franchise market was sluggish last year and many operators, particularly small franchisees with fees of between Bt30,000 and Bt50,000, were forced out of business.

Commercial banks also had problems issuing new loans to small and medium-sized investors.

"Under the present high business-cost environment, all franchise operators need to be highly aware of their cost structure. They have to focus on the management of bottom-line revenues and reorganising their working systems to ensure survival and growth opportunities," he said.

He added that supply-chain and logistics management remained major problems facing franchise operators. The local education system does not teach students a sense of entrepreneurship, but just awards  university degrees, he said.

Narratchai said that under a free-trade environment, international franchise operators could freely enter the Thai market. The industry will be a competitive battlefield and only strong operators will survive.

"In my view, many local franchisees are still weak, in areas of both knowledge and operational skills," he added.

He said the Thai working culture was another weak point. Thai people do not want to work hard or dedicate themselves to business. Their attitude is to wait for assistance from family or the government.

Narratchai said the franchise industry needed great support from the government, which should provide education to business entrepreneurs who want to enter a franchise system. He gave the example of the Business Development Department, which should build a franchise standard that would work as key performance indicators for franchise operators.

According to Narratchai, there are more than 500 franchisers in Thailand, of which about 150 are foreign operators. There are also between 50,000 and 60,000 local franchisees, including those of convenience-store chains such as 7-Eleven.

Somjit Likitsathaporn, managing director of Franchise Focus, said the local industry slowed down last year. The growth of franchise sales declined heavily from the 20 per cent reported in 2006 to only 10 per cent last year. The industry is, however, expected to rebound to growth of between 15 and 20 per cent this year.

"Political uncertainty was the major negative factor last year. Individual investors delayed investments during unfavourable circumstances," she said.

Somjit said the overall economic situation was expected to improve this year and local investors could better make investment decisions. Salaried workers, who face uncertainty in their career, are trying to find alternative business sources of income.

Chirayuppong Suksomhatai, president of the Thai Franchise Association, said most franchise companies in Thailand were small and medium size.

"Many individual investors in franchise businesses are lower-income people. They have less loyalty to the franchise brand and try to find their own ways to cut costs and gain more profit from their franchise outlets. If the franchisers do not control their after-sales quality, then the franchise system will fail," said Chirayuppong, adding that besides lacking the marketing skills, many franchisees do not dedicate as much time and resources as they should to running the business.

He said more than 100 franchisees shut their businesses last year.

Chirayuppong added that the association estimated total franchise sales had declined by about 4 per cent last year.

Encouraged by better economic and political sentiment, the industry is expecting a recovery this year with growth at between 10 and 15 per cent.

Kwanchai Rungfapaisarn

The Nation