Gloomy economy paves way to growth of franchising

The Nation

The franchise business in Thailand this year is expected to maintain its growth at about 11 per cent, similar to recent annual expansion rates despite the poor economic climate.

Somjit Likitsathaporn, managing director of Franchise Focus magazine, said the gloomy economy was in fact good for boosting franchise growth as a number of people may pay attention to this business model instead of their routine work. She forecast that about 20 new franchise businesses could be started up during the year.

Former deputy prime minister Olarn Chaipravat said late last year that the number of unemployed this year might skyrocket to 1.2 million if the political turbulence is prolonged and the government cannot find a way out, and the global economic downturn continues to bite.

Somjit said some laid-off staff might use their compensation money to start their own enterprises, including possibly opening up a franchise operation.

Referring to a 2008 franchisee survey conducted by Franchise Focus, 50 per cent of Thai franchisees used to be office staff, compared with 34 per cent in 2003. Thirty-eight per cent of franchisees are entrepreneurs, declining from 40 per cent five years earlier.

 "The franchising business in 1997, at the height of the financial crisis in Thailand, grew very well and I have a strong belief that this year things will be similar to 12 years ago. An economic slowdown usually creates a great opportunity for people who want to establish their own enterprises," she said.

In addition, the financial crisis and poor economic situation, which have resulted in banks becoming more cautious about approving loans, are not an obstacle for franchise businesses as most of franchisees invest using their own cash. Less than 25 per cent borrow from banks, said Somjit.

She said 33 per cent of franchisees invest between Bt1 million and Bt3 million on opening an outlet, while 22 per cent invest between Bt100,000 and Bt500,000.

Besides, some franchisors - food, beverage and small franchise businesses - have waived fees in order to attract more people to set up franchises. According to the survey, 26 per cent of franchisees last year did not pay a fee, she said.

"Several franchise businesses have adapted themselves in order to run their enterprises smoothly and enable their franchisees to survive," she added.

Somjit recommends service franchises to people who want to purchase a franchise business this year, because this area has more room to grow than food and beverages.

She cited interesting service franchises as being in the barbershop, laundry and auto service areas, such as car washes.

"I think service business is a good franchise area to choose, because franchisors can transfer know-how to franchisees. This means it will be a sustainable career for them. In addition, there is less competition in service business than in the most popular franchise businesses like food and beverages," she said.

Franchise Focus organised the 12th Opportunity of Franchise Fair last February. It interviewed about 89,000 attendants who attended the event and discovered that 29 per cent wanted to have a food business, followed by coffee shops, bakery and ice-cream businesses, which together accounted for 19 per cent of those interviewed.

The magazine will hold the 13th Opportunity of Franchise Fair next month.