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Why Are International Franchise Brands Focusing on Southeast Asia?

10 Sep 2018 - 10 Regional Factors Why International Franchise Brands Are Focusing on Development in Southeast Asia

As 2018 passes its half way point, Globalization continues to be a hot topic around the franchise world. While there are many different opinions and perspectives on the benefits and perils of Globalization, recent events such as the upcoming resolution of BREXIT, and repercussions of the US Presidential election are all having a profound impact on globalization, which is expected to continue well beyond 2018. There can be no doubt that Globalization is a thriving principle when it comes to franchising, and that Globalization is helping shape the growth of the franchise industry in the ASEAN region.

It is a fact that more franchise brands are now operating in Southeast Asia than ever before; and that more brands than ever before are presently looking at Southeast Asia as an area of focus for their international expansion. This starts with regional brands looking to expand into their neighboring countries and then ripples out to East Asia, the Asia Pacific, the Indian Sub-Continent, the Middle East & Africa, Europe and across the Pacific to the Americas.

The reason for the increase in the number of franchise brands that have entered or are looking to enter the Southeast Asian region is twofold: 1) Regional factors, including the increased ease of doing business in the region because of the economic integration by way of the ASEAN Economic Community (AEC) and 2) Broader global trends that are impacting the franchise industry.

In addition, to the favorable intra-ASEAN trade policies resulting from the AEC, the other top 10 regional factors attracting franchise brands to Southeast Asia include:

  1. Southeast Asia has a large and growing population with approximately 635.5 million people accounting for almost 9.0% of the world's total population and with Indonesia, Philippines & Vietnam ranking in the world's top 20 in total population.
  2. Southeast Asia had an estimated GDP Growth of 4.7% in 2016 and has a combined GDP of approximately US$2.4 trillion. If the ASEAN were a single entity it would rank as the 8th largest economy in the world.
  3. Southeast Asia has seen a measurable increase in GDP per capita over the last decade and the average GDP per capita now stands at approximately $US3.9K, although the gap between Singapore with the highest GDP per capita and Cambodia with the lowest remains significant.
  4. Southeast Asia has a young urban population. Eight Southeast Asian countries have a median age below the world average and 35% of the total population in the region is below 19 years old. Additionally, more than 40% of the population is living in urban areas with Southeast Asia having 3 of the world's largest cities in Bangkok, Jakarta, and Manila.
  5. Southeast Asia has seen sustained improvements in employment rates with 9 of the Southeast Asian countries having unemployment rates below 5% and sustained improvements in adult literacy rates. Also, the availability of affordable and a productive work force with increased availability of skilled talent makes operating franchises in Southeast Asia attractive.
  6. The services sector has become a main driver for growth in Southeast Asia as countries have shifted away from an agricultural driven economy. The service sector now accounts for the highest share of GDP in 8 of the Southeast Asian countries exceeding 50% of GDP in Singapore, Malaysia and the Philippines.
  7. Southeast Asia has generally seen positive inflation trends in recent years with 7 of 10 ASEAN countries maintaining inflation rates below 5%.
  8. Six of the Southeast Asian countries including Singapore, Indonesia, Vietnam, Malaysia, Philippines & Thailand have all been identified as the top 20 countries to franchise worldwide based on a composite index of factors including projected GDP, market size, legal concerns, ease of market entry, ease of business establishment, and assessment of political risks.
  9. Several Southeast Asian countries including Singapore, Malaysia, Thailand, Indonesia, and the Philippines have well developed franchise industries including a proliferation of both foreign and home-grown brands. Vietnam and Cambodia are also seeing an influx of international franchises and more recently international brands are turning their attention to Myanmar as well.
  10. Southeast Asia's positive and sustained economic growth coupled with a young, large and fast-growing urban middle class with increased spending power with higher standards and expectations is contributing to the rapid development of modern retail across the region including malls, shopping centers, and more.

Stay tuned as next month I explore broader trends which further position the ASEAN as a priority for brands seeking international development.

Troy Franklin Chief Operating Officer Southeast Asia, World Franchise Associates
Troy has more than 30 years of experience in senior executive positions in international franchising and business development working directly with and consulting for both franchisors and master franchisees across the various sectors of the franchise industry including F&B, retail and services.

Troy's experience spans across more than 70 countries and multiple regions including extensive experience in the Asia Pacific Region and across the Indian-Sub Continent, Europe, the Middle East and parts of Africa. Troy has spoken at leading franchise expos and events internationally and his broad experience and exposure lends itself to his presentation topics which are founded on his real-world experience.

World Franchise Associates Ltd