Franchising: Singapore’s Experience

10 February, 2020

The Beginning

Singapore is probably one of the earliest nations in Asia (next to Japan) to embrace franchising. It all began in the 1970s when major Western multi-national companies such as Shell, Esso, Singer and Bata operated here under licensing systems which bore characteristics similar to what we know today as franchising concepts.  Then a decade later, in the 1980s, cash-rich Singapore-based individuals and companies began acquiring country rights of international franchises such as McDonald’s, ServiceMaster, and so on. Later, almost at the end of the 80s, several local companies began to launch their own local franchise programs. The main players were retail (mini-markets) and provision stores names such as Econ Mini-mart and Happy Family. Others that subsequently, in the early nineties, jumped onto the band wagon include Factory Outlet, Prima Deli and Informatics. Also at about the same time, new master franchisee operators of brands like Hard Rock Café , Hardee’s (burger) ,Wendy’s,  Baskin Robin’s also opened up outlets in the bustling Orchard Road vicinity to fight for a piece of the pie. (A few of the above brands have since exited – and some have re-entered with new franchisee/s, e.g. Baskin Robin’s.)

Impetus

Other than the media’s strong coverage on franchise-related matters, it is commonly believed that Singaporeans’ frequent overseas travels have also engendered an increased awareness of franchising among the public at large. And more importantly, the knowledge that it is a key to the growth of small and medium sized enterprises also helped to fuel the interest in franchising.

Another well-established fact is the role played by the Singapore Government. For instance, in the Retail Sector Development Plan (March 1992), the setting up of the Franchise Development Centre was mooted. This Centre was successfully set up and run by the then National Productivity Board (later re-named SPRING, which is now currently Enterprise Singapore). It has served its purpose and is now defunct. The Economic Grouping Centre (EGC), a division within SPRING, then came into being with the aim of encouraging and assisting local businesses to pool their resources and form economic groupings.  With these economic groupings, local small and medium-sized companies would be able to tap on professional expertise and attain better economies of scale.

Recognizing the benefits and potential of franchising, and having as one of its objectives to develop Singapore into an international franchise hub, another key Government statutory board called Trade Development Board (later  re-named as International Enterprise Singapore, and was merged with SPRING SINGAPORE, forming the current Enterprise Singapore organ) undertook a number of initiatives to promote the growth of franchising.

Enterprise Singapore (ESG) viewed franchising as an avenue for Singapore companies to expand overseas. Generous grants and subsidies are available for companies that meet the criteria.

There are a number of factors contributing to the popularity of franchising in Singapore.

1)Located strategically, and equipped with probably the best infrastructure (state-of-the-art telecommunications and shipping facilities, logistics, financial, medical facilities, etc) in the region, Singapore has been very successful in attracting many multinational companies to set up regional headquarters here, with most of the them intending to expand into the neighboring markets…

2) The political stability which Singapore has achieved is also a great assurance to the private sector that their investments in Singapore will be secure.  Logically, it will also be perceived as the best place to show-case any new franchising concepts –be it retail, healthcare, f&b, education, services and what not

3) For many successive years, Singapore’s per capita income is among the highest in the region. The rising disposable income has made Singapore an attractive market for many international companies. Rising income has resulted in Singaporeans hankering for higher quality and more sophisticated goods and services.

4) The last two decades are considered the golden era in the Asia-Pacific region. China and India have registered the highest growth rates in recent years.  With this kind of phenomenal growth, these societies have enjoyed greater income and become more affluent. The prospect of selling to the enormous consumer bases in the Asia-Pacific region is pulling many companies into the region. And as indicated in (1), these companies saw that it was most advantageous to locate their regional base/headquarters in Singapore. And the Singapore government has been rather successful in its aim to create an ideal platform for potential franchise owners who seek security for their investments. Its proactive support—e.g. eligible companies can tap on many assistance schemes ranging from franchise consulting, registration of trade marks, market surveys, to even overseas exhibition participation have paid off in that many local and Singapore-based franchises have expanded successfully overseas.

Reasons for Franchising

In a survey carried out by the then Trade Development Board more than two decades ago, local franchise companies were  asked to elect among the following 4 possibilities as key reasons for their franchising program:

  • Lower capital requirement
  • Lower political risk
  • Government assistance
  • Greater commitment of franchisees

The findings indicated that lower capital requirement and greater commitment of franchisees were the two most cited reasons by companies for embarking on their franchising programs.

Then in 1997, the Franchising & Licensing Association Singapore (FLA) conducted its own survey, and some of the results were:

  • Almost 80% of franchisees experienced an improvement in sales since joining
  • 70% reported an improvement in profit
  • 33% reaped more than S$500,000 profit
  • Most are in the food and retail sectors

Key Success Factors:

  • Strong track record
  • Sound financial background
  • Committed management team
  • Proactive support from government

Key Reasons for Failure:
Lack of:

  • Conviction/commitment coupled with concrete business plan
  • Adequate due diligence
  • Sufficiently trained executives
  • Strong USPs

Current State of Affairs

Unlike the likes of the USA, China, Australia, Malaysia, Vietnam and several member nations of the EU, there is no franchise-specific legislation in Singapore. Members of the national Franchising & Licensing Association (FLA) — which currently has about 120 members, abide by a code of conduct and the body thinks that the self-regulatory system is still effective as far as preventing the public from unscrupulous franchisers is concerned.

The major franchising event is called Franchising & Licensing Asia (FLAsia), details of which can be found in the association’s website www.flasingapore.org

Even though Singapore is a small nation, its national franchise association FLA Singapore is considered a very active member of the Asia Pacific Franchise Confederation and the World Franchise Council and works hard to facilitate the growth of franchising locally and overseas.

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