Franchising Makes Gains in Manila
With the Philippines increasingly becoming a consumption-led and service-oriented economy, the franchise model is a powerful tool for local development.
By Josh Merin, CFE
In mid-July, as typhoon Rammasan was making its way toward the Philippines, franchise executives from around the world were headed to Southeast Asia. The International Franchise Association, in partnership with Franchise Times and the U.S. Commercial Service, led a delegation to explore opportunities in the Philippine franchise market. Mission participants braved delayed and rerouted flights while those who arrived early relied on the Ascott Makati hotel’s generators to get them through the storm.
The Philippine Franchise Market
As the storm calmed and the sun started to shine, the mission kicked off with a visit to the historic U.S. Embassy in Manila. With the Philippines increasingly becoming a consumption-led and service-oriented economy, the franchise model is a powerful tool for local development. The mission allowed 14 U.S. franchise concepts to explore the expanding Philippine market with the goal of investigating partnership opportunities with master franchisees and area developers in the Philippines. Companies such as Edible Arrangements, Jan-Pro, Panda Express, PJ’s Coffee, Russo’s N.Y. Pizzeria, Tilted Kilt, Title Boxing Club, Tutor Doctor, World of Beer and WOW Café staged one-on-one meetings with potential candidate companies that could help them expand their business to the Philippines.
U.S.-Philippine Historical-Cultural Ties
The visit to the embassy began with a tour of the historic compound and a detailed market briefing by embassy staff and local experts. The compound was designed to serve as the U.S. Embassy, but became the residence of the Commander-in-Chief of the Imperial Japanese Army during World War II. After the war, the embassy’s ballroom hosted the trial which established the “Yamashita standard” of command responsibility in war crimes.
There are deep historical and cultural ties between the Philippines and the United States. Currently, there are 4 million Filipinos living in the United States and 400,000 U.S. citizens living in the Philippines. This drives Filipino familiarity with U.S. brands, as well as an appetite for them. U.S. Embassy employee Kelan Evans of the Foreign Agricultural Service, referred to the United States as the Philippines’ No.1 supplier and consumer of agricultural goods. Kristin Keedler from the embassy’s’ Public Affairs Section said that there is a very positive perception of Americans and United States culture in the Philippines.
Factors Affecting the Philippine Market
The Philippine franchise market is highly mall focused due to weather and traffic. Jan Paul Custodio, senior director of CB Richard Ellis Philippines told trade mission participants that real estate in the Philippines’ costs one-tenth of property in Hong Kong or first-tier Chinese cities. It also has the lowest mall real estate prices in Asia, 20 times lower than Beijing. Market challenges include public infrastructure and high energy costs. According to the embassy briefing, the No. 1 drag on growth is corruption, especially outside Manila.
While U.S. franchises takes the lead and are welcomed with open arms, the Philippine market is shifting. According to Samie Lim, chairman emeritus, Philippines Franchise Association, “U.S. franchisors once dominated the Philippines, but Asian brands are now coming in very fast. The Philippine franchise community has grown a great deal in sophistication.” GDP growth is second only to China in the region. This growth is projected to continue for at least five years and looks sustainable.
“President Aquino has been an economic reformer and while 40 percent of the population lives below the poverty line, things seem to be changing,” said Joel Ehrendriech, economic counselor of the U.S. Embassy. With a steadily growing economy, the Philippines is a prime franchise market with an increasingly sophisticated business community and a desire for U.S. brands. U.S. Deputy Chief of Mission Brian Goldbeck said, “The market is poised, you are right to look at this market now.”
Meeting Dignitaries and Business Partners
U.S. Ambassador Philip Goldberg hosted the delegation and leaders from the Philippine business community for a well-received reception in the embassy’s historic ballroom. Attendees included the Philippines’ Sec. of Finance Cesar Purisma, and Chairman Emeritus of the Philippines Franchise Association and “Father of Philippine Franchising” Samie Lim. Ambassador Goldberg, Senior Commercial Officer Jim McCarthy and I made remarks during the event. I introduced the mission participants who each made brief remarks
Mission participants spent July 18 at the Ascott Makati hotel in matchmaking meetings with potential business partners arranged by the U.S. Commercial Service. Companies met with as many as 12 potential partners in one-hour blocks over the course of the day. Reporters from 12 media outlets, including the two largest newspapers in the Philippines covered the mission.
Franchise Asia 2014
The trade mission coincided with Franchise Asia 2014, one of the franchising’s biggest events in Southeast Asia. At the last minute, the start of the show was pushed back one day to July 17 because of the typhoon that hit the Philippines on the July 16. Recognized as the biggest franchise show in the Philippines each year, Franchise Asia continued not to disappoint, welcoming more than 500 exhibitors, including IFA member and trade mission participant Tutor Doctor, and an estimated 50,000 attendees.
The PFA’s staff worked diligently through the night of the July 16 to reconfigure the program. Their hard work paid off when Franchise Asia opened its doors on the morning of July 17 and soon saw its convention hall fill with attendees from the Philippine franchise community. These attendees demonstrated the remarkable resilience of the Filipino people, by leaving their homes (many without power) and traveling through a city just hit by a typhoon to fill the hall.
William Edwards, CFE, vice chairman of the IFA’s International Committee and CEO of Edwards Global Services and I addressed the general session of Franchise Asia on July 17. Our presentation, “Conquering the Global Market with Your Brand,” highlighted IFA and its experience with international franchising including strategy and tactics for franchising internationally. The presentation included international development models, what to look for in an international licensee and considerations before going international. The event included Certified Franchise Executive program classes and this year’s CFE graduation. The Philippines boasts the largest number of CFEs after the United States. Trade mission attendees were treated to a VIP tour of Franchise Asia’s Expo on July 19.