Mexico Trade Mission Spawns Excitement for U.S. Brands; WFC Advances in Taiwan
Mexico is the fifth largest franchise market in the world.
By Josh Merin, CFE
While the leaves were changing colors in the United States, another International Franchise Association Franchise Trade Mission headed south to Mexico. U.S. franchise brands, including Boston’s Restaurant and Sports Bar, BrightStar Care, Denny’s, FASTSIGNS, FOCUS Brands, Mosquito Squad, Smoothie King, Title Boxing Club, Wing Zone, World of Beer and Xtreme Lashes were among the participants exploring the key Latin American market.
According to the Mexican Franchise Association, the country is home to 1,370 franchise brands; 90 of those are headquartered in the United States and more than 50 are other international brands. Franchising represents 6 percent of Mexico’s GDP, making Mexico the fifth largest franchise market in the world.
The trade mission began in the nation’s capital, Mexico City, on Oct. 6 with a market briefing at the U.S. Embassy. The group was welcomed by embassy Commercial Attaché Rebecca Torres, who told participants, “Culturally Mexico is extremely accepting of U.S. brands. It’s almost a status thing.”
IFA member Ferenz Feher, CEO of international franchise consult firm Feher & Feher, briefed mission participants about the Mexican market. Trade has tripled since the 1994 signing of the North American Free Trade Agreement and while annual GDP growth in Mexico was only 1.6 percent over the past year, franchising grew nearly 12 percent during the same period. Feher shared market tips with the participants, including the importance of adapting to the pace of Mexican business culture. Master franchising is the most common model for U.S. franchisors doing business in Mexico, but a regional approach should also be considered. Deals can take as long as one to one-and-one-half years, but then yield strong returns. He stated, “You have a great opportunity on your hands.”
Pablo Hooper Ramirez, Gonzalez Calvillo (description?) partner, briefed participants on the Mexican legal and regulatory environment. Mexico is a first-to-file market, meaning rights belong to the first company to register a trademark, not the first to use the mark. He told the participants that less disclosure is legally required in Mexico than in the United States. Ramirez recommended that U.S. franchisors have their franchise agreements signed in English if their licensee can understand that language.
Participants braved Mexico City traffic to tour a series of shopping malls and commercial areas before meeting with prospective partners. The first major mall in Mexico City was built in 1971, but there has been a boom in mall construction since 2008 in response to the growing demand. The demand is so high for prime retail space that some malls charge “key money” of as much as $1 million USD for entry.
After spending most of Oct. 7 in matchmaking meetings with Mexican investors, Feher & Feher hosted an evening reception for the trade mission attended by Mexican businesspeople and government officials, concluding the first stop on the mission’s itinerary.
Oct. 8 was an early morning for mission participants as the trade mission headed north to Monterrey, which is even more familiar with U.S. concepts than Mexico City. While briefing participants, Feher said, “Monterrey is not only the most Americanized city in Mexico. It is the most Americanized city in the world outside of the United States.”
The state of Nuevo Leon, of which Monterrey is the capital, compares favorably to Mexico City in terms of income levels, infrastructure and commercial real estate availability. The state has grown safer over the past two to four years, driving increased foreign direct investment. Nuevo Leon has the highest worker productivity in the country, is responsible for 11 percent of Mexico’s total manufacturing output and 8 percent of the country’s total GDP. It is the No. 1 center for foreign direct investment in Mexico with 65 percent of trade between the United States and the country passing through the state.
The stop in Monterrey began with lunch and series of market briefings. John Howell, commercial consul of the U.S. Consulate in Monterrey, made initial remarks, noting that the consulate in Nuevo Leon is one of the biggest U.S. consulates and is the No. 1 originator of U.S. tourist visas in the world. Also home to the No. 1 grossing Carl’s Jr. restaurant in the world, Monterrey has the highest per capita GDP in Mexico, two times the national average. In the district of San Pedro, the per capita GDP of $37,000 is comparable to U.S. levels. English is widely spoken and U.S. culture is pervasive. Howell joked, “When I ask a local which soccer team is their favorite, I often hear the name of an NFL team in response.”
Armando De La Fuente, a partner of the real estate services firm Alles Group, provided a detailed overview of commercial real estate in Mexico’s second largest economy. Numerous mixed use developments have either recently opened or are under construction, all in the comparatively competitive range of $32-$39 per sq. meter per year. He said that many downtown landowners do not want to sell to developers in anticipation of rising prices.
Concluding the briefings, Undersecretary for Foreign Investment and International Trade for Nuevo Leon Celina Villareal Cardena, along with a colleague, reported on the state’s economy. Automotive brand Kia has just committed to an investment of more than $1 billion USD to build an automotive manufacturing facility and more than 600 Korean families are expected to relocate to Monterrey in the next 18 months.
Our transportation through streets was slowed by a visit from President Enrique Pena Nieto touring local malls and commercial areas. On the Oct. 9 mission, attendees spent entire days in matchmaking meetings. Some attendees met as many as eight investors over the course of the day. Title Boxing Club scored the mission’s fastest success, signing a master franchise agreement with investors from the Yucatan Peninsula. The following day, Title Boxing Club’s representative and their new licensees began meeting Monterrey investors to discuss subfranchising.
World Franchise Council Makes Strides in Taiwan
IFA Sec. Aziz Hashim, NRD Holdings president and CEO, and I traveled to Taiwan in late September to represent the association during the World Franchise Council meeting. The WFC is an international entity that unites national associations of 42 countries and functions as the United Nations of franchising.
Numerous long-time delegates said the meeting was one of the most productive in the council’s history. Over the course of a meeting lavishly hosted by the Association of Chain and Franchise Promotion and Taiwan, the WFC agreed to form an executive task force to help the council follow through on strategic objectives beyond international updates and sharing of best practices. This new structure was proposed by IFA Pres. and CEO Steve Caldeira, CFE, during the WFC’s April 2014 meeting in Sao Paulo, Brazil.
In line with IFA’s effort to drive new outcomes through the WFC, I reported on extensive work done by the association to assemble, analyze and visualize the WFC’s franchise data with the goals of understanding what data the council possesses and how it can be used. Based on counsel from FranDATA, IFA reported that to meet standards of data integrity, the WFC needed to use standard definitions in data collection and have a means of verifying the accuracy of data it collects. The WFC agreed to shift to new methods of data collection proposed by IFA which promised to continue its work with FranDATA on behalf of the council. Members said this effort represented the most momentum that has been given to data in the council’s 20 year history. In recognition of its work, IFA was elected Vice Secretariat for Franchise Information. The position guarantees IFA a spot on the WFC’s new executive task force.
WFC members took great interest in Hashim’s analysis of joint employer and franchise relations issues in the United States. The council endorsed a joint declaration drafted by IFA “Clarifying the Structure of Employment in Franchised Business.” WFC members will translate the declaration and use it in their countries to help protect the environment for franchising as joint-employer issues continue to emerge around the world. The meeting concluded with a presentation by Hashim and me on IFA’s plans to host the next meeting of the council coinciding with IFA’s 2015 Annual Convention in February.
The focus then shifted to the International Chain and Franchise Forum and Expo in Taipei. The event kicked off with Hashim representing IFA in an official signing ceremony to export the CFE program to Taiwan. The forum and expo received attention from Taiwan’s top political leaders with Vice Pres. Wu Den-yih attending the signing ceremony and Pres. Ma Ying-jeou visiting and addressing the gala dinner. The next day Hashim addressed the forum during a panel on globalization and franchising. The WFC delegates visited a local franchisor and then finished their trip to Taiwan with a tour of Tainan, the historic capital.