Growing through franchising in Latin America: some thoughts for British businesses

Based in Uruguay but with over 10 years experience in the UK, Gabriela Castro-Fontoura specialises in making it easier for British businesses to do business with Latin America. Since she founded Sunny Sky Solutions (www.sunnyskysolutions.co.uk) two years ago, Gabriela has helped many UK companies from a range of sectors (from prams to cable cleats, from beer to confectionery) understand and make the most of opportunities in her native Latin America. Here, she shares with us some thoughts about franchising in Latin America.

Franchising is booming across Latin America. The reasons are complex but let’s just mention three.

 First, as Latin America enjoys a period of economic growth, with annual growth rates exceeding 10% for some countries, purchasing power is high and growing. More and more people, particularly the now 300 million middle class consumers, have access to more products and services than before, and franchising can deliver them often very effectively and quickly.

Secondly, because of that economic growth and purchasing power increase (and some other issues such as strong currencies), Latin Americans are travelling abroad more than ever before. They go to the US, then they want a Starbucks at home... It is easy to see how consumer preferences are changing with globalisation (not just travel but internet access and international TV penetration). Foreign franchises are making the most of this.

Finally, some markets in Latin America are notoriously protectionist and difficult to penetrate, such as those of Brazil and Argentina. Franchising offers a great mix of foreign brand and  local know-how (and local labour, which pleases the authorities) that is extremely powerful.

I am often disappointed to see how little Britain is making the most of the opportunities, as opposed to US or other European franchise owners, such as Le Pain Quotidien (food retail), Starbucks, Kumon (education), Bubblegummers (footwear retail), Curves (weight management) and so many others. So, if you are thinking of franchising into Latin America, let me give you some thoughts, just to get you thinking...

1-     There are plenty of opportunities

That’s the good news.  Demand is huge for products and services that Britain could offer through franchising, from language schools to toddler activities, from ethnic restaurants (please, Mumtaz, we need you!) to nursery products (as Mothercare have noticed in their recent expansion into Panama, Chile and Colombia).

2-     There are also plenty of drawbacks

Oh, yes. But it isn’t the same across all of Latin America. Let me give you a tip: search in google for shopping centres across 10 different cities (I would start with Sao Paulo, Buenos Aires, Santo Domingo, Santiago de Chile, Bogota and Lima...) and see how many foreign franchises (if you are in franchising, you will almost certainly know which brands tend to franchise and which expand via joint ventures or through their own stores/presence, if you don’t know, you can google and find out, or ask someone senior enough in your sector or in a franchising directory). You will start working out some trends there...

Difficult countries at the moment in terms of bureaucracy, paperwork, corruption and so on include Brazil and Argentina. However, both offer huge potential for franchises (did you see how many you spotted in our mini research before?). Which leads us to the next issue...

3-     Research

So you think you want to expand through franchising to certain countries or, even better, to certain cities or areas... Here I say: RESEARCH. The risks are high, the investment, in time, money and people, are huge, so research to minimise your risks. How? In the particular case of franchising, I would warn you against DIY research. Things just get too complicated not just for the many legal issues (contracts, trademarks, labour laws, competition laws, jurisdiction, etc) but for business issues other key aspects such as taxation and insurance.

As a franchising expert told me recently “International franchising, if done successfully, can be hugely beneficial to all. If done badly, it can be a disaster, cost you your brand and even your business”. It can be done, it can be great, but it takes time and serious research. I asked my contact “but some businesses can’t afford to invest so much at this stage”, to which she said “then they are not ready to franchise internationally, because beyond the research there will be important costs in terms of travel, legal fees and so on. If they are short of cash, this is not their route”. Clearly, franchising is not the “quick route”, as many think, and you also have to go with a long vision (5-10 years at least).

4-     Think laterally

Franchising is one great route to market for Latin America. But it is certainly not the only one. Have you explored options such as licensing? How about e-commerce? Have you explored making the most of free trade zones?

We hope you have enjoyed this article on franchising. For further information on our services in this area, please CLICK HERE.

 

Written on 14th February 2013 by Gabriela Castro - Fontoura, S&H LLP Associate Director at Sunny Sky Solutions (http://sunnyskysolutions.co.uk/)

Back to Articles

Articles By Gabriela

Top Tips: Doing Business in Latin America

Porsches, Brick Walls and Blackberries – Protectionism in Argentina

 

 

 
Contact Strong & Herd
to discuss your requirements
Telephone
0161 499 7000
Fax
0161 499 7100
Strong & Herd LLP, Manchester International Office Centre
Styal Road, Manchester, M22 5WB