Global Business Development

An Update on Countries as Places to Do Business in 2018

Our company conducts country and regional market analysis for our clients who are considering what countries to take their business into. We tap into more than 25 international information sources and the real-time knowledge of our GlobalTeam™ members on the ground in 43 countries. Here are some snippets from our recent research in key countries at the start of the second quarter of 2018.

The International Monetary Fund (IMF) predicts 3.7% global growth for 2018, the highest level in 10 years. While risks to global growth include political meltdowns, economic disasters, wars and unrest, investment risk, and intellectual property concerns, economic growth is robust in many parts of the world.

The Americas

Argentina – After 20+ years in the economic, exchange rate, and political wilderness, the Latin American & Caribbean Director of The Economist Intelligence Unit noted in a recent webinar that Argentina is now in a new period of extended, stable economic growth. Structural reforms, business friendly policies, less regulations, higher levels of direct foreign investment; dropping interest rates and efforts to lower the public deficit have resulted in an expected level of GDP growth of about 3% over the next few years.

Brazil – For the past five years the economy has stalled, inflation has been high, and there have been numerous government and corruption problems. A recent Wall Street Journal article (March 1, 2018) stated, “Brazil’s economy returned to growth in 2017 (1.0%) after two years of contraction . . . Gross Domestic Product (GDP) increased 2.1% in the fourth quarter of 2017 from the same period a year earlier. Economist magazine expects Brazil to grow 2.6% this year and 2.8% in 2019. This will mean new investment opportunities.

Peru – GDP growth is expected to be 3.9% in 2018. This has been the fastest growing economy in Latin America for many years. The government is pro new business creation because this means new and better jobs for their people.

Asia Pacific

China – The Chinese consumer economy is growing at over 8% per year. The middle class is approaching 300 million people. There are 160 cities with a population of more than 1,000,000 people. In 2016, Shanghai and the two adjacent provinces had a combined GDP of that of Italy and Mexico combined. Today’s Chinese consumers want the quality, brand, convenience and service associated with Western brands.

As excellent example of the spending Chinese middle class consumer is the fact that in 1990 less than 1 million Chinese took a commercial airline flight. In 2017 over 600 million Chinese flew a commercial airline flight.

Indonesia – The world’s fourth most populous nation is experiencing a rapid expansion in the middle class, which includes over 30 million households.  Like many other Asian countries, the middle class in Indonesia is characterized not only by their purchasing power, but also their generally higher levels of skills and education.

Japan – Although Japan has an expected GDP growth rate of 1.5% in 2018, this is up considerably from past years. There has been a transformation of Japanese consumer spending patterns in recent years. Consumers are spending money on physical experiences rather than purchasing tangible goods and products.

The Philippines – Growth in disposable income has resulted in a more comfortable and better lifestyle. This has contributed to the growing sophistication of consumers across age, income and gender groups. A very strong acceptance of social media allows businesses to connect with the young middle class consumer.

Europe

2017 was Europe’s strongest year of economic expansion in over a decade, with average Gross Domestic Product (GDP) growth of 2.5%. In 2018, Ireland is expected to lead the pack with GDP growth of 4.1%, with estimated growth rates of 2.4% in Germany and even 2.1% in France which is its best performance in years. While 2018 will feature a great deal of political melodrama as negotiations between the EU and United Kingdom occupy headlines, the economies of this region are moving ahead strongly and this is good news for new franchise development. Consumer confidence is the highest it has been in decades and average unemployment is at a nine-year low.

Italy – The expected relatively low 2018 GDP growth rate of 1.5% is offset by increased business investment and significant household consumption. Most of the new investment in 2018 will be in the north centered around Milan.

Poland – Economic growth remains strong. Rising social transfers and a booming labor market are underpinning rapid consumption growth. The unemployment rate is at a record low level, labor shortages are spreading, and there are early signs of accelerating wages. The labor market is expected to tighten further, leading to somewhat faster wage and price inflation.

Spain – With 2018 GDP growth estimated at 2.7%, Spain is benefiting from a dynamic economy, record levels of tourism, rapidly declining unemployment, and domestic consumption and new business investment.

Middle and Near East

United Arab Emirates – The International Monetary Fund (IMF) expects GDP to recover from recent oil and gas price woes to grow at 3.4% in 2018. The UAE has three major consumer types: (1) the local Emiratis (about 400,000); the ex-pat foreigners who work at the regional headquarters of international companies; and the high number of tourists who come to the UAE because it is a regional vacation and shopping opportunity.

India – This country is set to be the fastest growing economy in the world again in 2018. The World Bank says India’s growth is expected to be over 7% in 2018, overtaking China. The World Bank believes strong private consumption and services are expected to continue to support economic activity. Exports for the last month that data is available rose 30% year over year. The Purchasing Managers’ Index expanded the fastest it has in five years. At least one international ratings agency has upgraded India’s credit rating.

For further information on how we might help your company realize its full global potential, contact William Edwards on +1 949 224 3896 or at bedwards@edwardsglobal.com.


The Fastest 2 Minutes in International Franchising

Our GlobalTeam™ of highly experienced international specialists in the USA and on the ground in 32 countries contributed to this summary of today’s world business opportunities. Countries to watch for excellent business development opportunities in 2017: the Philippines, the UAE, Spain and Poland.

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Asia China
Japan
Malaysia
The Philippines
Thailand
Viet Nam
Consumer economy growing at over 8% per year
Corporations are seeking consumer investments
Political and currency unrest
Many new US international businesses opening
Starting a comeback from post-coup recession
6%+ GDP growth, USA franchises desired
Americas Argentina
Brazil
Canada
Chile
Colombia
Mexico
Peru
USA
Dramatic change, new government, improving economy
Economy, stalled, inflation up, government problems
New tax-focused government
Government regulations increased
Uneven growth, low new investment
Post US election new investment stoppage
New pro-business government, US brand friendly
Renewed business confidence: lower taxes, regulations
Europe Ireland
Germany
Poland
Russia
Spain
Turkey
United Kingdom
Good GDP growth, slow to see new investment
Difficult to find investors for foreign brands
Highest EU GDP growth
Not now!!!
Recovery speeding up, heavy new investment
Political unrest and terrorism = no new investment
BREXIT & election fallout slowing new investment
Middle East Egypt
Saudi Arabia
United Arab Emirates
Security and hard currency problems
Difficult to get new businesses open once built
New US brands entering, strong new investment
Elsewhere Australia
India
New Zealand
South Africa
Challenge to find investors for foreign brands
Challenge to find licensees who follow system
Few consumers, but pro foreign brands
High unemployment (25%), low new investment

 


The Fastest 2 Minutes in International Franchising

Our GlobalTeam™ of highly experienced international specialists on the ground in 32 countries contributed to the following brief summary of the franchise world opportunities for 1st quarter 2016. Countries to watch for franchise opportunities in 2016: Argentina, the Philippines, the UAE, Spain, Poland and Peru.

Asia China
Japan
Malaysia
The Philippines
Thailand
Viet Nam
Consumer economy growing at 8.2% per year
Only large corporations are investing in new projects
Political unrest, declining Foreign Direct Investment
Many new US F&B brands opening
4% GDP growth expected in 2016
6.5% GDP growth, prefer US franchise brands
Americas Argentina
Brazil
Canada
Chile
Colombia
Mexico
Peru
USA
Dramatic change, new positive government
Economy is stalled, inflation climbing, political uncertainty
Declining investment in F&B, tax focused new government
3.7% GDP growth for 2016. Government regulations?
Show me the money and where it came from
Mexico City, Monterrey and Cancun booming
Lima is a city of cranes and new foreign franchises
US$15/hour minimum wage kills margins. Election year
Europe Ireland
Germany
Poland
Russia
Spain
Turkey
United Kingdom
GDP growth of 3.5% projected for 2016
Difficult to find investors/risk takers for new foreign brands
3%+ GDP growth for 2016. Slow new franchise investment
Not now
2.7% GDP growth for 2016. Recovery speeding up
Political unrest leading to drop in new project investment
2.2% GDP growth, but normal investment analysis paralysis
Middle East Egypt
Saudi Arabia
Dubai
Pent-up consumer demand, high growth, iffy security
Challenges to get new businesses open due to regulations
New building push, large expat influx, airport & airline soaring
Elsewhere Australia
India
South Africa
GDP growth of 2.5% but falling commodity exports. Jobs iffy?
Not another country, another universe. But opportunities.
Low growth, high unemployment (25%), low new investment

 


The Fastest 2 Minutes in International Franchising

For 2015 EGS’ US franchisor clients are seeking licensees in over 20 countries. Our GlobalTeam™ of highly experienced international development project managers contributed to the following brief summary of the franchising environment around the world for the New Year:

 

Asia China
Japan
Malaysia
Mongolia
The Philippines
Thailand
Viet Nam
F&B franchises iffy, as is the investment climate
Carl’s Jr. signed a 150 restaurant license
New mall developers are seeking US franchises
Pizza and coffee franchises – now 2 each!
A focus on more US F&B brands
Overall stable politics, but economy is iffy
F&B franchises desired
Americas Argentina
Brazil
Canada
Chile
Colombia
Mexico
Peru
USA
You still get paid in soybeans
Economy is stalled, new investment stopped for now
Tim Horton’s and Burger King are now one (???)
New President seems negative on business
Still ‘show me the money and where it came from’
Mexico City, Monterrey and Cancun booming
A focus on more US F&B brands
Franchise model with individual owners remains in peril
Europe Czech Republic
Ireland
Germany
Poland
Russia
Spain
Turkey
United Kingdom
Prague has a high GDP/capita, other large cities lower
GDP growth of 3% in 2015 is high for the EU
Difficult to find investors for new foreign brands
3.3% GDP growth for 2015 is the highest in the EU
Foreign F&B brands have US$ denominated rents
GDP growth for 2015 of 1.7% is high for large EU countries
US F&B investment and high-end malls growing
Build a pilot first, then investors come
Middle East Egypt Saudi Arabia
UAE
Interest in new franchise unit investment for 2015
Challenges to get new businesses open due to regulations
New trend of neighborhood malls in Dubai
Elsewhere Australia
India
New Zealand
Nigeria
Pakistan
South Africa
90%+ local franchises, difficult to get foreign brand investors
New government equals a very positive business attitude
Few consumers, but pro foreign franchise brands
Foreign franchises have numerous operating challenges
Not now for foreign brands
90%+ local franchises, but hope for foreign brands

 


Ranking Countries as Places to Franchise Into – A Few Parameters

To enter a country, a franchisor has to find a licensee, secure trademarks, sign an international license agreement, train the new licensee, travel to their country and provide on-going support in order for the licensee to start-up and grow properly to produce royalties. Therefore, the biggest challenge a franchisor has in taking their brand global is choosing the right countries that will give them the best Return On Investment (ROI).

Some of the most important parameters the franchisor needs to know are: (1) the size of the consumer market that can afford their product or service in a country; (2) the legal environment and whether it will allow them to maintain control of their brand if a problem occurs; (3) how easy is it for a foreign company/brand to enter a country and what barriers to entry exist; (4) how easy is it to open a new business in a country keeping in mind that franchises are usually new business; and (5) what is the political and economic stability – or instability – of a country.

EGS has been evaluating and ranking countries as places to franchise on a quarterly basis since the founding of our company in 2001. We developed a tool for this – GlobalVue™. The latest issue – 2nd quarter 2014 – can be downloaded at the following link: http://edwardsglobal.com/index.php/globalvue/

EGS uses more than 25 information sources to establish and monitor these key parameters. Plus, EGS has associates under contract in 32 countries that keep us up to date on their countries. This is not a one-time evaluation, but a constant research project.

Things can change quickly in a country, taking it from being open to foreign brands and lots of local company investment to a downward market where new entries will fail. And economic parameters in a country can also begin to change for the better, which makes for opportunity for those franchises who are monitoring the world consistently.

Market size for your franchised products or services is key. Lots of people in a country does not automatically make for lots of consumers who can afford to buy your franchised products or services. Take Indonesia with a population of 240 million and a strong desire for US franchises. The consumer base for most US franchises is the middle and upper class, which is about 20% of this number. Still a significant potential market!

A few years ago the World Bank studied the occurrence of new investment by companies in a country. This is a very important parameter for franchisors because we need new investment happening to find licensees who will invest in our brands. The World Bank found that countries with annual Gross Domestic Product (GDP) growth of 4% or more are seeing new investment. 2-4% growth was ‘okay’. Less than 2% annual growth resulted in little new business creation. This makes sense and should be considered by franchisors looking at new countries to enter. If businesses are investing then we generally find consumers are also spending. This, or course, results in sales at businesses and royalties for franchisors.

Three years ago, Ireland was near the top of countries to franchise into. Today, unfortunately, their GDP growth rate is near zero and they are trying to recover from almost 20% unemployment. But Ireland is very receptive to US franchises and will come back in the future. So, it is important to keep up with global trends in order to focus your annual marketing on the countries most likely to give you a good ROI.

Another big challenge is how corrupt a country is because this directly impacts your licensee’s ability to do business and make a profit. And US companies are held responsible for how their licensees do business in their country under the U.S.’s Foreign Corrupt Practices Act of 1977.

Here are links for information on particular parameters mentioned in this blog posting.

(1) Political and economic stability can be research through these free online resources:

www.economist.com
www.ft.com

(2) The ease of starting a new business in a country is usually tied to the economic freedom to open a new business in a country.

www.freetheworld.com/release.html
www.heritage.org/index
www.fraserinstitute.org/programs-initiatives/economic-freedom.aspx

(3)       Legal concerns are important to evaluate so you will know how easy or difficult it is to franchise in a country and whether you can protect your brand in the case of a problem.

www.franchise.org/IndustrySecondary.aspx?id=45874

(4)       Corruption in a country impacts the ability of a business (franchise) to succeed. One of the best sources of information on country corruption can be found at the Transparency International website and on their Corruption Perception Index that measures more than 50 local parameters.

www.cpi.transparency.org/cpi2013/


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