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American Dream beckons foreign-based Franchisors

Published In: Franchising World
Date Published: 1st April 2003
Author: Polly Larson

U.S. franchise companies have become an integral part of the international economy, buoyed by foreign consumers' enthusiasm for American goods and services. But for the most part, it has been a one-way street, with franchisors from other countries slow to consider bringing their concepts to the United States. That trend may be reversing, as increasingly sophisticated foreign-based companies learn to deal with the challenges of coming to America.
"America is just an unbelievably fantastic country. There is so much positive energy. For an entrepreneur, it is just a wonderful place to do business," says Ian Moses, president of Aussie Pet Mobile, a mobile pet grooming franchise that emigrated from Australia to this country in 1999. He is careful to point out, though, that the transition is not a simple matter.

"It takes time; it's a long process," he says, noting that in the first 12 months here, his company had no revenue as they were setting up contracts and registering with the registration states. Along with having the capital to sustain that process, Moses says it is imperative to have an excellent franchise attorney to set up the documentation.
John Barry, president of another Australian import, Expense Reduction Analysts USA, agrees that getting to know attorneys and others in the franchise community is essential for incoming franchisors. "Association with the International Franchise Association would be one of my first steps," he says. "They will come in contact with other successful franchisors and also some of the suppliers that can help make the transition possible, such as consultants, attorneys, accountants, and marketing people."

These contacts offer valuable assistance in making a successful entry into the American market as well as helping to avoid costly mistakes. William Le Sante, managing director and CEO of Le Sante International, works with both U.S. franchisors going to other countries and non-U.S. concepts coming here. Proper budgeting is the number one priority, according to Le Sante.
"This is a very lucrative market and could be a successful project for many (non-U.S.) franchise companies, but they have to be very careful that they budget accordingly. The majority of cases I have seen that did not do well had grossly underestimated their budgets. So they ended up falling short of their expectations, and the system didn't have a chance to get started."

Foreign-based franchisors also must allow for cultural differences between countries, according to Mark Mele, assistant vice president, national franchise recruitment for Kumon North America, Inc., franchisor of Kumon Math and Reading Centers based in Osaka, Japan. Although Kumon has been franchising in this country since 1974, the centers are only now beginning to open in commercial locations, a change designed to increase name recognition.

"It is important to get familiar with the North American culture," Mele says. "Franchising in Japan is very different. Kumon centers there are in the instructor's homes. Here that doesn't work, because we are more commercialized," he explains, noting that commercial store fronts will greatly increase Kumon's visibility.

"A company in a foreign country can make their franchise work here without diluting anything, but they have to understand there are some things that just need to be Americanized," Mele says.

It's a Good Economy for ERA
With offices in 20 countries and an impressive client list that includes names like Toshiba, Thomas Cook, Castrol and other heavy hitters, Expense Reduction Analysts (ERA) could not be coming to America at a better time. Today's economy is characterized by unemployed mid- and upper-level managers and by businesses looking for ways to reduce costs. This presents an ideal opportunity for Sydney, Australia-based ERA, which seeks franchisees with management experience to provide assistance to businesses that want to cut operating expenses.
Since its beginning in 1983, ERA has helped businesses of all kinds and sizes reduce and manage costs on essential items such as printing supplies, freight, insurance, couriers, telecommunications, travel and other related products and services. ERA's services are risk-free, with payment based on a percentage of the amount ERA saves the client. ERA also promises to achieve cost savings without sacrificing the quality and service the client provides.

When ERA Chairman Fred Marfleet decided it was time to establish his company in the United States, he looked for someone with a strong financial background and proven success as a franchisor to head up the operation. He found that someone in John Barry, former president and CEO of Unishippers Inc., a 300-unit transportation management company. Barry ultimately acquired master licensing rights for ERA in the United States and launched the concept earlier this year in San Diego.

Barry plans to have some 500 unit licensees nationwide over the course of the next five years, growing through an area development approach. "The nature of this business, which is fairly sophisticated, requires an area development approach," he explains. "Each area developer will have in the vicinity of 25 unit licensees. They can meet regularly, share their success stories and frustrations, and all come to understand what unique talents every individual brings to the table."

Aussie Pet Mobile Comes to the "Big Market"
After successfully growing his mobile pet grooming concept in Australia for three years, Aussie Pet Mobile President Ian Moses was ready to bring it to America in 1999. "It was obvious to us that if we could be successful in Australia, with 18 million people, we were definitely going to be successful in the United States with 280 million people," he says. "They are very similar cultures; animal lovers in Australia are the same as animal lovers here. We worked it all out there, and we wanted to bring it to the big market."

Aussie Pet Mobile was founded in 1996 as a way to help busy families keep their pets bathed and groomed in the convenience of their own driveways, where a climate-controlled, custom-designed mobile unit arrives for a 15-step treatment that includes shampoo, massage, blow dry, brushing, nail clipping and cleaning of the eyes and ears, all within the pet's view of its familiar home surroundings.
There are currently 60 units operating in Australia and 200 in this country. Moses anticipates doubling that amount in 2003, for a total of 400 units here by the end of the year.

"According to the Humane Society of the United States, there are currently about 62.5 million dogs living in the United States, which adds up to one dog for every four and a half people," Moses says. Owners spent more than $30 billion in 2000 on their pets, making for a solid potential market for Aussie Pet Mobile's services, even during today's economic downturn.
"People will still need our services despite the economy," Moses says. "A dog doesn't know it shouldn't smell in a bad economy."

Kumon Embarks on New Growth Plans
Kumon Math and Reading Centers, the world's largest supplemental education company, was founded in Japan in 1954 by high school teacher Toru Kumon, in an effort to help his son improve in math. Today there are approximately three million students in 44 countries enrolled in Kumon centers.

Kumon expanded throughout the world via franchising during the 1960s, at a time when franchising was in its infancy and international franchising virtually unheard of. The first Kumon center in the United States opened in 1974 in New York, and there are now more than 1,000 centers in this country.
So, why isn't Kumon a household word? Assistant Vice President of Franchising Mark Mele explains the reason and what is now being done to change it.

Originally, Kumon centers in Japan were located in the homes of its instructors, who were usually homemakers. As Kumon expanded into other countries, 50 percent of the centers still were in homes. Knowing home centers were unlikely to prove popular in North America, Kumon utilized non-commercial locations such as churches and community centers when the concept was introduced here. However, with no visible signage on the locations, there was little name recognition, even though the number of centers grew to more than 1,000. In response to recent increased consumer demand for educational services, Kumon implemented the move to commercial locations last year to increase brand recognition.

"We had over 9,000 inquiries last year," Mele says. "The investment is low, and the tutoring industry is lucrative. The time is right for tutoring."
Kumon expects to open 200 new centers across the country this year and to continue expanding steadily. Mele describes the current 1,000 plus franchises in this country as "just a sprinkle," considering there are 23,000 centers worldwide. "We have been making it here for a number of years, but now we need to put ourselves on the map as a franchise. That's what we are doing with the commercial space."

New Concepts Continue to Test U.S. Waters
Among other foreign-based franchises establishing operations in the United States are some that address environmental concerns, such as V-Kool, Inc., and Gumbusters North America.
V-Kool, based in Singapore, markets an energy-conserving, window-coating film for use in autos and homes and buildings.
Gumbusters, a Dutch company, removes gum from a variety of surfaces with its GumCart, which mixes high-powered steam with a proprietary cleaning solution.

Gumbusters received much media attention in The Netherlands for cleaning up in Amsterdam and was introduced to this country in 1999. A recent article in the New York Times pointed out that Gumbusters of New York has vaporized gum spots from 500,000 square feet of the city.
Given the lucrative market, it is likely more franchises from abroad will continue to set up operations in America. ERA's Barry encourages franchise executives in this country to look at foreign franchise trade shows for opportunities they could bring here. "I have been to a few of those shows, and I have come across ideas and concepts that would have a great appeal here, but for whatever reason have not been introduced in the United States," he says. "There is a great opportunity for franchise executives to capitalize upon importing ideas that have already proven substantial success in overseas markets."
William Le Sante agrees there is plenty of room for brands to come to the United States. "We are the number one consumer society in the world, and I don't think anybody should fail to make the attempt to come." But he adds the caveat that the expense and paperwork can be discouraging.

"It is not cheap to create documents, and when some franchisors see the cost estimates to make them legal in the United States, it becomes more of a burden than they wish to go through. If our franchise legislation were a little more franchisor friendly, I think you would see a significant increase in foreign franchise companies coming to the United States."

Polly Larson is a freelance writer based in Snow Hill, Maryland. She was editor of Franchising World for 14 years and now frequently contributes to the magazine.

 

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