Franchising Business in Myanmar: An Idea Whose Time Has Come

An energized economy

The continuous flow of investments the country energized the economy and boosts the entrepreneurial spirit of the people. The dynamism has not been limited to urban centers but spread to rural areas where livelihood activities mushroomed as more people saw the opportunity to address the increasing demand for products and services. From small eateries, operating taxis, to trading electronic gadgets and setting up guest houses and other tourism facilities, there are no limits to what entrepreneurs are doing. Despite the unfavourable condition for start-ups, entrepreneurs will take risk knowing that the rewards of starting early will be substantial.

The purchasing power of the people increased and consumption preferences broadened. This is reflected in the vibrant retail sector and the number of malls and shopping centers rising not only in Yangon and Mandalay but even in some key cities in other states. Exposed to modern living and lifestyles, people’s tastes are becoming more cosmopolitan. These changes create demand and drive entrepreneurs to take advantage of addressing the needs and the growing wants.

Traditional business model

Today’s fast and furious efforts of entrepreneurs to establish new businesses are stalled by a slow bureaucracy and an overly conservative banking industry. The government and the banks are hard up in coping with the changes and the fast development. Entrepreneurs have to go through a gauntlet of government offices which takes too long to process permits and licenses before a small business can fully operate. Tax issues are a separate matter that has to be addressed also.

On top of this, banks are not flexible to provide financing to enterprises especially the start-ups. It will require loads of collateral before a loan is approved, reinforcing the notion that, ‘banks will lend you money if you can show you do not need it.’ The financial crises of the past may still be fresh in the minds of the bankers and government regulatory agency, but they have to be adjust with the new environment. For now, entrepreneurs use their own money which means mobilizing from family members to have enough cash to operate the business.

If the business is successful, the growth strategy is through branching. Think of local businesses like YKKO restaurant, convenience stores like City Express and Grab n Go, and coffee shop like Bar Boon as examples.

The problem with branching is that it will require almost the same amount of investment as when you start up. Growth therefore will depend on how much resources an entrepreneur have in reserve. Without reserve, the business will remain a stand alone, or informal sources will be tapped for additional financing. Informal moneylenders are sought as a last resort because of the high cost and whatever profits generated may end up only as payment for the borrowed funds.

It is in this context that the concept of franchising becomes relevant to Myanmar entrepreneurs.

The challenge of franchising

Franchising is a business model where the franchisor (owner of the business being franchised) is granting a franchisee (entrepreneur applying for franchise) the permission to do business using the brands, the products and the operational systems of the business being franchised. In simple terms, a franchise is an exact replication of a successful business.

With customers relating to the brands and the products of a successful business, growth will be faster by packaging the whole system and share it with other entrepreneurs who would like to do the same business and install in several areas at the same time. Franchisees would pay a fee corresponding to brand and the whole package of systems and support services.

Currently, KFC, Pizzahut and Tony Roma are among the global brands able to establish presence in Myanmar. There are also Asian franchises that became favourite brands such as Lotteria, BBQ Chicken, Mary Brown, Manhattan Fish Market and Ya Kun. Imagine a local business developed as a franchise and spreading throughout the country and the ASEAN region. Unfortunately, during the Myanmar International Franchise & SME Expo 2016 held last January 22-24 at the Tatmadaw Hall, few Myanmar franchise are on exhibit.

For an entrepreneur with a successful business, franchising will enable him to grow the business and cover more areas. By allowing other people to replicate his business idea and use their own money, the franchisor can grow his business and earn passive income in the process. Control of the business remains with him, but growth depends on other people who will be interested to be a franchisee.

For a franchisee, buying a franchise will be more convenient than starting up a new one. With a franchise, he will operate a business with existing base of customers. There will be less learning curve as the experience of the franchisor in running the business is already embedded in the systems and in the written manuals that goes with the franchise. Challenges that are often associated with start-ups are no longer a concern as these are already covered by the franchise. This arrangement is a win-win situation for both the franchisor and the franchisee, and this is the way to go for Myanmar entrepreneurs to thrive.

Issues to be addressed

The twin issues of government support and access to banking services may have contributed to the slow development of franchising in the country. Streamlining granting of government permits and licences will help in promoting franchising in the country. The government should also create the right environment where banks can really provide access to financing to entrepreneurs like establishing a guarantee fund.

Another challenge is the absence of a comprehensive intellectual property (IP) law. Despite the recognition of IP in the 2008 Constitution and the mention of the right to ownership of copyrights trademarks and patents in the Foreign Investment Law of 2012, there are no implementing guidelines to identify and protect these rights. Since branding is an inherent element of franchising, enactment of IP laws will be a big boost on the development of a franchising industry in the country.

There is a need also for franchising professionals who will help entrepreneurs package the franchise. The documentation of the whole system requires an experienced franchise advisor who will help the entrepreneur to prepare systems and manuals, the brand and trademarks of products and processes, determining the geographic distribution of franchises, training the staff, setting up the supply chain and formulating the franchise agreement.

The most important element is the entrepreneurs themselves. Only they can decide to make franchising as their strategy for growth. The fear of losing control maybe holding back entrepreneurs, thinking that expansion should be within the capacity of the owner to oversee. Franchising to be more effective requires training and development of professional managers and supervisors. Entrepreneurs should learn to delegate management functions to its managers so he will have time to focus on strategic direction of the business.

Today, most of the franchised businesses are in the fast-food industry, but later, other services like fuel station, retail stores, bookstores and other distribution channels can be franchised. It is up to the new breed of Myanmar entrepreneurs to be innovative and forward-looking. Either they take up the challenge and become leaders, or if not, franchises from other countries will fill the gap.

Source: Myanmar Insider

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