Franchising your existing business might be the best possible way to take the opportunity to enter emerging markets. Markets like India and China have complicated rules and regulations about who is entitled to own and operate a business there. The best way often to circumvent these rules is by franchising your operation in these markets.
By using franchising the franchisee owns the business whilst the franchisor takes a share of the profits. Why does an established business want to deal with headache of red tape and restrictive trade practices of emerging economies when with a leap of the imagination the franchise model allows them to achieve the same profitability without the same hassles?
Many British retailers including Argos and Mothercare have used the franchise model to dabble in new emerging markets. The franchise leaders that are quick to carve out major niches in these new emerging markets will grab unprecedented market share before their slow and sure footed competitors move in.
The largest emerging market place is China with India being a close second. China could become the largest market place in the world within the next ten years and overtake the USA.
Franchising is the ideal route for many US and UK companies who want to test the water without expending large sums of capital. This gives them a chance to dip their toes in the water without risking large sums of capital.
Once large organisations find that their business model does actually work in the new, exciting and dangerous market place they can dedicate their resources to find better ways to keep a higher percentage of long term profits for themselves.
China and India are very unique marketplaces. Unlike say for instance Australia not everybody in China speaks the same dialect. The divide between rich and poor is also vast. Tastes vary enormously as does buying power.
In India there are literally hundreds of different languages whilst admittedly the main bulk of buyers with money can be targeted by 2 languages? Hindi and English. Again here spending powers vary and so do belief systems.
In reality trying to expand new emerging marketplaces without testing the waters first is fraught with danger. Franchising offers a real solution to test out the marketplace, learn the structural issues and change your products and marketing so that it identifies with the local marketplace. This does not mean that you can not enter the marketplace independently. You can franchise x numbers of units and then create non franchised units in other territories.
Throughout history economic powers have grown and declined. Asia is growing rapidly and will play an ever increasing role in the ever demanding need for companies to find new customers. The buying power of Asian consumers is rising at a dramatic pace and the consumers are demanding better products and improving service. The opportunity is there now for Established US & Europe brands to market their brands and test the waters before entering fully.
To sum up, the emerging markets are predicted (within the next 10 years) to compete with the US in terms of buying power and economic strength. Any large company which ignores this is turning a blind eye and letting its competitors expand, gain a foothold and exploit the opportunity whilst they watch and wait.
Emerging Market Mutual Funds
For excitement in the world of real estate or property investment, there is an ever increasing desire to consider looking outside of one's local area to markets that are relatively new onto the scene ? one could put Dubai, Bulgaria, Costa Rica, Brazil, Panama etc. into this category. Let's consider these "emerging markets".
Whilst established markets tend to show a slow yet stable growth trend starting from a higher initial valuation, these emerging markets offer a potentially higher reward but in return, once has to accept and understand the associated higher risk. Timing is of significantly greater importance in an emerging market cycle than in the equivalent established market one.
If one picks the right time to invest in an emerging market, there can be significant relative growth. Pick the wrong time, however, and you may be taking on all the risk in return for little of the reward.
It is quite clear that one wants to be buying early in a real estate cycle. However, more often than not, reality/use of advertising/apparently wonderful "deals" etc. tend to mean the exact opposite occurs, with investors instead inadvertently buying at a time towards the right end of the cycle, as they were not aware or even "in the picture" during the proceeding years.
The four periods in an emerging real estate cycle can be divided up, and they could roughly be categorized as follows:
Period 1 ? Birth
The area is seeing little inward investment, and real estate prices are not really moving at all. The market has little activity, and this is a very risky time to invest. Yes, the gains may be huge in the future, but you could be waiting many years to realize these gains. Unless using "throw away" funds, not worth investing at this stage.
An example of an area in this period may be perhaps parts of Africa. Prices may be cheap, but who knows how long you need to wait.
Period 2 ? Growth
Suddenly, the area starts to see inward investment. Real estate prices start to pick up then gain momentum. As prices rise further, more and more investors realize the potential and start investing. It's tricky to see the end point of the growth, but times are good.
An example of areas in this period would be perhaps Panama and Brazil, where after a period of good growth, there is an expectation of plenty more to come. Both are starting from a low point, so prices remain relatively low despite this initial growth spurt.
Period 3 ? Peaking
Real estate prices have been rising for some years, but they're starting to tail off. Experienced investors notice this and consider their exit strategy. Inexperienced investors continue to pile into the market, probably at the wrong time, as the opportunity for profit has largely passed.
An example of an area in this period would be perhaps Bulgaria, where there is a feeling that the big gains have passed, and the resale market is failing to cope with the demands of the sellers.
Period 4 ? Flat
After a long period of price rises, things have now flattened out. Desperate selling techniques are employed with unrealistic rental guarantees, discounts, freebies etc. as developers try anything to shift units.
Whilst not knowing whether the cycle will suddenly restart, it's clear that the big profits have passed. Now is not the right time to buy.
An example of an area in this period would be perhaps Dubai, where there is a feeling that we may see a slight decline in property prices in 2007 as hundreds of developments bought entirely by investors suddenly flood the resale market.
Whilst this is an over-simplification of what is in reality a very complex area, it is wise to take note of the concepts. It also helps to explain whyI consider such some apparently unusual areas (e.g. Panama) as well as more established areas (e.g. Barbados). And, very importantly, when I am looking at these unusual areas, why I only consider those that are early on in their growth cycle.
So, if this "buy early and reap the reward" logic makes good sense to you, please do consider the emerging areas of the world, such as Panama and Brazil (and any others that you feel are in that phase) and I would very much welcome a call to discuss.
In the case of Panama, you can buy today at prices from us from $200/sq ft for prime water-front property and enjoy the fact that you're buying early into a rapidly rising market.
Both Nazir Daud & are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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