Franchise Market

An Expert's View about Franchising in Singapore

Posted on: 16 Jan 2012

Summary
Singapore has one of the highest gross domestic products per capita (GDP per capita) in the world at US$41,122. According to the World Bank and the International Finance Corporation’s “Doing Business 2011” report, Singapore is the most open country to do business in and number 1 in the world for ease in ‘Trading across Borders’. The country is known for its open market, open port, and equal treatment of foreign investors. Corruption is virtually non-existent and there is strong intellectual property rights protection. There are no management control or ownership joint-venture secession clauses for local companies, nor are there prohibitive taxes or penalties for foreign investors. Despite a small population of 5.2 million, Singapore is home to a variety of franchise concepts. There are nearly 500 concepts and more than 30,000 franchisees operating in Singapore. According to the Franchising and Licensing Association Singapore, the annual turnover of the franchising sector in Singapore is about S$8 billion (US$6.1 billion). Most of these franchise concepts are in the food and beverage industry. There is also a strong presence in various other sectors such as education, retail, business services and healthcare. American franchise concepts are by far the most successful and popular in Singapore, and concepts from other countries, particularly from Asia-Pacific, also have a presence here.

Market Demand
Singaporeans enjoy one of the highest standards of living in the world, with a nominal per capita Gross Domestic Product over US$41,000 as of June 2011. The median monthly income per household is about S$5000 (about US$3,861) and the average is S$7,214 (about US$5,571) as of 2010 as stated by the World Bank. The Department of Statistics Singapore reports that the total population is 5.18 million, with an annual growth rate of 2.1%. Among Singapore residents, over 600,000 are below 15 years old, nearly 2.8 million are between 15-64 years old, and more than 350,000 are over 65 years old. The median age in Singapore is 38 years old. Singapore’s current unemployment rate is 2.0%.
More than half of the world’s population lives within Asia, with China accounting for nearly a quarter of that. Singapore’s central location, its English speaking population that is heavily influenced by both East-Asian and South-Asian cultures, makes it an ideal location to test franchise concepts in Asia. As a result, American franchises, as well as Australian, Japanese, Taiwanese and Korean franchises have started operations in Singapore.
Spring Singapore and International Enterprise (IE) Singapore are local government agencies actively promoting franchise development in Singapore. Spring Singapore offers financial assistance and IE Singapore assists companies in franchising their concepts overseas. As long as the franchise owner (whether local or foreign) establishes a Singapore office, they can participate in IE Singapore’s programs that assist companies to franchise their concepts in third countries.
The Franchise and Licensing Association Singapore (FLA) assists their members in developing their business, and works very closely with SPRING and IE. The FLA has around 150 members including local and foreign franchisors, and organizes the annual Franchise & Licensing Asia (FLAsia), one of the premier trade shows for franchising and licensing in Asia. In 2011, the event attracted more than 8,000 attendees from more than 30 countries and regions, with over 180 participating brands.

Market Data
Although the recent economic turmoil has lowered demand across much of the world, Singapore has weathered the storm much better than others. Singapore registered an annual GDP growth rate of 14.50% in 2010 – surpassed only by Paraguay and Qatar. There also has been strong positive growth in the first 3 quarters of 2011. With the growing Euro crisis and the continued stagnating growth in one of Singapore’s largest trading partners, the United States, projections for future economic growth for both the region and Singapore have been adjusted. The Monetary Authority of Singapore (MAS), Singapore’s central bank, has cut the country’s economic growth rate forecast for 2012 from 4.9% to 3%. Trade-related sectors are expected to face the most challenges in the future quarters according to the MAS.
According to Dr. Chandroo, the Chairman of the FLA, the franchising industry in Asia is projected to grow at S$100 billion (US$70 billion) annually over the next few years. He estimates that the annual turnover of the franchising sector in Singapore is about S$8 billion (US$6.1 billion) or 18% of total domestic retail sales in the country. The franchising sector accounted for approximately 20,000 jobs in over 500 franchising concepts.
Singaporeans are expected to continue to seek out new opportunities for growth in an array of franchise concepts and many foreign franchisors set up operations in Singapore. The U.S. has taken the lead and is the largest supplier of franchise concepts, dominating almost every franchising sector, especially in the food and beverage arena. There are over 30 KFCs, nearly 60 Starbucks, about a dozen Pizza Huts, and more than 120 McDonalds – across the island within area roughly the size of Metro Washington D.C.
In recent years, foreign franchisors have become increasingly attracted to the Asia-Pacific region due to steady economic growth and a burgeoning middle class with increasingly high levels of disposable income. With its strategic location and well developed infrastructure, Singapore serves as the regional showcase and distribution center for products and services from all over the world. There have been instances where visitors from the region saw a franchise concept in Singapore and were interested to bring the concept back to their own countries. Singapore attracts around 11 million visitors. Tourism has increased significantly since the establishment of two major integrated resorts with house casinos - the Marina Bay Sands and the Resorts World Sentosa in 2010. The Singapore government aims to increase the number of visitors to 17 million by 2015.
Singapore is strategically located and home to a vibrant and diverse array of people and cultures. Malays, Chinese, Indians, and nearly 1.5 million expatriates from the United Kingdom to Australia call Singapore their home. Singapore’s infrastructure is highly developed, with mass transport rivaling many of its Western counterparts.

Best Prospects
Singapore’s food and beverage sector continues to dominate the franchising industry and education and training franchises are also popular concepts.
There are also opportunities for U.S. franchisors to work with Singapore companies to access markets in nearby countries. Local investors are interested in acquiring franchises rights outside Singapore and some have presence in neighboring countries.

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Posted: 16 January 2012

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