Franchise Services in Singapore

A Hot Tip about Distribution Networks in Singapore

Posted on: 18 Feb 2010

Summary

Singapore consumers enjoy one of the highest standards of living in the world, with a per capita Gross Domestic Product of over US$35,000. Despite a small population of 4.84 million, it is home to more than 400 franchise concepts. Foreign franchises are well received in Singapore and the U.S. is by far the largest supplier of foreign franchises in the country. There are American franchises in practically every industry. McDonald's, Starbucks, Ben and Jerrys, Gymboree, New Horizons, Mister Minit, Avis, Hertz, Holiday Inn, Toys R Us, and many others have operations in Singapore. Australian franchises in a variety of industries have some presence in Singapore while Japanese and Taiwanese franchises are mainly in the F&B business.

 

The Franchising and Licensing Association of Singapore estimates that total sales turnover of franchises in Singapore amounted to US$3.6 billion in 2005 (latest available data). Foreign franchises (especially from the U.S.) are estimated to account for 70% of franchise sales in the country. However, local franchise concepts have grown rapidly over the past few years and many of the larger ones are franchising abroad in Asia and several have opened outlets in the U.S.

 

Asset rich Singapore firms and entrepreneurs continue to seek new business concepts to introduce into Singapore and the region. Many are looking to diversify their business and some are seeking investments for their children. However, potential franchisees are now more discerning. Best prospects include F&B concepts and childrelated/ training franchises.

 

Singapore is generally a free port and an open economy that maintains one of the most liberal trading regimes in the world. Doing business in Singapore is transparent and the bureaucracy is not oppressive. There are no restrictive trade or investment policies of any consequence outside of a very small number of product areas. Foreign franchisors are not required to take on private or official joint ventures or cede management control to local interests. There are no foreign exchange controls nor are there taxes on capital gains or restrictions on foreign ownership of businesses. However, there is withholding tax of 10% for royalty fees paid out of Singapore. There is no special legislation or specific law governing franchising in Singapore. The franchise agreement is regarded as a commercial contract between the franchisor and the franchisee and is regulated under Singapore’s contract law and other related laws.

 

Singapore was the first country in Asia to sign a Free Trade Agreement with the U.S. and the U.S.-Singapore FTA came into force on January 1, 2004. The Agreement makes Singapore one of the strongest Intellectual Property Rights (IPR) regimes outside of the United States thus giving strong IPR protection to American franchisors doing business in the country.

 

Singapore is the gateway to Southeast Asia. Its multi-racial society makes the country an ideal location for foreign franchisors to test their concepts and use the reaction to gauge the acceptance of their concepts in Asia. 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. Residents from the region travel often to Singapore for business and leisure, making Singapore a good springboard for U.S. franchisors wishing to enter the markets of Asia. There are also opportunities for U.S. franchisors to work with Singapore companies with good connections overseas to enter third countries.

 

Market Demand

Singapore is an attractive market as franchising has become an established and proven business model in the country. According to the Franchising and Licensing Association of Singapore, there are more than 420 franchise concepts in Singapore. In terms of number, foreign and local concepts account for approximately 50% each but in terms of revenue, foreign concepts account for a larger share because of global brands such as McDonald’s and Yum!

 

According to the Singapore Franchise Industry Survey 2007, 36% of franchisors in Singapore are in the food and beverage industry, followed by retail (26%), education & training (19%), business services (6%), health care (3%) and others (10%). While the number of businesses operating as franchises is increasing, the survey notes that most of the companies own only one franchise concept. Another key finding was that besides good branding, competitive products and services, comprehensive training program and strong systems and processes, having good franchisor-franchisee communication is vitally important for long term franchising success.

 

Singapore’s consumers enjoy one of the highest standards of living in the world, with a per capita Gross Domestic Product of over US$35,000. Average monthly income per household has risen from S$4,943 (about US$2,873) in 2000 to S$6,280 (about US$4,159) in 2007. Foreign franchise concepts are well received in Singapore and the U.S. is by far the largest supplier of foreign franchise concepts in the country -- you can find a Starbucks at every corner on Orchard Road, a major shopping belt. There are 57 Starbucks stores on the island while Coffee Bean & Tea Leaf has 45 and Spinelli has 28 stores here. To cater to local tastes and demand, some foreign franchisors have introduced local items to their menu.

 

Franchising of local Singapore brands began in the 1980s with convenience stores. It took off in the early 1990s when the Singapore government started actively promoting franchising as a means of internationalizing smaller companies. The lead government agencies in promoting franchise development are Spring Singapore and IE Singapore. Spring Singapore offers financial assistance to SMEs while IE Singapore helps local companies to franchise abroad. As long as the franchise owner (whether local or foreign) incorporates an office to run the franchise business in Singapore, they can participate in IE Singapore’s programs that assist companies to franchise their concepts in third countries.

 

The Singapore International Franchise Association was established in 1993 to nurture and develop the local franchise industry and was one of the founding members of the World Franchise Council. Realizing the increasing synergy between Franchising, Branding and Technology Licensing, the Association took the initiative to enlarge its membership by changing its name to the Franchise and Licensing Association (Singapore) in 2003. FLA now has 150 members including both local and foreign franchisors. It organizes the annual franchising and licensing show in Singapore with the objective of promoting business growth and expansion through franchising and licensing formats and developing Singapore as a franchise hub. The Association assists all its members, both Singaporean and foreign, in the local market and works closely with the Singapore government agencies to assist its members in marketing their brands overseas.

 

Over the past few years, local companies have increasingly used the franchising route to expand their businesses within Singapore and overseas. The number of local franchises has increased from 50 in 2000 to over 200 in 2008. Given the small size of the Singapore market, local franchisors generally prefer to run corporate owned outlets in Singapore as they retain better control over their operations. However, they franchise their concepts abroad as it mitigates the risks and lowers their investment overseas.

 

By Chia Swee Hoon

 

Read the full market research report


Posted: 18 February 2010

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