Friday, October 28, 2016
The Myanmar Times
The Myanmar Times

Franchise model ideal for ASEAN - Analysis

ASEAN has fallen behind its own goals for building an economic community and should promote proven franchise models if it wants to avoid failing on its SME development objectives.

Today, franchise businesses provide everything from professional services such as legal and accounting practices through to hotels and resorts, education providers, aged-care facilities, transport and logistics, domestic services and specialised capital equipment for industries such as mining and construction.

Beyond burgers and fries, this proven business model also delivers economic growth, employment growth, and export income fuelling activity in the SME sector.

The 2010-2015 ASEAN Economic Community (AEC) blueprint outlines areas of cooperation and integration leading to the establishment of a highly competitive economic region with freer movement of goods, services, labour and capital.

The objective is to promote more equitable economic development and fully integrate the region into the global economy.

However, it is clear that ASEAN has fallen behind and is unlikely to meet its ambitious 2015 deadline for the implementation of the AEC because of challenges hindering the successful negotiations between the 10 member states and domestic political pressures within their national borders as well as the distraction of alterative trade initiatives.

ASEAN’s failure to achieve the AEC development goals is further hampered by broader economic challenges facing the entire region, including dwindling private investment, weaker exports, decreased household consumption, economic growth at the lower end of the estimates for many member nations and growing global uncertainties particularly around China.

While not losing sight of the worthy objective of AEC, it is clear that that ASEAN will not achieve its implementation timetable thereby facing the charge of rendering itself irrelevant by focusing on lofty and unattainable goals. ASEAN should be looking to promote proven strategies that will stimulate economic development in the region that in turn leads to greater cooperation among member nations. Given the unsettled macroeconomic climate of present, it should also be focused on achievable development goals with more immediate impact.

One area where ASEAN could provide more direction and influence is in SME development policy. SMEs are the backbone of the ASEAN economy accounting for more than 96 percent of all enterprises, 50-95pc of all employment and 30-53pc of each nation’s GDP. They are also the largest domestic employer across all sectors.

There is little doubt that a small positive influence in the ASEAN SME sector will have a more pronounced impact on the region and there is no better time than now for ASEAN to focus its effort on this area.

ASEAN already has a set of guiding principles to promote SME development but what is absent in its bureaucracy is an actionable and achievable plan to deliver economic growth in this sector. According to ASEAN, it aims to promote SME development through improving access to finance and technology, strengthening export capacity, utilisation of ICT solutions, enhanced capacity to innovate and strengthened human resources development through regional programs. While few would have any objection to this, what is clearly missing is next step: the tactics to deliver on this.

The franchise business model is a proven tactic that has been especially potent at delivering growth to the SME sector in countries all around the world. For example, in Australia, 14pc of GDP is revenue generated by franchises.

The sector also delivers solid employment growth and investment opportunities. In fact, the well defined and robust franchise business model delivers many other economic benefits all of which are outcomes that ASEAN is chasing in its guiding principles for SME development.

At its simplest, franchising is the adoption of an existing business system in another location. The franchisee is backed by the proven nature of the business system being franchised and gains immediate access to technology which often incorporates existing ICT platforms.

Financiers are more inclined to lend to a franchise concept than a new and unproven venture. From the franchisors’ perspective, the model provides a no-cost or low-cost form of financing to fund growth.

The franchising model also allows for the rapid development of export capacity as franchise systems can be readily licensed to operate in international markets, which in turn are supported by the export of products and services necessary to support the franchise system. Another benefit of franchising is the turn-key solutions it brings to human resources development and product and service innovation.

Established and proven business processes in these areas are cascaded through the franchise network allowing for the rapid adoption of new learning and the sharing of intellectual capital from all participants across the franchise network.

Rather than wasting time and effort attempting to implement novel SME development plans from the ground up, ASEAN should rapidly embrace the franchise business model and use it as the principle basis for promoting its long overdue action plan for SME development in the region.

As all entrepreneurs would recognise, there is a cavernous divide between strategy and execution and it seems that ASEAN has for too long been focused on strategy at the expense of deliverables. What is needed now is compelling evidence of its ability to execute if ASEAN wants to maintain relevance in the Asian century.

Dr Nigel Finch CPA is an Associate Professor at the University of Sydney Business School.