Chinese franchisees target Australia as local chains look offshore for growth

Chinese entrepreneurs aren’t just targeting Australia’s mining and manufacturing sectors – new research into the franchising sector suggests Chinese nationals are also targeting the Australian franchise sector.

The data, from franchise research firm 10 Thousand Feet, shows about 4% of all franchise enquiries are coming from foreign entrepreneurs, although for some franchisors in the retail space overseas enquires can be as high as 18% of all enquiries.

Head of intelligence at 10 Thousand Feet, Ian Krawitz, says 35% of all franchise enquiries from overseas come from China, followed by India and South Africa.

“The franchising format is proving increasingly popular for overseas residents entering Australia, particularly those from non-English-speaking backgrounds,” he says.

“Rather than starting a business from scratch in a new business environment, franchising provides a great opportunity for overseas residents to fast track their learning curve on the service culture, marketing practices and regulatory requirements of operating a business in Australia.”

Recruiting from overseas is also attractive for Australian franchisors, who may be struggling to attract prospective franchisees in Australia and who are desperate to grow or even just maintain franchise numbers.

“Many franchisors see it is an easy growth option, or an option to keep your franchise numbers steady.”

Krawitz’s research shows 15% of Australian franchisors have set up “cultural induction” programs for overseas franchisees, which can include assistance with language issues (including the employment of multi-lingual franchise support staff) and education about Australian culture.

He says these programs are essential for franchisors who want to tap into overseas markets.

“A lot of franchisors realise that it can be something the needs to be approached with caution. If you get franchisees in that don’t understand Australia’s services culture, it can hurt your brand. You will often see businesses lose turnover rapidly when that occurs.”

Most of the overseas recruitment activity appears to be coming from retail-based franchisors, which Krawitz argues is quite logical.

“It’s a lot easier to stand behind a counter with customers coming to you, rather than having to go out and find customers.”

Tim Dixon from franchise recruitment consultancy Franchising Works also says retail franchises typically have high buy-in and establishment costs, which make it easier to justify the cost of an overseas recruitment push.

He says the countries franchisors target often depend on the backgrounds of the franchise founders, the contacts a franchise recruitment firm has, the availability of finance in overseas countries and special investment rules in overseas countries.

Dixon provides the example of South Africa, where it can be difficult for residents to move money out of the country without making a specific investment – such as buying a franchise.

But like Krawitz, Dixon cautions franchisors to treat carefully and conduct thorough due diligence.

Ian Singer, director of migration agency Australia Migrate, says buying into franchise is particularly attractive for overseas residents looking to enter Australia on a business visa.

“For applicants to gain a business visa they can buy an existing business, buy into a franchise or start their own business. The problem with starting your own business is that it requires highly documented business plans and can mean a much longer wait in the review process and so a longer time to receive a business visa. Franchise businesses have a proven business model.”

However, as highlighted by SmartCompany‘s story on claims that franchisor Allied Brands breached immigration laws, this visa application process needs to be handled correctly.

The Department of Immigration and Citizenship accused Allied Brands of an running an elaborate immigration rort where it sponsored a group of Korean nationals to work in administrative roles under 457 visas, put them to work in Baskin Robbins stores and in some cases sold Baskin Robbins franchises to their family members.

Allied Brands has accepted that it will no longer be able to bring potential franchisees in using this method.