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Branding is big business

Published by The Straits Times, Singapore on 2004-10-31

MR Louis Lee of Taiwan looks the part of a prosperous salesman. He's jolly. He talks up his products with zest and wit. His tailored all-black suit and shirt make him appear slimmer than he is. But from behind his spectacles, he shrewdly sizes up your reactions to his steady stream of adjective-laced sentences, which also include terms du jour like "globalisation."
Mr Lee is indeed a salesman, and an enormously successful one at that, but not of the conventional kind who goes door-to-door selling vacuum cleaners. He's in the business of promoting a little known but rapidly growing component of globalisation - franchising and licensing, which has become a US$300 billion business out of an annual world trade figure of US$31 trillion, and is growing at the rate of 15 percent to 20 percent each year. Mr Lee offers franchising of some of the world's most renowned Western consumer brands - such as Pepsi, Jeep, Paramount Pictures, Feraud and Hallmark Cards - to vendors in Asian, African and Middle Eastern countries.
He likes to come to Singapore because it's in the process of creating a new niche for itself in this particular aspect of globalisation, a phenomenon denoting freer flows of trade, capital and services across borders. Singapore faces stiff competition from already established franchising "capitals" such as London, New York and Paris. And its financial nemesis, Hong Kong, has the North Asian franchising market pretty much locked up.
"I feel that I am welcomed in Singapore, especially these days," Mr Lee told The Straits Times. "The government people seem to be going out of their way to promote franchising. And, of course, local entrepreneurs who want to be associated with well-known brands also welcome me. With Asian consumers becoming more and more conscious of international brands, I'm not surprised at the welcome I receive in Singapore."
That sort of welcome also doesn't surprise Mr Arjuna Mahendran, Chief Economist and Strategist for Asia-Pacific at Credit Suisse in Singapore.
"This is a tremendous opportunity for Singapore to get into the branding game at an early stage in this part of Asia," he said. "The Singaporeans have caught on to the potential - they see themselves as a springboard for global and Asian companies to extend their brands. Lacking a large manufacturing sector, having already passed the stage of being a transshipment hub, and being light years behind Hong Kong as a global financial centre - Singapore has to find a niche, a significant global presence.
"So they have flagged this opportunity of becoming a catalyst for branding products," Mr Mahendran said. "But it's not going to be an easy ride for them."
Still, franchising has seen an upsurge in Singapore over the last five years, according to the Economic Development Board. In 1999, there were 274 franchise systems and 700 franchisees. At the end of 2003, the number had grown to 380 franchise systems and 3,000 franchisees.
Sales turnover of the Singapore-based franchises - both local and foreign - is estimated at 15 percent of the total domestic retail sales volume. This means that franchises contributed US$3.75 billion of the retail revenues of US$25 billion in 2003. The increase in franchising activity is also reflected in a rise in membership of the Franchising & Licensing Association (FLA). Between June 2003 and June 2004, its membership rose by 11 percent from 115 to 127.
Notwithstanding the competition from Hong Kong, London, New York and Paris, Singapore has something that none of these cities can boast of - the world's biggest annual matchmaking mart for franchising and licensing. The recent Global Franchising and Licensing Conference at Suntec City - a three-day event consisting of seminars, exhibitions and a dizzying assortment of parties - drew a record 10,000 participants and 250 exhibitors from 33 countries.
Mr Lee wound up doing good business at the conference, where he was a virtual whirling dervish flouncing between various vendors' booths. For instance, two deals with vendors from Indonesia and Malaysia were negotiated for Jeep apparel. Another one for Jeep shoes and apparel license was completed with a Singapore's Mr Kenny Kwong, who supplies 12 local department stores through his agency Silver Tab. A similar deal for apparel featuring Paramount Pictures logo was done with Mr Henry Koh, also a Singaporean. And a Malaysian entrepreneur bought licenses to distribute Santa Barbara Polo and Racquet Club apparel.

That would most certainly translate into healthy revenues for Mr Lee, who runs a company called Interasia & Associates. Just how much does his privately held company make each year? He won't tell, and neither would his General Manager, Mr Allan Yeng. Agents like them typically earn royalties of 10 to 15 percent of licensing fees, the rest going to the brand manufacturers. Little wonder that Mr Lee - who's not quite 40 years old - can afford to travel first class and wear tailored suits.

Others at GFL2004 did well, too. Singapore's Pacific Fusion International signed a master franchise agreement worth US$586,463 with a franchisee from the Philippines for a Fuzion Smoothie Franchise. V-Kool International signed a master franchise agreement with a franchisee from Egypt worth approximately US$$400,000. Kinderland Educare Services signed an agreement with a franchisee from Bangladesh, while New Zealand's Modern Montessori International and Delinatural-New Zealand Natural, signed with unspecified Singapore franchisees.

It isn't uncommon for licensors and licensees to withhold information about their financial transactions, particularly if the companies are not publicly held. And in some instances, negotiations or social conversations don't necessarily lead to deals immediately. For instance, Dinamix, a first-time participant from Spain - which develops photography software - met up with more than 100 potential partners at GFL2004, mainly from Singapore, Malaysia and Indonesia, as well as Bangladesh, Vietnam and China, but no deals were concluded at the conference.

"Hopefully we can appoint a master franchisee soon," said Mr Jose Maria Neira, a senior vice president of Dinamix. "The show was good and we are happy, no complaints! We have benefited from being part of the Spanish pavilion and we would like to come back again."
Not all of the world's top brands are necessarily represented at trade shows such as GLF2004. That's because they chose to dispense with middlemen such as Mr Lee. For instance, ESPN Inc., the world's largest sports broadcaster, last week launched a Chinese-language monthly magazine in Shanghai that will translate some of the material that appears in its hugely successful US publication, ESPN The Magazine.
"We realize that going global means being local," Mr Russell E. Wolff, Managing Director of ESPN International, told The Straits Times on Tuesday during a short visit to Singapore, where ESPN maintains a large production and transmission facility for South-east Asia. "China is already a big TV market for our channels [nearly 100 million households are reached by ESPN, especially through its soccer channel] and now we wanted to target male readers between the ages of 18 and 34."
So the Bristol, Connecticut-based company - which is 80 percent owned by the Walt Disney Corporation - directly contracted with a Hong Kong company called Vertex Communications & Technology Group. Vertex, which also publishes Chinese-language editions for Newsweek and the MIT Technology Review, bought license rights from ESPN for an amount that Mr Wolff would not disclose. The initial print run of the magazine will be more than 100,000 copies.
Similarly, the International Herald Tribune - a six-day-a-week newspaper that's edited in Paris - has sold licenses to distributors without using middlemen. Thus, in cities such as Seoul, Tokyo, Tel Aviv and Milan, companies that paid large fees for acquiring publication rights print it daily. In Beirut, Lebanon, the International Herald Tribune is printed and distributed by The Daily Star. But the Beirut publisher blacks out any advertisements that support Israel or Zionism because Lebanon and Israel are still technically in a state of war.
The licensing for printing the International Herald Tribune is part of a global branding strategy by its owner, the New York Times Company, which has revenues of US$5 billion annually. The newspaper's Chairman and Publisher, Mr Arthur Ochs Sulzberger Jr. told The Straits Times that over the last decade, the New York Times has become the only seven-day-a-week national newspaper in the United States. "Just as importantly, we also launched what is now the largest newspaper-owned Website in the world, purchased full control of the International Herald Tribune and, in partnership with Discovery, created a television cable station called Discovery/Times."
"Behind all these actions is a simple thought," Mr Sulzberger said. "We hope to distribute our quality news and information to a worldwide audience using whatever medium we can. We believe that all citizens, wherever they live, deserve to be well informed about the events which move our world, and we hope that the Times can deliver on that promise."
But expanding a well-known brand such as the New York Times can have its hazards, as Mr Sulzberger found out. When he bought out the 50 percent share owned by the Washington Post Company in the International Herald Tribune in December 2001, the Times drew up plans to change the name of the IHT into the New York Times International. But sources in the company say that market research showed the New York Times was perceived in many parts of the world - but especially in Asia and the Middle East - as a Jewish newspaper that always supported Israel. Mr Sulzberger - who was raised as an Episcopalian - has been adamant about being fair to both Arabs and Israelis. But perceptions being what they are, the plans for a name change for the IHT were abandoned.

Interasia's Mr Yeng adds: "I think in all businesses, if you are able to 'Prove and Provide' your value, you will be in the game and you will play a very important role. You must understand that we are representing and managing a company's most valuable asset, 'The brand', and you are right in some way that the owner of the trademark would want to be very careful when choosing the right partner and therefore may approach partners directly. But when you adopt a licensing strategy and license your property in a foreign country, you want someone - a professional in the licensing industry - in that specific market to help you find the right partner."

One could read into Mr Yeng's comment a certain dose of self-promotion. But implicit in his comment is the importance of trust.

"A brand provides a guarantee of reliability and quality," says Mr Matthew Bishop, business editor of The Economist. "Consumer trust is the basis of all brand values. So companies that own the brands have an immense incentive to work to retain that trust."

Retaining such a trust in brands is something that Singaporean authorities emphasize frequently. That is why, for instance, the Intellectual Property Office of Singapore (IPOS), the leading government agency that formulates and administers intellectual property laws, is especially vigilant when it comes to monitoring licensing and franchising deals here. The concern, clearly, is about piracy of a brand - a phenomenon that has at times darkened the reputation of Hong Kong.

Says Ms Yew Woon Chooi, a partner at the law firm of Rodyk and Davidson, and a legal advisor to FLA: "Companies going global must take steps to protect their intellectual property in all the countries in which they have presence. It is neither sufficient nor desirable for companies to rely solely on legal remedies to fight against piracy. Companies should examine their own business processes and systems to see what technological or tactical measures can be taken to discourage piracy."

Translation: Licensing and franchising deals concluded in Singapore are less likely to be infected with fraud than most anywhere else. Why? Because Singapore insists on exhaustive due diligence before licensing and franchising deals are concluded by the respective parties here, according to Mr Ben Wong, Project Director for Lifestyle Events of Singapore Exhibition Services.

The franchising and licensing industry has been around for a long time, to be sure. In fact, the US popularised the growth of intellectual properties and business concepts through franchising and licensing. Back in the 70s and 80s, US brands were very popular with Singapore-based companies, some of which acquired country rights for McDonald's, Kentucky Fried Chicken, Wendy's and other well-known consumer brands. Over the years, with the progress of franchising in Asia and other parts of the world, popular brands European brands like Body Shop, Marche, and Shell Petroleum have also made rapid gains in South-east Asia.
But if Singapore wants to pursue its ambition of being an international incubator for franchising and licensing, it's going to have to address a problem that has little to do with piracy, according to Mr Mahendran of Credit Suisse.
And what is that problem? It's that local talent in Singapore is wooed so fervently by the private sector - in industries such as financial services, pharmaceuticals and electronics, for example - that few Singaporeans tend to enter the brutal franchise business.
"The brightest people in Singapore go into the private sector," Mr Mahendran told The Straits Times. "If Singapore wants to achieve its ambition of being a genuine global player in franchising and licensing, it's going to have to find ways of attracting creative talent to that business. But it will take time."
That's why Mr Louis Lee of Taiwan loves visiting Singapore frequently: he's the king of the hill here.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist


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