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Singapore offers leadership in little-known aspect of globalization

Published by The Straits Times, Singapore on 2004-10-08

Mr Louis Lee 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 selling a little known but growing component of globalisation. Mr Lee offers franchising and licensing of some of the world's most renowned Western consumer brands to Asian, African and Middle Eastern countries.
Those include Pepsi, Jeep, Paramount Pictures, Feraud and Hallmark Cards. They also include Singaporean brands such as Osim, V-Kool and Informatics that have expanded to the United States and many European countries.
Mr Lee divides his time between Singapore, China and the United States. But if there's a business possibility in, say, Chad, he will go there. He will, in fact, go anywhere where there's business to be conducted. Which is why he was in Singapore not long ago to attend the annual Global Franchising and Licensing Conference at Suntec City. The three-day event - consisting of seminars, exhibitions and a dizzying assortment of parties - also drew a record 10,000 other participants and 250 exhibitors from 33 countries.
That's because franchising and licensing of brand products are rapidly becoming a significant aspect of globalisation, which promotes the freer flow of goods, services and capital across borders. Franchising and licensing has already become a US$300 billion business globally each year. And although the World Trade Organisation puts global trade at US$31 trillion each year, the franchising and licensing business is growing at the rate of nearly 15 percent annually.

That translates into healthy revenues for licensing agents such as Mr Lee, who runs a company called Interasia & Associates. They typically earn royalties of 10 to 15 percent of licensing fees. Little wonder that Mr Lee - who's not quite 40 years old - can afford to travel first class and wear tailored suits.

He frequently returns to Singapore, in fact, because it is playing a little publicized but major role in the global franchising and licensing industry.

Mr Ben Wong, Project Director for Lifestyle Events, Singapore Exhibition Services - which organised the event in cooperation with the Franchising and Licensing Association at Suntec City - told The Straits Times that several million dollars worth of agreements were signed at the convention.

For example, Singapore's Pacific Fusion International signed a master franchise agreement worth S$1 million with a franchisee from the Philippines for Fuzion Smoothie Franchise. V-Kool International signed a master franchise agreement with a franchisee from Egypt. One of the exhibitors, Ya Kun International - which has been highly success in Indonesia, where they've established five outlets - also signed new deals.

And 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.

"Hopefully we can appoint a master franchisee soon. The show is 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," said Mr Jose Maria Neira, a top Dinamix official.

"Singapore has become a franchising and licensing hub," Mr Wong said. "In the past few years, Singapore has established itself as a compelling location for the conduct of IP [Intellectual Property] business. In fact, franchising and licensing activities are key forms of IP exploitation. International and local companies will capitalise on Singapore's strong IP laws to build their franchising and licensing programmes to cross over to other regional markets, and leverage on brand power to create innovative products."

And what makes Singapore such a draw for regional and international companies in the franchising and licensing business? Money, for one. Revenues of Singapore-based franchises - both local and foreign - were nearly US$4 billion in 2003, out of a total of US$25 billion in overall retail sales. In 1999, there were 274 franchise systems and some 700 franchisees; by the end of last year, the numbers had risen to 380 franchise systems and 3,000 franchisees. Nearly 40 percent of the franchisees were in the food and beverage industries.

But part of the attraction of using Singapore as a hub is also because of IPOS, the leading government agency that formulates and administers intellectual property (IP) laws, promotes IP awareness and provides the infrastructure to facilitate the greater development of IP in Singapore.

"IPOS helps engage companies in the management of their IPs. IPOS has developed the SCOPE IP diagnostic tool geared towards helping companies to identify the IP they own, assess their ability to manage risk associated with its IP, and adopt best practices in IP management," Mr Wong said.

There's another aspect to franchising and licensing that also makes it a key component of globalisation. It not only helps extends sales of sought-after products, but also contribute to local economic development in emerging countries by generating jobs, according to Mr Allan Yeng, General Manager of Interasia.

"Licensing also involves creativity that stimulates the workforce and businesses to thrive and grow - and at the same time to learn and acquire marketing and technology skills," Mr Yeng said. "These encourage and reinforce the globalisation movement. In developing countries where manufacturing still plays an important role, it not only creates jobs but also upgrades the quality of the production."

Mr Yeng said that all license programmes require strict quality control procedures that encourage the operators to upgrade their facilities and skills. "On the market, this creates employment because licensing demands and allows you to develop interesting new products and services that need new job functions. At the same time, it encourages spending that stimulates growth, thus generating wealth in the country."

And what about the business side?

"The business side is obvious, because all businesses rely on marketing ideas," said Mr Lee, his chairman. "And brand licensing is one of the key elements in marketing the brand in any business, which, if managed properly, will be the key driving force for the company's bottom line. Companies are able to associate with global giants through the licensing strategy and it enhances the company's status, credibility and image. At the same time, the people are able to learn new marketing ideas and gain know-how - and there is upgrading of skilled workers and creation of new job opportunities."

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.
"The association with US intellectual properties and concepts are evident in Asia," Mr Wong said. "However, there is also increasing evidence that European brands and concepts are making a presence in Asia. Using GFL as a yardstick, we have French, Spanish and German exhibitors now taking a serious approach in getting into the Asian markets. As more do so, the competition will no doubt intensify."
But as competition intensifies, there's also worry that brand-name companies may be subjected to more piracy and fraudulent replication of their goods - which is considered a particular problem in Asia.

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."

Interasia's Allan Yeng agrees.

"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 direct. 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."

This, added Ms Yew, means better "due diligence" and pre-deal inquiries on the part of the companies wanting to sell licenses. This also means, of course, that the growth of the global franchising and licensing business is going to be a very propitious development for law firms.

But with the head start enjoyed b y world-renowned Western brands, how can Third-World brands extend themselves into the industrialised countries? Is there a built-in prejudice against goods manufactured in emerging countries?

Mr Wong of Singapore Exhibition Services says that it all depends on how Third World companies market themselves.

"Franchising and licensing build upon proven concepts, ideas and know-how," he said. "The questions are whether business opportunities and intellectual properties are being marketed and developed overseas by the business communities in developing countries - for example, in areas such as food, traditional health and beauty treatments, art and print designs etc, which are unique to many countries and cultures."
Mr Wong added: "There is no reason why these successful business formulas cannot find a market association in other countries. Take a look at Thai food and franchises - it has made headway, it is unique to Thailand and it is successful overseas. There are no prejudices. Crucial to propagating the businesses are whether the concepts and properties are able to adapt to market needs and that requires effort to build a market. That is where the involvement of government bodies is important. For example, here at the show, Thailand and Indonesian companies entrenched themselves in building their uniquely `Thai' or `Indonesian' experience to entice the business communities on the value prepositions in the offering."
Which may one reason why Singapore's Ms Pushpa Tulsidas of Body Contours, a local spa with four outlets, is so confident of expanding her enterprise to "anywhere in the world."

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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