Is franchising still relevant for aspiring Singapore entrepreneurs?

In my first article, “How Singaporeans can do franchising wisely,” I talked about how aspiring entrepreneurs can purchase a brand and business through the franchise model.

While this has often been a usual direct route, increasingly, more entrepreneurs are taking the opposite end of the journey. Instead of purchasing a well-known brand franchise, they create distinct brands ranging from café to apparel, sprawling all over Singapore.

Is franchising a dead business model?

A trip to a franchise fair would provide you with the necessary information on the cost of setting up a franchise. If you are interested in a Korean F&B restaurant brand, the cost of franchise can easily hit a quarter million.

Of course, the initial fee would include basic set-up cost, training support including your travel to the home country to learn the business model and “replicate” them in Singapore.

The huge initial amount might deter many of you. After all, a quarter million or even a-tenth of a million might push you away from the idea.

Therefore, most new F&B “start-up” prefer using their cash on hand to create a personal brand story. There is no lack of boutique cafes spouting throughout neighborhoods in Singapore.

Also, you could see a new breed of food entrepreneurs opening stores in coffee shops. The infusion of international cuisine coupled with localised ambience provides a hotbed for aspiring entrepreneurs to embark on their dream plan in Singapore heartland.

On a flip-side, seasoned business owners continue to expand their business activity through the franchise model. With Singapore's small domestic economy, entrepreneurs might view the region as their franchise market rather than a single local territory.

Such approach broadens their market depth. Nonetheless, it is important to check with the franchisor if the franchise rights or master franchise rights have been sold in other territories in the region.

Franchising -- an old art of business

The business model of franchising is largely a bottom-up approach. That is, the business owner has an operation model that can be replicated. The prospective franchisee would consider the franchise business and purchase the rights to operate under the brand name.

In Singapore, most home-grown brands F&B outlets are still largely self-owned by their parent company. This is consistent with the idea of an organic growth approach. The merit of such system is the ability to maintain quality standard and closer bond between staff and employers.

In Singapore where labor cost is rising due to the tight labor market, especially so for F&B lines, the organic growth approach would require a higher capital cost in the longer run.

Take the plunge or hold the horses?

A common decision to buy a franchise business is to remove the need to create a new brand. That is, the business capital allocated towards the marketing of a new brand is essentially paid to the franchisor for an established brand.

If you are looking towards having a well-coordinated business system, a franchise business is a definite choice.

Large local brands in Singapore often purchase franchise rights to operate in Singapore market too. Therefore, the decision to take up a franchise is dependent on the degree of control you are willing to surrender to the franchisor.

While you might be able to negotiate for certain variations in the franchise business model, most franchisors would retain control over the ingredients, operations flow, and even down to the attire of your staff.

Now if you think franchise is purely a sure-win game, look out for my next article on a new wave of franchising!