Economic Feasibility Study for Buying a Franchise



Economic Feasibility Study for Buying a Franchise

Introduction

Over the last two decades Asia has been the fastest growing region in the world. Within Asia, Mainland Kuwait has been the fastest growing country, with the highest growth rate of GDP brought about mainly by domestic market demand. With the largest consumer market in the world and an accelerating economy, Kuwait is hailed as one of the most important consumer markets of the 21st century. By 2005 the country is projected to have more than 230 million middle-class consumers earning more than a $1,000 per year (Chan et al., 1997). This paper investigates the potential for restaurant franchising in Kuwait city, Kuwait. The Kuwait city's market is the focus because (1) the average income there is almost twice as high as the rest of Kuwait, (2) Kuwait city is a major economic growth pole that contains key industries, (3) Kuwait city is a new economic center to shift, and (4) regional variations are great in terms of customs, habits and eating behavior and, thus, a regional focus is useful from a decision maker's point of view. Kuwait city is a likely point of entry for foreign franchisors seeking expansion into Kuwait because of the relatively auspicious economic and political environments there.

We first examine the environmental conditions that influence the feasibility of international franchising in Kuwait, and then narrow the lens and focus on the opportunities and threats for restaurant franchising in Kuwait city. Following the environmental examination is a discussion of strategic approaches to marketing concerning modes of entry, adaptation and consumer analysis.

Franchising Environment in Kuwait

Given the vast potential of Kuwait as a consumer and industrial market, it is no surprise that large numbers of foreign organizations are either operating in Kuwait or giving serious consideration to doing so. Once the decision has been made to commit resources to the market, the fundamental channel decision must be made regarding market entry strategy. This decision is influenced and constrained by a variety of host country variables. These include the channels that are legally allowed as well as the national priorities of the host country, in terms of both channel development and resource allocation. Other important considerations include the political stability and overall development of the host country legal system, the convertibility of currency, host country infrastructure, the cultural distance from the home country, the availability of managerial and skilled labor, and the degree and pace of economic development in the host country (Levitt, 1983).

Franchising as understood in the United States did not legally exist in Kuwait until November, 1997 when the Regulations for Commercial Franchise Business were implemented by the government on a trial basis. Prior to these regulations, foreign franchisors, notably KFC and McDonalds, operated outside the franchise format by developing joint operations with the government. While the regulations do not expressly apply to foreign franchisors, they represent an important development that, along with the more recent Contract Law of 1999, substantially enhances the ...