U.S. Chamber says economic growth should be “front and center” in 2013; tax reform can “turbo-charge” growth

This morning, IFA was fortunate to have a front row seat at the annual “State of American Business” event at the headquarters of the U.S. Chamber of Commerce, the world’s largest business association located across Lafayette Park from the White House. The event, which brings together representatives from trade associations representing all sectors of the U.S. economy, sets the tone for the annual lobbying agenda for the business community.

U.S. Chamber President Tom Donohue

Chamber President Tom Donohue laid out a series of pro-growth priorities sure to excite anyone in the franchise industry who is frustrated with the ongoing pace of the recovery. According to Donohue, the American Jobs and Growth Agenda would generate stronger economic growth by producing more American energy, expanding American trade, modernizing our regulatory system, and reforming our immigration and visa policies. The agenda also emphasizes the urgent need to address the fiscal crisis with a bold plan that slows the growth of runaway spending, reforms entitlement programs, and overhauls our tax code. According to IHS Global Insight, franchise businesses have been on a slow, but steady, recovery from the recession, and now stand poised to accelerate growth plans if more confidence could be instilled in the economy for existing and prospective franchise investors. As such, Donohue’s comments and the Chamber’s agenda in the year ahead should be welcome news to franchisees, franchisors or prospective franchise investors.

“Economic growth cannot solve all of our problems, but without growth, we will not be able to solve any of them,” said Donohue. “The imperative of economic growth should not be an afterthought. It must be job one. The over-riding objective of this ambitious plan is to generate stronger economic growth in order to create jobs, lift incomes, and expand opportunity for all Americans. America needs big solutions so it’s time to put the smallness of politics aside. We call upon all of America’s leaders in and out of government to put country first.”

Specifically addressing the need for comprehensive tax reform, which is a top priority for IFA, Donohue cautioned lawmakers against using tax reform as a vehicle to continue their reckless spending habits. “Tax reform is not a substitute for spending restraint. It must be done after or concurrent to spending cuts. The right kind of tax reform will turbo-charge our growth, create jobs, and generate more revenues for government at all levels” He warned that the tax increases recently levied on small businesses as a result of the end-of-year fiscal cliff deal will hold back growth in the first part of the year.

“As illustrated by the Chamber’s latest survey of small business members, there is significant uncertainty over health care, regulations, taxes, and deficits,” he said. The Chamber’s Small Business Survey results echo IFA’s latest member survey, which showed the uncertainty of numerous regulatory and public policy challenges were holding back growth.

In IFA’s survey, 64 percent of franchisors report the Affordable Care Act will create some significant uncertainty in long-term planning and healthcare reforms will create significant uncertainty in long-term planning for 71.6 percent of franchisee respondents. More than 10 percent agreed with the statement: “We are no longer confident that our business model is profitable.”

The Chamber forecasts growth of 1.5-1.75 percent in the first half of 2013, with growth accelerating to as high as 2.5 percent in the second half of the year. But Washington “deadlines” in the coming weeks and months, such as the need to raise the debt ceiling and pass a budget, may overshadow growth and will continue to shake the confidence of the business community.

On the bright side, if Congress can address these policies, it will likely accelerate job creation and franchise development across the nation. According to IFA President & CEO Steve Caldeira, franchise growth remains slow due to the rising tax burden placed on small business franchisees and the out of control spending by Washington on entitlement programs.

“While we are pleased the industry continues growing at faster rates than other sectors of the economy, we could be growing much faster, creating more new jobs and businesses, if Washington addressed the tax, spending and regulatory uncertainty plaguing the small business community in a meaningful way,” Caldeira said during the recent unveiling of IFA’s 2013 economic forecast for franchising.

To read or watch the full speech, please click here.

Franchises going global must protect their brand

Aside

Growth in foreign markets is a huge opportunity for franchise businesses. According to IFA’s latest member survey, more than 84 percent of franchise businesses say international expansion is, “key to their development”.  Many iconic American brands, such as Yum Brands’ KFC, are growing more rapidly overseas, due to market saturation and the pure potential of developing countries and markets like Asia and parts of South America.

Upon the recent announcement that Yum was selling its Long John Silver’s and A&W brands, the franchisor released a statement that highlights its focus on foreign markets.

“As we continue to sharpen our long-term growth focus on international expansion and improving our US brand positions in KFC, Pizza Hut and Taco Bell, Long John Silver’s and A&W no longer fit our long-term growth strategy,” Yum CEO David Novak said.

With international success brings a host of challenges. Chief among them are intellectual property-related concerns.

“When a franchise lawyer is asked by a client to assist in creating or expanding a franchising program, the threshold question is likely to be: ‘Is your trademark protected?” wrote Philip Zeidman in a recent article entitled Franchising and IP: joined at the hip, all over the world.”

Zeidman, head of DLA Piper’s franchise legal practice, cautions franchise brands considering expanding overseas to beware of the lack of sophistication in certain markets regarding IP issues.

“Franchising regulation in the United States is now in its fifth decade and is sufficiently developed that most companies and lawyers are at least aware of its existence. Not so outside the US,” he notes.

One of the issues franchisors may have to deal with overseas has to do with copycat stores. What is an established franchise is to do when copycats begin popping up in foreign countries?


An International Dairy Queen imposter in China (photo by 
Melissa Powers for The Wall Street Journal)

These copycat stores will likely dilute the quality of the brand, the products and the service a brand has worked so hard to protect,” according to international franchise development expert Bill Edwards, Chief Executive Officer of Edwards Global Services.

This topic was broached in a recent Wall Street Journal report and is something many franchises are dealing with in places like China. Edwards, who has been to China on behalf of U.S. franchise brands four times in the past year, has seen the challenges copycats pose firsthand.

“International copycats have gotten more sophisticated than they were just ten years ago,” he said. “Although this problem has been present in China over the past 10 years, the copycats are definitely getting better in their service delivery,” said Edwards. “However, what they cannot do is to provide the same highly trained customer service provided by the western brands or the consistent quality of product.”

Edwards’s advice to franchisors expanding globally is to show the outlet is the real brand. “Much like hotels display a sign as to who the franchisee of the brand is in their lobby.”

As foreign governments begin to welcome U.S. brands to their shores, they are also stepping up their enforcement of copycats. “The Chinese government has been getting better in the past 3 years in enforcing trademarks,” said Edwards.

Copycat enforcement has not been exclusive to franchise brands or the food service industry. The Chinese government moved on the fake Apple stores quickly when they were exposed in the press, as the aforementioned WSJ article noted.

Experts do point out that as the consumer becomes more sophisticated in developing countries; they want to be seen eating or shopping at the right brand and not a copycat.

“The increasingly well-to-do and sophisticated middle and upper class consumer knows the real brand and wants to be seen eating at the right brand,” said Edwards.

China is not the only place where there are copycats. Edwards points out other examples of franchise concepts outside China in Australia as some of the most challenging countries for expansion due to copycat brands that had already taken a hold in the country.

“Burger King® had to become Hungary Jack®. Two Men and A Truck® had to use Movers Who Cares® and Batteries Plus® had to use Batteries Staff® just to market their franchise in Australia,” he said.

For more information about protecting your franchise brand internationally, visit the IFA’s International resource page. Other information about protecting your brand’s intellectual property is available at the U.S. Chamber of Commerce Global IP Center web site.

Posted by Matt Haller, IFA Director of Communications 

FOX 5 DC takes a look at this weekend’s International Franchise Expo and profiles IFA member Dogtopia, whose CEO Amy Nichols talks about starting her franchise business, which now has more than 20 locations in the U.S. and the satisfaction that comes from giving people the opportunity to own their own business using the franchise model.

Also, IFA Vice President of Membership & International Development, Scott Lehr, gives his views on the “hottest franchise” around. 

5 Things to Know Before Franchising – and the Top 5 Franchises to Buy

Link

Link: 5 Things to Know Before Franchising – and the Top 5 Franchises to Buy

Here’s a great piece by the folks over at MoneyTalksNews about franchising with an outstanding video perspective from one of Domino’s Pizza’s multi-unit franchisees about what to know before you get involved in franchising.

One of the most important things, according to Zebib (the Domino’s franchisee), “you have to know what you’re getting into. Many successful franchisees like Zebib survive because they come from within the company and work their way up the ladder. If you don’t know how the company operates from the bottom up, do some serious research before investing.”

Posted by Matt Haller, IFA Director of Communications