EMIGRATING TO NZ - THE FRANCHISE OPTION
in this article:
Buying a franchise is an option for many immigrants to New Zealand.
Simon Lord looks at the issues involved in starting your own business in a new country.
Parvao and Ljiljana Dropulich left their native Croatia in 1993 to bring up their two-year old son far away from the constant struggles of life in their war-torn homeland. A textile engineer with a degree from the University of Zagreb, Parvao worked in an orchard for a while before finding a job in his own industry. Last year, he and Ljiljana became one of the growing number of immigrants who have joined the ranks of franchisees when he bought a home cleaning business.
'I came over to see the country in March 1993, and after two months I brought my wife and son here,' recalls Parvao Dropulich. 'It was a good decision, but although I had family here it was not easy, you know? I'd learned English at school, but when I came here I realised I knew nothing. I could understand a little bit but speak very little. At first I had a job picking fruit on a farm and I didn't have to say much. I am naturally a positive person but I remember it rained every single day for three months and I was saying to myself, "Why do you come here?"'
And settling down to life in this strange country took the family quite some time. 'Ljiljana found it even harder at first. She was six months pregnant when she arrived and she thought New Zealand would be more like the big cities of the West, but of course it isn't like that at all. Even with family around, being at home with two young kids and not speaking English was not easy for her. Once she started working and meeting people it got better.'
In 1998 the family returned to Croatia for a visit. 'Life is still a struggle there, and we thought about what to do and realised New Zealand was the right place. When we came back it was like a new start - we had decided to make our life in New Zealand. A friend who was with VIP recommended the franchise to us, and we decided our own business was the way to go. Now I wonder why I didn't do it before. I find I am very successful at communicating with customers, you know, and I love the freedom of making decisions and the pleasure of doing things the right way. Building a business is a very personal thing - if you do it well you get good results.'
According to the New Zealand Immigration Service, 43,940 people arrived to take up residence in New Zealand in the 2000/01 business year. Following the terrorist attacks of September 2001 and the subsequent hostilities, demand for immigration increased further. In addition, a considerable number of New Zealanders working overseas returned home and there was some reduction in the number of New Zealanders heading overseas. The net effect has been to increase the population of the country over the four million mark for the first time, creating a housing boom and (at the time of writing) high levels of employment.
Iimmigration is therefore an important issue for franchisors who need business-minded people for their franchise systems to grow. 'There is certainly considerable interest in franchising among potential migrants,' reports franchise consultant Selwyn Bradley. 'We regularly get people referred to us by immigration consultants, but we're also getting emails every month from people overseas who have seen the Franchise New Zealand website or the magazine. They want to know what franchises are operating in New Zealand, what opportunities exist, what are the criteria for finance, and so on. Several are already involved with franchising in their own country.'
While some immigrants arrive with few assets, many newcomers are cash-rich after selling up in their homeland. Some have business skills and experience, others are looking for opportunities. All need help, advice and familiarisation with the culture of their new country. These are all aspects which should make franchising very appealing. Franchisors who wish to reach and understand this market, however, need first to understand the issues involved.
Those seeking to live and work in New Zealand must apply to the New Zealand Immigration Service under one of several categories which include General Skills, Family, Entrepreneur, Long Term Business Visa and Humanitarian. There are also specific quotas for Samoan and Refugee categories.For detailed information, see the NZIS website.
In the General category, the well-known 'points' system allows intending migrants to qualify by exceeding a total number of points awarded for such attributes as age, education, qualifications, desirable skills and so on. This category, along with the Family category (for those with family already resident here), accounted for almost three-quarters of immigrants in the 1997/98 year. Parvao and Ljiljana Dropulich, for example, had family here already. 'My grandfather's brother came to New Zealand 78 years ago, and my sister came the year before me,' Parvao says.
However, of particular interest to franchising are the Entrepreneur and Long Term Business Visa categories. Following the immigration peak in 1995/96, which was partly fuelled by concerns about the future of Hong Kong, the Immigration Service reviewed the working of the business migration schemes and launched a new initiative. It created a Long Term Business Visa/Permit to cater for potential migrants interested in establishing a business in New Zealand. Although they need not wish to live permanently in New Zealand, successful applicants for a business visa are granted a work visa for up to three years. At the end of that time, they may apply for residency under the Entrepreneur category, which requires applicants to have established a business in New Zealand successfully for a period of two years.
There are strict requirements for the Long Term Business Visa/Permit scheme - a summary of the current position can be found here
The scheme has been successful and has helped many new New Zealanders find their feet in business, often through the medium of franchising which enables them to establish themselves in a new country, a new market and a new lifestyle without much of the risk and stress which would otherwise be involved. However, the Long Term Business Visa category is realistically currently only likely to apply to those seeking to buy a franchise which will provide employment for others. Intending applicants are advised to consult an immigration consultant before making their application.
Although buying a franchise offers newcomers many advantages, Gerald Delany warns that it is not going to suit everyone and certainly shouldn't be marketed as the easy way to a New Zealand visa. As a business facilitator with Auckland New Ventures Inc (formerly the New Venture Trust), Gerald advised and trained many immigrants in the basics of doing business in New Zealand.
'Immigrants certainly form a large pool of potential franchisees, and many are very successful,' he says. 'But franchisors have to understand that the market is segmented, and each segment may have different issues which they will need to address.
'For example, people like Parvao Dropulich are intelligent and well educated. They may have a lack of business skills and initial language difficulties, but they are keen to succeed and can be really successful as franchisees. As they become more experienced and more confident, they may contribute more and more to the system or they may simply graduate from it and move on to the next level of investment.
'But a lot of immigrants come from countries where there is basically no experience of franchising and no understanding of the way it operates. For example, I sent my entire class along to the Business Opportunities & Franchise Expo recently and many looked at the offerings and asked 'why should we pay $25,000 for being involved in a business we can do ourselves?' They think they are just being asked to pay for a name, not a whole business system - and a lot of franchisors are so close to their offerings they forget to explain this adequately.
'In addition, people from, say, mainland China or Taiwan are often looking for an investment opportunity and simply don't see a franchise as providing enough return for them. New Zealand is actually quite a low profit economy, and our acceptable standards of return are far lower than in many countries, especially when you add in franchise fees. They don't recognise the value of reduced risk - in a lot of countries, if you have a shop or a business of some sort you can pretty much expect to get by. That's why a lot of immigrants buy independent businesses, especially in the food business.
'Unfortunately, it's also why a lot of them come unstuck,' comments Gerald. 'One of the things I tell my classes is to look at the population. In Japan, there are 125 million people. If you open a noodle shop in Tokyo, you can expect enough people to fall through the door to pay the bills. But here, in a country of about the same size, we have 3.8 million people. It makes a difference. To survive you have to have training, the right structures, good business skills and be good at marketing to a New Zealand audience.'
Another issue which comes up is that immigrants often make the assumption that doing business here is the same as doing business in their own country. 'If you come from an area where a deal is done on a handshake, a franchise agreement is a formidable document, especially if your English isn't so hot,' says Gerald. 'On the other hand, if lack of trust is an issue in your own country, the franchisor/franchisee relationship - which depends on a lot of mutual trust - is pretty disturbing. And attitudinal differences can be key. A lot of South Africans, for example, are used to working on an independent model rather than a consensual one, and a franchise relationship demands a bit of both. That can make life interesting.' As an example of how fundamental some of the differences are, Gerald explains that he teaches migrants 'how to do the standard NZ business handshake. In some cultures, men and women don't shake hands with each other at all, but here everyone in business does - usually fairly briefly. In the middle east, a business handshake is a much longer affair which New Zealanders would feel uncomfortable with.'
A more serious difference comes when alien concepts, such as leases, are involved. 'One gentleman bought a (non-franchised) food business in central Auckland just assuming that the lease continued. A few weeks later he got a letter from the landlord saying the rent had doubled - the previous owner hadn't mentioned that to him. The business just couldn't operate with the new rent, and he ended up walking away from a $50,000 investment.'
And one other potential problem which he identifies is that of unrealistic expectations on the part of new franchisees. 'Some people expect everything to be done for them by the franchisor, which isn't the way that franchising works. The British can be particularly prone to this - some take the attitude "Head Office should fix this" rather than "How will I fix this?" laughs Gerald, who himself migrated from England in 1984. 'And people from the former communist bloc can have the expectation "If it isn't being done it isn't allowed". But you don't buy a franchise and then wait for instructions. You have to learn that if you want something to happen, you have to do it yourself.
'It can be a serious problem. If a franchisor advertises "We provide full marketing support," a potential franchisee might think that they really don't need to worry too much about sales skills. They believe that advertising will do it all. But even if the franchisor does all the marketing of the brand you still have to get out there and visit clients or handle the people visiting you. That can be a different matter - especially if you are not too confident of your English.'
While attitudinal and cultural differences can create problems for unwary franchisors, those who take the trouble to explore, understand and adjust their approach to immigrants will find it worthwhile.
Research suggests that potential franchisees from among the migrant communities have one of three goals:
- Building or buying themselves a secure job
- Returning a profit upon investment
- Providing a means of establishing themselves in New Zealand
'If you are a franchisor, you need to determine which sector of the market your franchise is most appropriate for, where and how you are going to reach those people,' says Gerald Delany.
'Immigrant communities tend to be quite strong - for example, there are probably 6,000 Russians in Auckland alone. That means word of mouth is very valuable. If, like VIP, you have happy Croatian franchisees, they will tell the community and attract other franchisees.
'But he warns that franchisors must be prepared to put time and effort into the process. 'Appealing to migrant communities requires the same care as exporting to another country - perhaps more so because you don't expect the differences. First, learn a bit about the market, the country, the people and their business culture and expectations. Offer assistance and build up relationships. Understand that in many cultures, the relationship comes first and the business second - in such cases, the hard sell approach will be totally counter-productive.
'Take care to ensure that prospective franchisees from other countries truly understand your franchise offering, its costs and fee structures, and what it is that your franchisees are actually required to do. If selling or customer contact is involved, be upfront about it.
'If you are dealing with people who do not have English as a first language, be aware that some people may not wish to admit if they do not totally understand something which you have told them. Check their understanding regularly, invite them to bring a friend or colleague to act as translator if they wish, and ensure they take proper legal and financial advice.
'Provide a "plain English" version of key documents such as the disclosure document and franchise agreement. A list of bullet points outlining the major provisions may help to ensure no misunderstandings.
'And think beyond the recruitment of people to their training and support. Again, non-native English speakers may need help with the preparation of a suitable sales script or presenter with which to market their business initially.'
New Zealand is for many the land of opportunity and a highly attractive place to live and raise a family. A constant flow of immigrants throughout recent history has enriched our culture, our food and drink, our industries and our economy, and it will clearly continue to do so.
Immigration offers considerable potential for franchising, too. The Long Term Business Visa is an excellent concept, which promises a rare blend of vision, practicality and control. Although it is too early to pass judgement on its results, as Gerald Delany says, 'If we can ensure that it works as it is supposed to then it will be great - and potentially very valuable for franchisors.
'The overseas market is enormous. People are out there looking for opportunities and growth, and New Zealand is a very attractive destination for them. If you take time to build the right relationships, and help them into your systems, you will find a new source of hard-working business-minded people.'
- Only consider franchises that fit with your skills and experience. Learning to operate a business is enough of a challenge without having to learn new techniques and skills at the same time.
- If you are worried about your English skills in meetings with the franchisor, take along a friend or business advisor to assist in translation.
- Never sign anything until you have taken the advice of an accountant and a lawyer with experience in franchising in New Zealand.
- Spend at least one day "doing the rounds" with an existing franchisee - see exactly what is involved in the day to day business.
- Find out exactly how the business is marketed most efficiently - personal selling, advertising, word-of-mouth referrals or what.
- Do the sums. Prepare your own cashflow forecast and budget for the business and remember to allow for the capital or loan costs of the franchise. The franchisor's figures will be a good starting point but every business has its own costs and expenses. Do your own figures!
- Think about the unique possibilities and competitive advantage you hold by being a member of a migrant community are there ways of marketing specifically to your own communities?
- Remember that having an accent can be a good talking point to get develop rapport with a client. Never get tired of answering the question 'where do you come from?'
- Use your recent arrival in New Zealand as a positive factor. Tell your clients you are keen to grow your business in New Zealand and need their help with referrals.
- Be clear about YOUR personal competitive advantages. Don't rely on the franchise image and advantage to do it all for you.
This article first appeared in Franchise New Zealand magazine Volume 9 Issue 3
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