by Philip Morrison
last updated 18/12/2009
Franchise advice for migrants to NZ
by Philip Morrison
last updated 18/12/2009
New Zealand has always been a migrant nation, but in recent years the origins of our people have become wider than ever. This is particularly evident in our largest city – according to a Massey University study, some 40% of Auckland residents were born overseas, and other reports suggest that there are around 190 different immigrant groups in the city. This diversity is gradually spreading throughout the country.
New Zealand is a popular destination for migrants for many reasons. These include its safe, law-abiding reputation, lack of corruption, stable government, education, clean green image and, perhaps most importantly of all, the fact that it is one of the best places in the world to raise a family. There is one other very good reason for entrepreneurial immigrants to consider New Zealand – it is consistently rated as one of the best economies in the world for starting a new business.
Successive New Zealand governments have maintained a policy of encouraging those with business skills and money to invest. The Long Term Business Visa category has now been joined by a new Investor Policy which offers residency to migrants who invest between $1.5 million and $10 million and maintain the funds in New Zealand for between three and five years. Apparently, over 12,000 people have already registered interest in the scheme.
But Ralph Penning of the Independent Business Foundation and a judge in the recent Westpac New Zealand Franchise Awards warns, ‘Unless new immigrants are given a helping hand, their businesses will go belly-up because these business migrants have very little understanding of New Zealand’s small business mentality and culture.’ It’s no surprise, then, that franchising is a very popular option for many migrants seeking to establish themselves in a new country.
Many franchisors actively seek out migrants as potential franchisees. Migrants are mostly well-skilled, have some capital, are highly motivated to succeed and have a strong work ethic. They have the initiative to have moved across the world and the drive to establish themselves and provide for their families in their adopted homeland. So what is it that new immigrants can expect when they start looking at franchise opportunities – and what do they need to look out for? This article is drawn from my experience in providing due diligence to a number of new franchisees from a diverse range of countries including Korea, China, India, the UK and Europe, Thailand, South Africa and the Middle East.
Why is franchising a popular option for migrants?
Franchising can offer the perfect route into business for new migrants. For a start, franchises are available in a variety of industries matching all sorts of skills and at all sorts of investment levels. There are franchises that allow you to work part-time, or full-time, or operate your business while you have a daytime job too. There are franchises that require you to employ other people (essential under the terms of some visa categories) and franchises that enable you to work by yourself or with other family members. Some franchises are genuine opportunities to build a sizeable business, while others are more about buying yourself a job as you become established in New Zealand. Many franchises also offer a choice of new or established outlets, giving you the choice of starting something yourself or buying a business with existing customers and cashflow.
Buying the right franchise can provide peace of mind to migrants looking to invest in themselves and provide for their family’s needs. As one of my clients who recently purchased a Subway franchise said, ‘Franchising is less risky.’ They were investing a significant amount of their accumulated wealth after cashing up to move here and wanted a safe, low-risk option – a well-established franchise business with stable income was the obvious solution.
And franchising has other advantages, too. There are two main problems that face migrants wishing to set up business in a new country. The first is the social issue. Migrating to a new country might be exciting but it’s also stressful for most people: uprooting family, leaving the security of the known for the unknown, learning a new culture (and even a new language – or at least accent) and often moving to an area with little or no network of friends and families. But if you are part of a franchise group, all these things can be much easier because you have other people around who are sharing the same business with you. They can help you learn how business is done in New Zealand, what to expect and what to avoid. They’ll also help you learn the culture and the common phrases you’ll hear.
The second problem new migrants face is the business side itself. For a new migrant, no matter how experienced they might be in business, the difficulties of identifying a new or existing opportunity and learning the market in a new country are obvious. If they haven’t been self-employed before, those difficulties expand to include all the other aspects of first-time business ownership.
A good franchise can offer migrants a ‘business in a box’ solution which has all the right systems and structures for New Zealand already in place. As another of my migrant clients who bought a franchise said, ‘You just need to follow the rules... it’s all done for you.’ That might not appeal to a true entrepreneur, but when you’re new to the country, following a system is going to make life much easier – and safer. With documentation and procedure manuals covering all areas of the business operation, migrants can navigate much more easily through the complex compliance issues every business has to face: health and safety, fair trading, local government permits and so on. Then of course there are marketing tools and sales techniques – using proven programmes provided by the franchisor will help ensure that you reach the maximum number of potential customers with the right message.
What are the pitfalls for new migrants?
So those are the advantages – what about the disadvantages? The first thing you need to recognise is that, although there are many great franchises, there are also some that are not so great. One of the biggest pitfalls facing migrants is that with no local knowledge it can be hard to tell the difference – and that leaves them vulnerable. For this reason, migrants are at risk of paying too much for a business or having it over-sold to them. I’ve seen migrants purchase a business based on the apparent strength of the brand rather than on the profitability of the franchise outlet itself. Subsequently, they lose money on the sale of the business or even lose all their investment. This can happen because they don’t know what it is that they need to know about the franchise. For this reason, it is very important that new migrants take time to understand how franchising works before they buy into a business.
Another pitfall that migrants need to be aware of is that doing business here will be different from doing business in their own country, even if it seems similar. For example, there may be different understandings of when accounts fall due for payment, or different laws about how you can advertise for staff or what rights they have. This can be particularly challenging in the financial area. There are all sorts of issues regarding tax laws, the paying of provisional tax and Fringe Benefit Tax, PAYE and Kiwisaver right though to GST filing. Even if they seem similar to systems in place in your own country, they will be different in significant ways. Sadly, I have seen examples of migrants not taking advice and having to pay large fines and penalties to the Inland Revenue Department which could be avoided by seeking advice in advance. Ignorance of the law is no defence as far as the IRD is concerned.
In many cases I have seen, where problems have arisen it has simply been because vital information has been lost through language difficulties. For example, a migrant buying a franchise might have a different understanding of what the business involves from the franchisor. For those unfamiliar with franchising, it is easy to confuse the figures a franchisor might provide as indicative of what can be achieved and think they are a guarantee that certain performance will be achieved. A more extreme example is the difference between purchasing an ongoing business versus an opportunity that needs to be started from scratch. If the migrant cannot express themselves clearly, then they may not ask the right questions or may misunderstand the answers. Unfortunately, even where the migrant employs an advisor who speaks both languages, if they have no franchise experience then they may still be poorly advised.
A few professional practices (such as our own), many of the banks and even some franchisors employ bilingual staff to bridge this gap by offering franchise advice in other languages. Look here for nformation on buying a franchise in Traditional Chinese, Simplified Chinese, Korean and Hindi.
The problem of isolation
Understandably, new migrants to New Zealand often meet and seek out people from the same country to help them get established when they first arrive. This can be tremendously useful and it leads to advice being shared rapidly. It’s one of the reasons why some franchises have clusters of franchisees from certain countries, as one migrant passes on their experience to the next newcomer.
But this approach can also isolate people from getting outside advice and the information they really need. There have been instances where migrants have been duped by their own countrymen into investing in franchises that had not been properly developed. In a major case in 2007, around 200 Chinese immigrants were caught up in an alleged fraud carried out in the name of one of New Zealand’s largest franchises. Such problems can happen more easily and spread faster in an enclosed society because migrants are not accessing the information that is generally available. This makes it vital that anyone looking at buying a franchise gets good professional advice before investing their savings.
Get the right advice
Before you sign any document related to buying a franchise, make sure that you carry out proper due diligence. Do not rely just upon what you are told by the franchisor or by your friends. And do not rely upon what you are told by a lawyer or accountant, even if they speak the same language as you, unless they have proven franchise experience.
You must seek advice from experienced independent advisors, including franchise accountants and franchise lawyers (see the Directory). Before appointing any advisor, ask them for details of their franchise experience and request a price and details of what the work will cover. Talk to a banker, too – many of the major banks have specialist franchise departments. All these people know how good franchises should work and are likely to have knowledge of the brands and people involved in any opportunity.
Remember, starting afresh in a new country always involves a certain amount of risk, but buying a franchise can be an ideal way for new migrants to establish themselves. New migrants are always vulnerable but with a little care and the right advice these issues can be managed. At its best, franchising provides the helping hand that Ralph Penning talked about at the start of this article. Haere mai – welcome!
This article was first published in Franchise New Zealand magazine Volume 18 Issue 4
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