Hi! Managers: Which is the best way to grow?

--Franchise model:
The franchise model is tailored towards investors who look for rapid growth in their business without having to invest much capital. Investors with limited funds will enjoy this concept. Examples include “Chai See Mee Keaw”, a Thai noodle outlet, or international brands like “Dairy Queen” “Mister Donut” or “Sizzler”.
Barriers to entry into new markets such as government regulations may also be a reason for brand owners to expand through the franchise model, which also has less risk than investing in own equity. In particular, if the market potential is small, the brand owner would always use the franchise model to cover that market. Examples in the international food chain business would include KFC and Pizza Hut in the Middle East.
To be successful under the franchise model would depend greatly on the brand equity. This is demonstrated by the success of Starbucks compared to other coffee brands. Products without strong brand equity that are easy to replicate will have a very short life cycle. An example is a bakery called “Roti Boy”, which previously created a big impact in the Bangkok market with a superb marketing campaign that generated long lines but then faded quite rapidly within a year once similar products were introduced. However, brands that are able to reach the mature stage in their brand life cycle might prefer to franchise and take in as much in the way of fees as possible before the brand deteriorates.

--Joint venture model:
This model can be viewed as an entry strategy for brand owners who have adequate funding to expand their business and have a product that commands high profit margins. For expansion into a new market with limited familiarity or even with very high barriers of entry, engaging in a joint venture proposition with a local partner who has expertise in that market can minimise risk. Some considerations for this model would include:
Ensure that each partner contributes to the joint venture equally by adding expertise and knowledge in their respected fields. For example, in a hotel joint venture, one partner may be a professional hotel management company, while the other is a local partner with expertise in laws and regulations of that particular country.
It is also critical to understand the domestic market you plan on entering. Do not enter blindly and I strongly advise you to set a timeframe to achieve various milestones and never forget to always ask yourself if you are capable of running the business without your partner.
In some instances, brand owners are required to invest a small portion along with the franchisee or project developer to meet funding requirements or add confidence to the project. Because most franchisees and developers seek exclusivity with a brand, it is important to carefully draw up exit clauses.

--Own equity model:
This model is applicable in situations when you are very familiar with the market. In some instances, the owner may need to step in and replace the franchisee and invest in the market to maintain and rebuild their reputation. For example, McDonald's in some markets were bought back and operated by the parent company prior to selling out to another franchisee. In many cases, what starts as a joint venture may end up with one party owning 100 per cent due to exit strategies or conflict of interests.
So, be smart and be prudent before choosing the most appropriate business model to expand your business.

Pratana Mongkolkul is chairwoman and founding partner of Boutique Consulting Group. Follow her article every first Wednesday of the month.