US EATERIES SERVE GLOBAL VILLAGE AS FRANCHISING SPREADS WORLDWIDE

US EATERIES SERVE GLOBAL VILLAGE AS FRANCHISING SPREADS WORLDWIDE

Thanks to international franchising, Tokyo's Ginza, London's Piccadilly Circus and even Moscow's Red Square are beginning to resemble Main Street USA.

In fact, franchising has been one of the bright spots in an otherwise stagnant world economy. The total number of franchise operations worldwide has grown from 492,498 in 1989 to 558,125 in 1992.According to Robert Jones, vice president of international affairs with the International Franchise Association (IFA) in Washington, D.C., the rapidly maturing American franchise sector started aggressively exploring foreign markets as a way of maintaining their healthy bottom lines.

"Most franchise systems will eventually need to expand internationally to preserve stable growth rates. Increasing numbers of American franchisers are including international operations in their strategic plans," said Mr. Jones.

The net result, he said, is that international franchising "is booming."

"In the '60s and '70s, your big franchisers such as McDonald's and Pizza Hut were already internationalized together with your hotel chains such as Marriott and Holiday Inn and car rental companies. But the majority of other franchisers had not begun to focus on international operations," Mr. Jones said.

More than 400 American franchisers have international operations and 1,000 more plan to go international over the next five years. The three fast-food franchisers most active overseas are McDonald's, with an estimated 6,000 offshore stores; Kentucky Fried Chicken, with 3,900; and Pizza Hut, with approximately 2,500.

The primary markets have been Canada, Japan, Australia, the United Kingdom and France. But franchisers also are expanding into markets throughout Asia, Latin America, the Middle East, Eastern Europe and Africa.

The International Franchise Association regularly receives visiting delegations from Hungary, Poland and the Czech Republic to discuss franchising.

Much of the impetus for franchising's growth in Eastern Europe is that it is seen by governing officials as the fastest method of establishing instant capitalism on the remains of communism.

And, because these countries generally do not have a depth of expertise in developing and managing businesses, franchise systems are attractive because the foreign franchiser provides the operations expertise and experience the local entrepreneur or investor lacks.

But Eastern Europe's marked shortage of investment capital also limits how quickly franchising can be adopted.

"We're talking about a fairly sizable investment to bring in a franchise. Even for a small franchise, it costs $150,000 to $500,000 for the licensing fee plus the money to get things rolling," Mr. Jones said.

Mexico has also become a promising new location for American franchisers in the wake of liberalized government regulations that were implemented in 1990. A new industrial property law - passed in 1992 - eliminated limitations and restrictions that had been imposed on franchisers.

As a result, more than 80 U.S. franchisers have entered the Mexican market in the last two years.

One of the most international of the fast-food franchisers, Pepsico-owned

Kentucky Fried Chicken, derives fully half its sales and profits from outside the United States.

Steve Provost, a vice president with KFC, Louisville, Ky., concurred with the IFA's Mr. Jones that much of the offshore expansion of franchising was triggered by a largely saturated domestic market.

"Anybody in the industry will tell you that the U.S. market is over built and, as a result, price is no longer a competitive weapon," he said.

Mr. Provost said that there is no question that the price structure for a KFC meal in a developing country like Mexico is higher than it is the United States.

But Mr. Provost said that, among the countries of the world, China represents the new frontier of franchising and offers seemingly unlimited opportunities to franchisers. KFC has 15 restaurants there.

"To see people stand in line for three or four hours to order a two-piece meal that costs two weeks' salary is unbelievable," Mr. Provost said.