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Last Updated: Sep 25th, 2006 - 11:36:04 |
Market Entry Tools for Halal Products and Services:
A New Spin On Some Old Ideas
Presented by Dr. Floyd A. Young, Esq.
June 20th Putrajaya, Malaysia, OIC Trade Forum
Case Study: A Model Business Venture - Halal Perspectives
Franchising & Promoting Halal and Tayeeb Products in International Markets
Business Format Franchising (BFF) and its variations have become increasingly popular in developing countries in recent years. The rapid growth of fast-food and other franchises in Africa, Asia, Europe, and the Middle demonstrates its use a tool for global market penetration and a business prescription to the small and medium sized businessman's financial worries.
The franchise format in the hands of Muslim entrepreneurs can be a beneficial tool and solve some basic issues involved in finance and market penetration. Muslim entrepreneurs should analyze and resolve to bring Islamic Business Ethics to BFF as a market entry vehicle for the halal products and services they offer.
The McDonald Corporation offers an example of how a US company joined with Malaysian investors creating, MacFood Services Sdn.Bhd., a highly successful halal food distribution enterprise. The window is open for made in Malaysian halal products manufacturers to borrow a page from the multinational play book and enter global markets – East, West, North and South.
Our Model Company, Halal Perspectives decides to use BFF to move the products it produces into international markets (Muslim and non-Muslim consumers being targeted).
Business Format Franchising – Basic Components
(a) Halal Perspectives has a developed a method of doing business (the Halal Perspectives System).
(b) Halal Perspectives owns intellectual property rights in the system.
(c) Halal Perspectives as the Franchisor is prepared to give a prospective Franchisee the right to operate the system under Halal Perspectives’ trade or service marks in return for financial consideration.
(d) Halal Perspectives has developed a Control Systems and a legal framework to insure the franchisee conforms to the standards and methods in order to preserve the integrity and distinctiveness of the Franchise (Halal Perspectives System) and network.
1. Muslim entrepreneurs can use franchise concepts to globally promote and support the Malaysian MS 1500:2004 Standard as ‘the global halal standard’.
Halal Certification as required by Franchisor provides control. The emphasis and focus would be on the importance and value of the credible MS 1500:2004 certification for the Franchisor’s products labeled and distributed as halal.
Categorization of Franchising: From an international perspective courts have generally identified several basic forms of franchising:
(a) Service Franchises: Franchisee offers a service under the sign, trade-name or trade mark of the Franchisor, and conforms to the requirements of the latter.
(b) Production Franchises: Franchisee himself manufactures in accordance with the Franchisor's directions, the goods which he sells under the latter's trade mark.
(c) Distribution Franchises: Franchisee undertakes to sell certain goods in a store which carries the Franchisor's sign.
Interjecting Halal & Tayeeb Standards: Investment and Management Agreements
2. Franchises also can be categorised into 'Ordinary', 'Investment', and 'Conversion' Franchises. All three present an opportunity to inject ‘halal & tayeeb’ standards into the Agreement.
A. Ordinary Franchise: Franchisee is accepted by the Franchisor, trained in the 'know-how' of the Franchise, and then commences business under the Franchisor's name and ‘control systems’ i.e. halal preparation etc.
B. Investment Franchise: Franchisee (individual, or corporate entity) invests funds in a Franchise but has little to do with the day-to-day operations of the business. Franchisor manages the business under a management agreement – an agreement that embodies specific terms and conditions.
C. Conversion Franchise: Franchisee is in the same business as the Franchisor selects Franchisor's system, as it is perceived as a better way of doing business. Franchisee uses Franchisor's trade name etc. to sell halal products marketed to the broader consumer base that is demanding healthy, quality products – Halal is Better! Halal is Healthier! Organic is Better! These are the new Mantras. Take note of the reverse where a major US restaurant chain incorporates halal products into its menu and benefits from a broader market base promoting the ‘Halal Mantra’.
Alternatives to International Franchising
Additional Gateways to Marketing and Distributing Halal Products
3. Our Halal Perspectives Model Business should also look at the various alternatives to franchising. These alternatives also have merit and are proven techniques. Examination of these traditional methods of growth will yield answers to many questions that impact on international marketing and franchising of Halal Perspectives’ products.
(a) Establishing branches abroad. Burger and Chicken Franchises in general have utilized this – and gained huge market share in Muslim and non-Muslim markets in so called underdeveloped and developing countries !!
(b) Establishing overseas subsidiaries.
(c) Entering into Joint ventures with local 'partners'.
(d) Appointing overseas agents/distributors.
(e) Trade-mark licensing. The Halal Logo is one of the worlds most valuable trade marks. Value here is intrinsically linked to credibility. Malaysia has set the standard and invested in the scientific infrastructure to address and resolve all areas of the production chain.
(f) Acquisition of a Target Company.
All of the above concepts embody elements of what is generally called Franchising. Most likely it was a team comprised of an accountant an advertising and marketing agency, a creative lawyer, and a business person with the idea and experience in the business to be franchised that were the first Pioneers of Franchising.
4. Who can be a Halal Player in the Global Arena of Business Format Franchising?
A. The Domestic Franchisor who wishes to penetrate international markets and has a proven franchise package.
B. The Company that wants to enter international markets with a product or service that is tired and proven but the company has never tried franchising.
Success awaits both types of prospective International Franchisors that move with sound financial advice and the advice of a creative legal and marketing team who understand and are committed to halal and tayeeb – and are able to point out the advantages and problems involved in international cross-border business transactions.
Our Halal Perspectives Model Business must have a clear picture of what legally can and can not be done with Halal Perspectives through a vehicle like franchising [in the target markets]. This must be assessed before the franchise concept can be finalized. The cross-border legal implications and nature of the project must be fully understood and planned for at all levels.
The Advantages of International Business Format Franchising
5. The advantages of International Business Format Franchising clearly differs in each particular case. However, for Halal Perspectives they should include the following:
(a) Halal Perspectives not having to rely on interest based finance in order to expand and establish overseas ventures.
(b) Halal Perspectives being able to manage and develop the international organization through a compact central office without becoming heavily involved in personnel management and other day-to-day issues.
(c) More rapid expansion of the network is possible, as your resources are not as thinly spread as they would be when employing any other method of marketing.
(d) As the Developer/Sub-Franchisor usually will be local to the territory being developed, Halal Perspectives should be able to reap benefits and take advantage of their local knowledge, and conduct business more efficiently.
(e) Franchisees usually are more highly motivated than ordinary managers or agents and should prove less costly than expatriate managerial staff.
(f) The Developer/Sub-Franchisor, if one is appointed, should know and be able to cope with the area's specific problems.
(g) Political problems, such as overseas investment restrictions, should be more easily overcome by passing the control of day to day affairs over to a Developer/Sub-Franchisor. This is particularly true in countries with less than transparent laws.
(h) The appointment of an Area Developer should alleviate various tax and tariff problems which would otherwise be experienced by Halal Perspectives entering the market with the Halal Perspectives franchise alone.
The Problems of International Business Format Franchising
6. The problems of international Franchising are not unique and of course differ in each particular case. Some of the problems to focus on and develop ways on how to guard against them include the following:
(a) Once the Developer/Sub-Franchisor has been trained in operating the Franchise, it may decide to carry on the business without the Franchisor, and so become an effective competitor.
(b) Training the Developer/Sub-Franchisor to a sufficiently high standard, and then maintaining and monitoring standards, can be difficult.
(c) It is very difficult to select the best Developer/Sub-Franchisor but as the success of the Franchise will turn upon the chosen candidate; this must be a carefully-made decision.
(d) The Developer/Franchisor or Franchisor/Sub-Franchisor relationship is founded on a large measure of mutual trust and it must be maintained.
(e) The keeping of appropriate records by the Area Developer/Franchisee and the monitoring of these can prove difficult for an inexperienced Franchisor.
Structure of the Halal Perspectives Franchise
7. Once it has been decided that Franchising is a suitable vehicle through which to internationalize Halal Perspectives, a Franchise structure that best suits needs and resources can be prepared. This is an immensely important task, as an unsuitable structure not strategically focused to need will make the Franchise difficult to manage and may therefore bring about the failure of a potentially successful launching of an international Franchise.
Our Halal Perspective team must work together and develop a clear understanding of what the Halal Perspectives Franchise package will consist of and efficiently employ the in house expertise and resources available to formulate a Pilot Halal Perspectives Franchise Package Program. Ideally the team develops a Pilot Franchise Package that can then be submitted to a group of indigenous legal, accounting and marketing experts for fine tuning. A Market Entry War Room should be established and target markets selected. It will then be known which market Halal Perspectives wants to enter and the team can start looking at the commercial and cultural environment of the intended targets and assessing available resources and amassing resources not immediately available.
Bear in mind there is no 'correct' structure per se, and every possibility presents different problems. The strategic focus must be to create a structure that enables the Halal Perspectives Franchise package to operate in an efficient manner without putting undue demands upon financial or managerial resources. It is vital that the International Franchise structure chosen and tailored ensure the maximum tax benefits.
8. Four basic ways of structuring our Model Halal Perspectives Franchise:
(a) Direct Franchising of Halal Perspectives
This involves granting a BFF directly to a Franchisee in another jurisdiction, in exactly the same way as you would appoint a Domestic Franchisee. This is only practical when franchising into a jurisdiction that is geographically, culturally, linguistically and legally close to Franchisor’s home territory. Thus, there theoretically should be a great deal of direct franchising between OIC member countries by indigenous companies. In these cases, there is a wealth of homogeneity between the home and target territory.
(b) Franchising Halal Perspectives through an Overseas Subsidiary
In this way, you retain direct control over and contact with the foreign Franchisees. This vehicle detracts from one of the main advantages of becoming a franchisor, i.e. the need for only limited managerial resources. Further, while it is more versatile than direct franchising, it is recommended for target communities/countries with similar cultural, commercial and linguistic backgrounds, so that the you can continue to operate the Halal Perspectives system with little or no amendment.
(c) Franchising Halal Perspectives through a Joint Venture
Establishing a joint-venture company with a local corporation would provide you with a reservoir of local knowledge which will facilitate the more successful penetration of the target territory. The selection of the joint partner is clearly of paramount importance, and in an ideal world, should be made only after the careful screening of a large number of possible candidates. I feel very strongly that this screening process can be further refined by narrowing the field of candidates to families that are in business, young educated people who would like to have their own business but lack significant amounts of capital. This approach to screening is perhaps more valid for Direct Franchising, however it can be expanded to take in middle class business families for Joint Venture candidacy or as area Developers.
(d) Halal Perspectives appoints a Developer/Sub-Franchisor
You appoint an area developer to exploit a territory. This greatly reduces your involvement and the demands on your managerial and financial resources.
This is usually the best structure to adopt for countries with different commercial, cultural, linguistic and legal backgrounds to those of your own. Choosing the right developer is, if anything, more difficult and important than choosing a suitable joint venture partner. The consequences of a bad Developer/Sub-Franchisor can be traumatic and ruin later attempts by Halal Perspectives to re-enter the territory.
The differences between a Developer and a Sub-Franchisor are considerable and must be clearly understood.
(a) The Developer is given the right to open and operate franchise outlets within the territory for its own account, or
(b) The Sub-Franchisor is given the right to appoint unit franchisees within the territory on the basis that it will in relation to them perform the role of a Franchisor. The Sub-Franchisees also may include the Sub-Franchisor's own subsidiaries. The decision as to which of these approaches to adopt is entirely a commercial one and depends upon the size and resources of the Sub-Franchisor's developer and the tax implications of both choices.
Theoretically franchising provides control that may be lacking in some jurisdictions. This is important when it comes to marketing and defining halal and tayeeb, in the absence of effective labeling laws or recognized standards.
9. Commercial Considerations: A Checklist detailing some of the questions we all consider relevant to business expansion plans. These questions can be easily answered when we proceed with the Halal and Tayeeb Perspective and do not look purely from the “guaranteed profits” to capital approach. Consider the following from the point of view that risk and profit are to be shared.
(a) Is there a ready market for the product/service?
(b) Is the market big enough?
(c) Will the product/service work there?
(d) Is it too far away for you to provide effective supervision?
(e) Is there a language barrier, cultural barriers etc.?
(f ) Should the business plan be modified for local conditions
and, if so, how and by whom?
(g) Is the local distribution network familiar to client?
(h) Is the locality politically stable?
(i) Are there any exchange control/inward investment controls
to be considered?
(j) What is the reputation and track record of the proposed
local partners.
(k) Are local labor skills available (trainable labor pool).
(1) What is the Developer/Sub-Franchisor ability to develop/improve the franchise package faster than the Franchisor.
10. Government Impact: A major impact!!
Governments must make it easy for the businessmen and women to do business and expand into international markets: Take a close look at what Malaysia is doing. They have an excellent program to encourage Malaysian small business to enter international markets. Funds are provided; strategic information is provided via websites and knowledge portals that are on line.
Exchange Control: The purpose of the Franchisor deciding to enter into BFF is to earn a profit at the end of the day. This means that not only must the Franchisor be able to invest in the chosen jurisdiction in an acceptable manner, but it also must be possible to receive payments from the Developer/Sub-Franchisors. The foreign-exchange control laws of the Developer/Sub-Franchisor's country are therefore of prime importance. If they prevent or severely restrict payments abroad, the whole transaction will become commercially unattractive. OIC Member countries have understood this and have been moving to solve the disparities and bottle necks.
Import/Export Controls: These are germane to Distribution Franchises in particular and are a direct result of a country's economic policy. Thus, a 'protectionist' approach can severely hamper a Franchise. Not all controls on imports are obvious, and a plethora of quality control and consumer protection laws may hamper and delay imports that are prima facie acceptable. Another indirect way of controlling imports is the imposition of high import taxes to over-inflate the base price and so make the goods unattractive to the local consumer.
The future is friendly Trade Blocs – Think about this: OIC – ASEAN – NEPAD - COMESA all working together; trading together for the greater good!
CONCLUSION:
Present day practical examples of Muslim Entrepreneurs using Franchising and Joint Ventures -
A. Malaysia Brunei Indonesia: Chicken Growing and Meat Processing Project – Effective use of the Joint Venture business model
Investors from Malaysia, Brunei, and Indonesia, and the Philippines have come together and formed a venture to grow and process chickens for export to OIC countries and to the broader market. Halal Chickens – the product will become synonymous with disease free chickens!!! A sure formula for business success –FIND A NEED AND PROVIDE A PRODUCT TO FILL THAT NEED!! THE WORLD NEEDS DISEASE FREE CHICKENS, COWS, LAMB – NEED I SAY MORE????!!!
B. EDEN Enterprises (M) Bhd has drawn up an expansion plan for its food business which could see the Malaysian company venturing overseas soon. (Considering Franchising; JV)
Executive chairman of Eden wants to expand in Malaysia and abroad. Eden is looking at joint ventures and franchising. Eden is a strong Malaysian brand name and has maintained the quality of its food and service since it started its first restaurant in 1964.
This is an example of a well positioned domestic company that can potentially expand its restaurant business to OIC member countries and beyond by deploying a joint-venture or franchise business model and using its strong brand name to tap the “halal” food market.
I emphasize that there are over 8 million plus Muslims in the North American Diaspora that are in need of trustworthy halal products, halal restaurants and consumer goods in general. Opportunity abounds! There are millions of health conscious consumers that understand that Halal products, by there nature, are better for you -- MUSLIM ENTREPRENEURS this is your time to once again bring the concept of halal and tayeeb to the world through sound business practices. Remember Islam was taken to the four corners of the world by honest Muslim entrepreneurs that sold products and set a fine example of what halal and tayeeb was really all about.
Bioterrorism Act Registration Requirements
It must be noted that companies interested in exporting products to the USA must comply with the Bioterrorism Act registration requirements.
Owners, operators, or agents in charge of domestic or foreign facilities that manufacture/process, pack, or hold food for human or animal consumption in the United States are required to register the facility with the FDA.
Foreign facilities that manufacture/process, pack, or hold food also are required to register unless food from that facility undergoes further processing (including packaging) by another foreign facility before the food is exported to the United States. However, if the subsequent foreign facility performs only a minimal activity, such as putting on a label, both facilities are required to register.
The Bioterrorism Act makes failure to register a prohibited act. The Federal government can bring a civil action in Federal court to enjoin persons who commit a prohibited act; or the Federal government can bring a criminal action in Federal court to prosecute persons who are responsible for the commission of a prohibited act.
If a foreign facility fails to register and also attempts to import food into the U.S., the Bioterrorism Act requires that the food be held at the port of entry unless FDA or U.S. Customs directs otherwise.
If the food must be moved, the private parties involved (i.e., the owner, purchaser, importer, or receiver of the food) must arrange for moving it and promptly notify FDA of its location.
The private parties are responsible for any costs associated with moving or storage of the food.
If you are a foreign facility that is required to register with FDA, you must designate a U.S. Agent. A “U.S. Agent” is defined as “a person residing or maintaining a place of business in the United States whom a foreign facility designates as its agent.” The purpose of the U.S. Agent is to serve as a communications link between you and FDA. A U.S. Agent may be a parent company, business partner, broker, or U.S. Legal Consultant.
Section 307 of the Bioterrorism Act also requires that prior notice be given to FDA before food is imported or offered for import into the United States. The Bioterrorism Act requires that this information also be provided to FDA in advance of an imported food's arrival to the United States. FDA will use this information in advance of the arrival to review, evaluate, and assess the information, and determine whether to inspect the imported food.
Companies who are interested in becoming registered with FDA and appointing a US Agent can contact me for details and I will arrange procedures and refer your matter to my USA based affiliate office.
The following services will be provided:
• Answer questions and explain FDA’s registration regulation to you
• Help you register your facilities with FDA
• Serve as the U.S. Agent for your facilities
• Help you update your registration when registration information changes
• Cancel your registration if your facility closes or is no longer required to register
• Confirm to your customers that your facility is registered with FDA (if you request this service)
Proper planning of any export strategy of halal products for human consumption to USA markets must take into consideration compliance with the Bioterrorism Act. I am at your service, asalaamu alaikum wa rahmatulahi wabarakatuhu.
Email your inquiry to: Dr. F. A. Young, Esq.
planetaryperspectives@gmail.com
halalperspectives@gmail.com
Mail:
Dr. F. A. Young, Esq.
Hammad and Al Mehdar
Saudi Business Center, Medina Road
1st Floor - Suite 114
PO Box 864, Jeddah 21421, Saudi Arabia
Fax: +966 2 657 4438
Mobile: +966 506674878
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