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FRANCHISING TRENDS IN MEXICO: A NEW VALUE
By Ignacio Dominguez Torrado
Uhthoff, Gomez Vega & Uhthoff, S.C.
Why a new value? Is Mexico avoiding the economic fallout that the world
may be facing? In Mexico franchises are worth more? Is Mexico not a country that
the global economic standstill is or will affect? The answer is, not really. Are
Franchises in Mexico currently experiencing a boom? Perhaps. Are Franchises
becoming an important aspect in Mexican economy? Certainly.
Due to the economic reality of the world and in particular the changes in oil
policy and the fluctuation of its price, considering that oil exports is Mexico’s
number one income, the Mexican Government had to explore new areas for
economic growth that are not linked with the oil industry and has launched a notso-new-but-kind-of-forgotten program to support entrepreneurs involved in the
franchise business.
The roots of this new program, that would be thoroughly described
throughout this article, are based on the Federal Government’s program known as
the “2001-2006 Company Development Program”, same that includes a special
program which will allocate funds for the small and medium sized companies. In
2004 the Official Gazette published the rules of operation for the companies to be
eligible to certain funds and prerogatives granted by the Federal Government. The
purpose of this program was to promote the national economic development by
granting temporal support to projects that encourage the creation, development,
strength, viability, productivity, competitiveness and sustainability of the micro,
small and medium sized companies.
After the Presidential elections of 2006, newly-elected President Felipe
Calderon and its team on an effort to continue with the economic programs
established by the past administration and that were providing some results to the
economy, retook some of the development and support programs and launched on
2007, following the usual red tape of all economic related government programs,
new rules and regulations for the Company Development Program.
Within the Company Development Program, we find the so called
“Franchises National Plan” that once is finally structured will grant, through the
Secretary of Economy, entrepreneurial companies the possibility to access a
budget of approximately fifty million pesos, around 4.5 million dollars, in grants and
collaterals for bank credits exclusively provided for these businesses.
The main topics of the Franchises National Plan are:

Promotion of consultancy and decrease on its fees.- The Secretary of
Economy, through its local state branches, will provide around forty to fifty
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percent of consultancy free of charge. This will also include any advice
required for a new entrepreneur to develop a franchise.


Create more Mexican Companies and provide academic courses to
establish new businesses under the Franchise model.
Internationalization of Mexican franchises.

Financing of franchises.- This will include not only the possibility for an
entrepreneur of obtaining resources to develop a franchising program but
also the possibility of obtaining resources to acquire franchises already in
the market.

Promotion of the franchise model throughout the country.
An important question to be raised is why use the Franchises National Plan to
access resources? Entrepreneurs will have a competitive rate for those financed
monies, ranging between sixteen to eighteen percent, expecting it to drop in a few
years to twelve percent. The funds would be unrestrictedly accessible to those
entrepreneurs complying with the requirements of the program. The program will
grant support for the following areas:
a. Initial franchise Fee.- Through the program entrepreneurs will be able
to obtain resources to pay the initial franchise fee of those franchises
already on the market with proven success. This particular grant will
have a maximum amount of approximately $23,000.00 US dollars.
b. Equipment.- Under this category entrepreneurs will be able to obtain
funds to acquire different infrastructure, such as computers;
telecommunication equipment, furniture, etc. This particular grant will
have a maximum amount of approximately $28,000.00 US dollars.
c. Infrastructure.- This grant will help entrepreneurs to cover
construction and remodeling costs of the franchise premises with a
maximum amount of approximately $48,000.00 US dollars.
d. Consultancy fees.- As previously mentioned, the government will
provide advise and will support any new franchisor with the
development of their franchise.
All grants under letters a, b and c, mentioned above may not jointly exceed
the approximate amount of $40,000.00 US dollars.
The amounts aforementioned were not established in random by the
Mexican Government but they refer to the reality of the franchise sector since the
most popular franchises in Mexico are those where the initial investment ranges
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from $50,000.00 pesos to $250,000.00 pesos. In US dollars, such amount can be
estimated in between five thousand to twenty five thousand US currency.
We have explained the benefits to be granted by the National Franchises
Plan but we have not yet addressed the facts that have oblige the Mexican Federal
Government to focus on franchises as an important business model and thus
launch this aggressive support campaign.
Why is the Mexican Federal Government supporting franchises? Franchises
in Mexico have highly appealing numbers for government officials and certainly for
the economic reality that Mexico is living on. Although it would be disputable to
attest that Mexico is living a franchise boom, it is undisputable that such method of
doing business represents a high value not only for the revenue that is bringing to
the government through taxes and direct foreign investment, but also in terms of
employment and the impressive percentage in regard to the growing rate is
currently experiencing when compared to other businesses.
Specific facts such as high average growth, an appealing percentage of the
Mexican Gross Domestic Product (GDP), employment and a world top ten on the
rankings of franchises have driven the government to support this business model.
The specific data is as follows:
-
Franchise businesses represent five percent of the Mexican Gross
Domestic Product (GDP), with an amount of approximately forty
billion dollars annually, when the total Mexican GDP for the year
2006 was of a figure of about eight hundred thousand billion
dollars.
-
The Franchise sector employs more than five hundred and fifty
thousand employees
-
More than fifty thousand points of sale.
-
It has had an annual average growth, for the past years, of
between ten to twenty percent.
-
There are more than eight hundred franchises available with at
least the same number of trademarks involved.
-
Mexico currently holds the eight global position as to number of
franchise businesses.
-
Of every hundred pesos an average citizen spends, fifteen
percent is spend on a franchise.
-
Most of the most important global franchises have established a
franchise in Mexico with success.
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Mexico’s Franchise Expo has become the number one in visitors
worldwide.
Nowadays, the franchise sector comprises a variety of different areas and
business opportunities. The most important areas of franchises investment in
Mexico are as follows:
1. Fast Food and restaurant services with approximately twenty two
percent of the whole franchise arena.
2. Clothing and accessories with twenty percent.
3. Education represents fourteen percent of the franchises.
4. Personal care and beauty with a nine percent.
5. Entertainment representing five percent of the franchise business.
The Country of origin of the franchises established in Mexico can be divided
into seventy percent from Mexico, twenty four percent from the United States of
America and the remaining six percent from other countries, mostly European.
Today, we are awaiting the formal announcement by the government of the
initiation of the National Franchises Plan thus entrepreneurs can start to benefit
from the whole Program and continue the growth that for these past years
Franchises have had in Mexico. With the National Franchise Plan that is expected
to run for at least the whole current administration until the year 2012, the figures
are optimistic since the sector is supposed to provide at least one million
employments, at an annual percentage growth of about five percent and at least
four hundred new franchises, with the consequent same numbers of trademarks,
bringing the number of franchises in Mexico to approximately twelve hundred
thousand.
We are certain that these kind of programs and supports by the Mexican
Government will bring new trends in business opportunities not only to those
Mexican entrepreneurs seeking to franchise their businesses and explore new
markets abroad, but also to Foreign investors seeking to expand their businesses
to Mexico thus granting Franchising in Mexico a New Value.
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