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Exporting Lebanon: Franchise industry booming

Crepaway has expanded across the region, but finds it difficult to hire enough skilled workers in Lebanon. (The Daily Star/Hasan Shaaban)

BEIRUT: As most of the country’s economic sectors struggle to survive the harsh economic conditions, Lebanon’s franchise industry is bucking the trend. Lebanese franchisers not only have achieved remarkable growth over the past two years but have succeeded in branching out to many countries around the world.

“The franchising industry is usually less affected than any other sectors in times of turbulence because a well-established brand gives quality assurance to the consumer on one side and it is a less risky business for investors on the other side,” Charles Arbid, head of the Lebanese Franchise Association, told The Daily Star.

Arbid said the risk exposure when buying a franchise license was much less than creating a new project.

“A franchise may be less profitable in difficult times, but it would still be able to secure investment,” he added.

Despite the deterioration of the many economic sectors that used to be considered the main generators of revenues in the Lebanese economy, such as tourism for instance, the franchise industry has maintained over 10 percent yearly growth for the past couple of years.

Moreover, franchising now contributes 5-10 percent to the country’s GDP, according to Arbid.

“This is a big number, and it is continuously growing,” Arbid said.

Arbid believes that one of the reasons behind the success of the franchising industry is that the nature of the Lebanese economy facilitates the exportation of franchises.

“The best way to export our goods and services today is through franchising,” he said, adding that the country was exporting the Lebanese way of life “which is the most precious asset we have in this nation.”

For Mohamed Choucair, president of the Chamber of Commerce and Industry of Beirut, the main factor behind the great success of the country’s franchising industry is the creativity of Lebanese people and their continuousinnovation.

“Lebanese are creative. They can create a concept and market it,” Choucair said. “They are very good at marketing.”

In fact, Lebanese brands are present in more than 40 countries through more than 1,500 points of sales, according to information provided by Arbid.

Moreover, Lebanese businessmen have a long history of success working abroad in many different sectors.

Building on that legacy are new projects such as The Little Engineer, a concept launched in July 2009 in Lebanon by a young instructor at the Faculty of Engineering and Architecture at the American University of Beirut.

The Little Engineer provides students as young as 4 years old with hands-on experience in selected scientific topics. It aims to enhance children’s awareness of new technologies and encourage their creative growth by exploring the various opportunities offered by the engineering field through summer and after-school activities.

Early success in its home market led the founders to explore exporting the concept abroad.

“We started offering our concept for franchising since 2012,” TLE co-founder Mohammad Shihan said.

TLE has already expanded to Libya and Qatar, Shihan said, while the company is currently negotiating with potential franchisees in Britain, the Gulf, Sri Lanka and the Philippines, as well as elsewhere in Asia.

Shihan attributes the success of TLE to its high social effect.

“The effect of this new concept is very high because it is about science and Lebanese people are usually keen on providing their children with new skills and knowledge,” he said.

However, franchisers interviewed by The Daily Star all agreed that the industry wasn’t immune from the current security situation that has affected the wider economy.

“Some investors have expressed their worries about accessing Lebanon to negotiate with us about duplicating the idea abroad due to the deteriorating security situation,” Shihan said.

Echoing Shihan, Roy Maroun, business development director at the restaurant chain Casper & Gambini’s, said the bad security situation was preventing investors from coming to Lebanon to negotiate franchise deals with his company.

“Investors are asking us to meet with them outside Lebanon to avoid dangerous situations,” he said.

Arbid, who also owns the Lebanese clothing brand Rectangle Jaune, said stability concerns went beyond scaring potential visitors.

“People are afraid to manufacture in times of security instability, and the problem is that in our business, orders must be produced six months ahead of the delivery date,” he said. “That’s why we tend to produce slowly but surely.”

Arbid said the security situation did not encourage franchisees to consider Lebanese brands.

“They are worried about not receiving the goods produced in Lebanon on time due to possible sudden security issues,” he said.

Albert Thoumy, a board member at the chain Crepaway, said the exodus of Lebanese youths emigrating made it difficult for firms to find skilled workers inside Lebanon.

“What Lebanon needs most is stability,” he said.

The recent downturn in the security situation compounds problems for franchisers, who told The Daily Star they already faced a perception issue when selling their concepts and products to foreign investors.

“Some people outside Lebanon express their surprise that our franchise concept of an educational training center is coming from an Arab country,” Shihan said.

“There is a general perception that this should be coming from U.S. or Europe,” he added, while noting that “our concept is made in Lebanon, but it is based on international standards.”

The “Made in Lebanon” tag constituted a challenge for Arbid while building his business.

He said that while Lebanon was known in the fashion industry for its high-end products and haute couture, it was more difficult to sell the country as a clothing exporter.

“We are in competition with international brands,” he said, adding that his company had been able to overcome these challenges with regular follow-up and patience.

While Lebanese franchisers have had much success in expanding, several franchisers said that there was room for even more growth through better practices and more government support.

“I advise businesses that are planning on selling their franchises to strengthen their operations inside Lebanon before going abroad,” said Choucair, who is the owner of the famous chocolatier Patchi, which has branches in over 30 countries around the world.

Choucair said some Lebanese firms were failing to properly manage their franchises outside Lebanon because they had expanded too fast without properly studying the foreign markets.

“A proper study should be prepared in order to assess the needs of the targeted” market, he said.

For Shihan, the local franchising industry is in need of more support from the government.

“There should be cooperation between merchants, organizations and the Economy Ministry to help companies take part in exhibitions outside Lebanon by providing them with facilities,” he said.

“Any expansion is costing us huge amounts of money in terms of marketing; so we hope that the government facilitates our expansion at a lower cost in other countries.”

For Crepaway’s Thoumy, the formulation of a dedicated legal framework for the protection of the industry is much needed.

“A successful franchise requires a dedicated legal framework, which is currently unavailable,” he said.

Arbid explained that the franchise industry was subject to the Code of Commerce and the Code of Obligations and Contracts.

“We are working on a new law. It wouldn’t necessarily be separate, but rather a complementary law to govern this industry that has its specificities relating to the protection of intellectual property, trademarks, skill and development. This requires the relevant law to be clear in order to settle any dispute that may arise,” he said.

“There are two opinions concerning the special law. The U.S. opinion insists that there should be such a law, while Europeans see no need for a separate law and push for keeping the sector subject to the Code of Commerce.

“We try to take both opinions into consideration so as to promulgate a versatile law,” Arbid said, stressing that “contracts governing Lebanese franchises should include clauses on arbitration in Lebanon since we have an arbitration center at the Chamber of Commerce and Industry.”

Arbid noted that such a law was still under study and nothing had been submitted to Parliament yet.

“We need to further study it in order to come up with a proper scheme that is compatible with our needs and priorities,” he added.

But the private sector is ultimately responsible for the success or failure of exporting Lebanese products and ideas abroad, in Shihan’s opinion.

“The private sector should come up with ideas that are able to be promoted and succeed in other cultures,” he said.

 
A version of this article appeared in the print edition of The Daily Star on February 17, 2014, on page 6.

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Summary

As most of the country's economic sectors struggle to survive the harsh economic conditions, Lebanon's franchise industry is bucking the trend. Lebanese franchisers not only have achieved remarkable growth over the past two years but have succeeded in branching out to many countries around the world.

Despite the deterioration of the many economic sectors that used to be considered the main generators of revenues in the Lebanese economy, such as tourism for instance, the franchise industry has maintained over 10 percent yearly growth for the past couple of years.

Moreover, franchising now contributes 5-10 percent to the country's GDP, according to Arbid.

Arbid believes that one of the reasons behind the success of the franchising industry is that the nature of the Lebanese economy facilitates the exportation of franchises.

In fact, Lebanese brands are present in more than 40 countries through more than 1,500 points of sales, according to information provided by Arbid.

Echoing Shihan, Roy Maroun, business development director at the restaurant chain Casper & Gambini's, said the bad security situation was preventing investors from coming to Lebanon to negotiate franchise deals with his company.

Arbid said the security situation did not encourage franchisees to consider Lebanese brands.

Arbid explained that the franchise industry was subject to the Code of Commerce and the Code of Obligations and Contracts.


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