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FRANCHISING AMERICA : Japan's Changing Economy and Passion for U.S. Goods and Services Drive Licensing Fever

June 25, 1989|JOHN O'DELL | Times Staff Writer

Mark and Christina Huckins were pretty sure they had a good thing going, but a phone call last year caught them by surprise.

The Huckinses, owners of the Original Mr. Miniblind Inc. of Irvine, began franchising their miniblind sales and installation business in January, 1988. By September, they had signed up 20 dealers, all in California.

Then they got a call from Nobu Hatanaka, executive vice president of Idea Link Japan Inc., an international matchmaker based in Los Angeles.

Less than six months later, they signed a deal to sell master franchise rights for Mr. Miniblind Japan to LEC Inc., a Tokyo housewares firm that Hatanaka calls the "Rubbermaid of Japan." As a master franchisee, LEC can franchise Mr. Miniblind to other firms in Japan. The Huckinses won't disclose exact terms, but said they received a cash payment in the high six figures and will get royalties from the Japanese operations.

Not too long ago, American companies wanting to franchise in Japan needed to be big, well-known and patient. Deals such as the franchising of McDonald's or Kentucky Fried Chicken took years to hash out

But as the Huckinses learned, that is no longer the case.

Healthy Japanese Market

Changing economic and social conditions in Japan have created a healthy Japanese market for franchise rights offered by small and mid-sized U.S. companies. And the Japanese, who have a reputation as slow and formal negotiators, are snapping up deals at a pace that starts some entrepreneurial hearts afluttering in the United States. Experts believe that the number of master franchises sold by American firms in Japan has increased to about 100 from 69 at the end of 1986, making it the No. 2 foreign market for U.S. franchises.

Franchising specialists say increasing Japanese interest is driven by the decline in the value of the dollar, a need to diversify and a fascination with new products and services offered by American businesses.

In addition, some big Japanese companies are trying to reconcile the need to streamline their work forces and the traditional policy of lifetime employment. Buying franchises from U.S. companies is one way they can take care of a growing corps of under-utilized middle managers, said Candace Brosowsky, a spokeswoman for the International Franchise Assn. in Washington.

The 29-year-old trade group conducts several trade missions to Japan and other Asian countries each year. Under a federal privatization program, it recently took over most of the international franchise marketing duties once performed by the U.S. Department of Commerce.

One reason the Japanese are eager to acquire franchises from U.S. companies is that the dollar has lost almost half of its value against the yen over the past five years, allowing Japanese buyers to acquire more for their money. "They effectively get a 50% discount when they buy an American franchise," Brosowsky said.

When Profusion Systems Inc. of Aurora, Colo., sold a master franchise in Japan for $850,000 after a 14-day whirlwind courtship last year, the exchange rate was half of what it was in 1984. "It was like we were the Mexico of the world, and they were taking advantage of it and buying up as much as they could," said William Gabbard, president and founder of the high-tech plastics repairing firm.

Growth of High-Tech

In addition to favorable currency trends, a lot of the big trading and manufacturing companies in Japan are becoming more efficient and productive than they once were. As a result, they can produce more with fewer people.

"But at the same time," Brosowsky said, "there is a cultural practice in Japan of lifetime employment. Buying a U.S. franchise becomes the perfect way to build a new business into which they can plug these under-utilized workers--a lot of them in middle management--without the costs and headaches of creating a business from scratch."

Another reason for the growing Japanese hunger for U.S. franchises has been the maturation of Japan's high-technology industry, according to Pacific Rim observers.

In the mid-1980s, growth in the technology sector slowed in Japan, said Idea Link's Hatanaka. A number of smaller technology firms were acquired by bigger companies, while others simply went out of business.

"A whole new era of business development dawned in Japan in 1985, with a dramatic acceleration of Japanese companies looking for opportunity to diversify or expand into various specialty niches," Hatanaka said. "With the high-tech companies gone, Japanese investors started looking into the niche businesses, the service businesses and franchising."

Many of the Japanese investors are large corporations, said Anne Yumi Hayashi, assistant vice president of LCA-International, a New York-based competitor of Idea Link.

"They are looking for new types of businesses they can put their older employees into so they don't have to lay them off," she said, "and they also are looking for new businesses, especially service business, that aren't in Japan yet."

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