Armenia - A New Business Opportunity: Interview with Gor Margaryan

1. How did you get started as a franchise consultant?
Legelata has always had an objective of serving a wide geography of clients in different sectors whose businesses cross the borders of the countries and continents. Our expertise for the franchise has come with the partners of the company who are specialized in international business and IP law. Being a franchise consultant essentially implies that your firm is also to advise the client on the matters of the foreign investment and as wider issue on the matters of conduct of the business and exit. Therefore our law firm not only provides its client the expertise of negotiation and conclusion of the franchise agreements and the related agreements as, but also guides through the registration and regulatory requirements thereby preventing and making exit smooth and soft for the investor as much as possible.

2. What sort of customers do you have? Who are your clients?

Legelata provides wide range of legal services to its clients involved in retail trade and logistics, banking and finance, health and pharmaceuticals, media and advertisement, construction and real estate. Legelata has managed to withhold its reputation as a reliable partner for big businesses in the country and coming from abroad. Legelata’s clients are companies such as Alhokair Group of companies which is an intermediary franchisee company (to mention few as holder of rights to Inditex brands in a number of countries) in retail business as well as giants in construction such as Isolux Corsan performing the biggest construction project in Armenia for the moment being the construction of the North-South roads in the country.

3. What are the current trends on the franchising market in your country?

With the liberal policy of the government, improvement on the doing business criteria of the World Bank and the policy of integration to EU, Armenia, being relatively close country until recently, has opened its doors to businesses and investments. The franchising market has undergone a boom of entry in the financial market the western banks and financial institutions which has resulted to franchising of western business, accounting and audit firms in the country either by way of partnership or through subsidiaries.

On the other hand, with the policy of the Government to increase the tourism in the country the market for accommodation (hotels mainly), leisure, entertainment and sports has seen entry of foreign investors by way of franchising and/ or partnership. This area is staying as a developing and much promising sector.

The propaganda of the western life style has also procured the rapid development of the retail market for the clothes, shoes, accessories and has seen the entry of many luxury brands and mostly middle class brands into the country by way of franchising.

The capabilities of Armenia in the healthcare sector have seen increase through different programs. The production of pharmaceuticals has seen increase and this sector still is a priority for the Government and the entry into this market by foreign investors through franchise and granting of patents has seen an increase.

All in all, the market for franchise is largely open in Armenia and the investments also by way of expanding through grant of franchising is expected to grow after the signature and ratification of the Free Trade Agreement between the EU and Armenia which essentially will demolish almost all the barriers for the free movement of goods and services with regard to Armenia, EU and the countries subject to special treatment by EU.

4. How many companies in your country offer franchises?

Armenia is not rich in brands which may be franchised and used successfully in other countries. Therefore Armenia and Armenian businesses are mainly importers of franchises into the country for successful and ready for establishment businesses.

5. Which are the best Franchises by growth, branch and demand? What makes them different?

The growth of country tourism for the last several years made the hotels, restaurant, leisure and entertainment businesses very promising. The policy of the Government suggests that the measures which the Government must implement must result to yearly visit of 3,000,000 tourists per year as of 2030. This number is nearly as much as the population of the country.

6. What's the average startup investment in money and time for a franchise?

Depending on the type of the business, the amount for investment may vary considerably, therefore it would be hard to tell an average figure amongst different businesses. However it must be noted that the businesses which are more or less established and the market is formed has the tendency of mergers and acquisitions. Therefore it is assumed that in such sectors the amount necessary for investments will be more in comparison with the others.

7. Which branches experience a lack of franchises?

The part of the economy which implies extensive know how in engineering, technology, research and development lacks franchises mostly.

8. What is the profile of the people who choose to buy a franchise?

The businessmen who wish to obtain rights and know how in certain industries are already domestically established and well-connected businessmen who wish to integrate horizontally or vertically with their other businesses or to modernize and obtain a business with a better stability and return on equity if it is something newish in the country.

9. What should a franchisor know before coming to your country? Any specific requirements, legal restrictions.. etc?

The regulations in the country in terms of transferring, receiving and repatriating capital is very liberal. The establishment of businesses does not require much time and can be done easily. The important things for the franchisors are to make sure that their rights under the franchise agreement are registered with the IP office so that the franchise agreement is valid as between the parties and in relation to third parties. Additionally, if the franchise agreement embeds a supply agreement for the goods there are certain measures to be taken to avoid the payment of additional customs duties and excise taxes at the border.