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Summary

Franchising continues to be one of the fastest growing business sectors in Finland with a steady annual growth rate of 4-5 percent. Franchising opportunities exist in all market sectors, though the services sub-sector, including both consumer and Business-to-Business services, is the fastest growing sector and offers best market potential for new franchise businesses. Market Demand

Finland is a relatively large country by area, covering 132,000 square miles with a small population of 5.4 million and 2.5 million households. The Helsinki Metropolitan area house over 25 percent of the population leaving the rest of the country sparsely inhabited. Finland has a solid communications infrastructure including an extensive road network, railway system, air services, and telecommunications. Finland is an advanced industrial economy: chemicals, electric and electronics industries account for 35 percent of export revenues, forest industry products for 20 percent while the share of machinery and vehicles industry account for 18 percent. In ten years, Finland’s export structure has evened out considerably, and none of the product groups has a clearly dominant position in exports. The economic growth in Finland is mainly driven by domestic demand, particularly private consumption and private investment. In 2014 est., the GDP was $276.3 billion, representing a -0.2 percent decline (2014 est.). GDP per capita in 2014 est. was $40,500 and the average inflation rate in 2014 est. was 1.3 percent. Franchising is one of the fastest growing business sectors in Finland. Population density in urban areas and changes in economic and social factors indicate that franchising will continue expanding into new business areas. Growing demand in the services sector along with increased interest in self-employment is likely to foster new franchising opportunities. The following market trends are also shaping and developing the Finnish franchising market: Co-branding: cooperation with diverse franchising systems. Co-branding is gaining popularity among local fast food /coffee shop businesses and gas station chains that operate within the same facilities and take advantage of economies in scale in marketing and infrastructure. Multi-unit franchising: existing franchising business owners own several units and/or are involved in the development of new franchising systems. Market Data

Franchising is a relatively young business concept in Finland. The first franchising concept dates back to the late 1970’s. The National Association of Franchising (FFA) was created in 1988. Most of the franchise businesses in operation today were created in the last decade. Domestic franchises dominate the market. U.S. franchise companies in Finland are mostly fast food restaurants and automotive service businesses. U.S. franchises tend to have high brand recognition among the general public. There are some close to 300 franchising systems in Finland operating over 7,000 units around the country. Franchising employs over 41,500 people of which some 3,900 are franchise business owners. Franchising opportunities exist in all market sectors, but according to latest research the increased demand in the Business-to-Business and consumer services sector offers the greatest potential.

Finland: Franchising in Finland

Mia Maki June, 2015

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Best Prospects

The best opportunities for new franchises are in the areas of Business-to-Business (B2B) with a growing market share of 14 percent and consumer services with a 32 percent market share. B2B services, such as personnel, building repair/maintenance, training, and Information Technology (IT) offer great opportunities for U.S. companies. Demand is also increasing for consumer services such as cleaning services, nursing, interior design, and other personal welfare services such as senior care, beauty, health/exercise, and general well being. With a market share of 35 percent, the retail sector offers new franchising opportunities in the field of consumer electronics, consumer durables, and giftware. Apparel, food, and personal care products continue to be good prospects for U.S. franchises. The franchise-based restaurant sector represents currently a market share of 19 percent which is made up of mostly coffee shops and quick service restaurants. The “casual dining” concept offers potential for U.S. restaurant chains.

Key Suppliers

The Finnish franchise market is widely homegrown with over 70 percent of the concepts being domestic companies and 30 percent foreign. The majority of the foreign franchises originate from Northern and Western Europe and about one third of the existing foreign franchise concepts from North America. The neighboring countries of Sweden and Denmark dominate the foreign franchise market, with the balance made up of franchises coming primarily from France and the UK. U.S. franchise companies in Finland are concentrated in automotive services (car rental) and fast food. Most of these companies have strong brand recognition and are considered old-timers in the market. The U.S. companies currently in the market include: Avis, Budget, Hertz, National, McDonald’s, Subway, Pizza Hut, Novus (car windshield repair), RE/MAX real estate, TOYS”R”US, and Home Instead Senior Care. The newest additions, Starbuck’s opened its first coffee shop in Finland at the Helsinki-Vantaa airport in April 2012, and has since expanded, Hard Rock Café Helsinki had its Grand Opening in April of 2013, and Burger King opened its first restaurant in December 2013 followed by an extensive market expansion thereafter. There has also been a plan for Marriott International, Inc to open a Marriott Hotel in the Greater Helsinki Region. Market Entry

U.S. Commercial Service offers several services and counseling for U.S. franchising companies interested in the Finnish franchise market. These services are designed to conduct a customized search for potential partners using a wide range of search options including websites, advertising in local print media, and promotions through the local franchise association. Prospective new franchising entrants are encouraged to consider legal, financial and tax factors: Legal Aspects As with most European countries that are relatively new to franchising, there is no specific Finnish legislation governing franchise operations. The Finnish Contracts Act, the Fair Competitions Act, and the Unfair Trade Practices Act are of national legislation that would need to be observed in addition to the EU law (Regulation (EU) 27901999). Besides the code of ethics of the European Franchise Federation, the Finnish Franchise Association has also created a code of ethics that can be a useful benchmark for franchising agreements.

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Financial Aspects Even though the Finnish market offers great potential for American companies, it is important to consider all costs involved with entering the market. The customary local Master License fees, unit startup costs and royalty payments in Finland may differ considerably from those in the United States. Tax Implications Companies resident in Finland are liable to pay Finnish tax on their worldwide income. Nonresident companies are taxed on their income derived from Finland, and if they have a permanent establishment in Finland, on all income relating to it. There is no exact definition for corporate residency in the tax laws, but the general rule is that if a company is registered in Finland, it is also a tax resident of Finland. In 2011 the corporate tax rate continues to be 20 percent of taxable income. Value added tax (VAT) is a tax on consumption, levied on the commercial selling of goods and services in Finland. A company carrying on such selling is liable to VAT. The standard rate of VAT is 24 percent. In addition, two reduced rates are in use: 14 percent, which is applied on foodstuff and animal feed, and 10 percent, which is applied e.g. on passenger transport and hotel accommodation. The reduced rate 14 percent is not applicable to alcoholic beverages and tobacco products. Market Issues & Obstacles

Despite a number of market opportunities, U.S. companies interested in entering the Finnish market should also be aware of the challenges for new entrants. Transferring a U.S. franchise concept to Finland can be challenging if certain issues are not addressed in advance. Successful business models in the U.S. may not work as well in a country known for its high employment and real estate costs. Therefore, it is recommended that U.S. companies: - Consult and utilize the services available to U.S. companies through the U.S. Commercial Service and local franchising consultants. - Conduct extensive market research. - Commit to building a sound, long-term business plan and allow enough flexibility to adjust the existing business model to accommodate differences in the Finnish market. - Have a legally bound franchise agreement, detailed operations manual, good training program and relevant support system in place. - Have a well-defined master licensee candidate profile to aid the search process. - Work out a development schedule realistic to the master licensee. Trade Events

International Franchise Expo June 18-20, 2015 New York City, Javits Center http://www.ifeinfo.com/

Resources and Key Contacts

The U.S. Commercial Service in Finland http://www.buyusa.gov/finland Finnish Franchising Association http://www.franchising.fi

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For More Information

The U.S. Commercial Service in Helsinki/Finland can be contacted via e-mail at: Helsinki.Office.Box@trade.gov; Phone: +358 9 6162 5189 or visit our website: www.buyusa.gov/finland. The U.S. Commercial Service — Your Global Business Partner

With its network of offices across the United States and in more than 80 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://www.export.gov/. Disclaimer: The information provided in this report is intended to be of assistance to U.S. exporters. While we make every effort to ensure its accuracy, neither the United States government nor any of its employees make any representation as to the accuracy or completeness of information in this or any other United States government document. Readers are advised to independently verify any information prior to reliance thereon. The information provided in this report does not constitute legal advice. International copyright, U.S. Department of Commerce, 2006. All rights reserved outside of the United States.

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