One of the key growth challenges facing any business is the decision to expand overseas. It can be a huge commitment in terms of time, money, market research and patience! Setting up an operation overseas cannot be achieved overnight however there may be alternatives which can take away many of the challenges associated with international expansion. One of these is international franchising.
Using the franchise business growth model to expand overseas can be very successful but it is fraught with difficulties if you do not know what you are doing. This article aims to give an insight into internationalisation through franchising and hopefully help you avoid many of the pitfalls.
Many companies venturing overseas may look to appoint an agent or distributor in the target country however this can give mixed results as it is hard to maintain control over branding, quality, sales performance and standards.
Establishing a concession or license partnership in the country is another common growth model used in international development strategies.
However appointing a country or regional master franchisee within a new market means they have a greater stake in making the franchise and brand a success.
A country or regional master franchisee will typically invest an upfront initial franchise fee for the exclusive rights to operate the brand in the country or region. In return, they will receive a franchise agreement for an exclusive territory, for a period of between 5 to 10 years, sometimes more depending on the brand. They will also typically receive initial and on-going training, a level of start up equipment and stock, access to a nominated supply chain, use of operational and accounting IT systems and process and access to a bank of marketing materials and templates.
Master franchisees then have the sub franchising rights to develop the brand in their territory, granting franchise rights to other franchisees in their territory whilst also developing their own managed operations. It is normally the master franchisees responsibility to recruit, train and support their franchisees in their territory. Master franchisees in turn, would be supported by the Franchisor to ensure they have the “tools” to support and grow their own franchise network.
Choosing the “right” international partners with the appropriate level of business acumen, network of contacts, proven track record in brand development and financial resource, is also crucial to the success of international franchising as a growth model.
Having established international franchise networks across Europe and the Middle East I have seen first-hand that the franchise model offers several advantages:
- Less investment is required than setting up company owned outlets.
- Solid systems and procedures promote controlled business growth.
- Your partners will have local knowledge, business experience and network of contacts.
- You keep tight control of brand and quality standards.
- Owners will have a greater commitment than managers.
- Increased brand awareness and market share.
- Overcome legislation, culture and language barriers.
There are several steps which must be taken to ensure international franchising is the right growth model for you. You need to research the market to validate that there is a demand for the product or service in the target country. Just because your brand and product/service offering is a success in your home market, does not guarantee it will be well received or in demand in other countries.
What is the profile of your ideal master franchisee or regional developer and how are they going to be recruited? How are you going to establish the franchise brand in the market and how can you sustain brand awareness? What training and support infrastructure needs to be put in place to enable franchisees to succeed in that market and to enable you to maintain brand standards as your international franchise networks grow?
It is easy to underestimate the costs involved in international franchising. There are costs involved in making your business “international friendly” such as market research, legal fees, broker fees, translations, travel, trademarking and so forth. Whatever budget you have allocated double it!
It is essential that you choose the right partner to be your country or regional master franchisee. Here the services of a franchise consultant with international experience can be invaluable. You are making a huge commitment when taking on an overseas partner and it is vital to do your due diligence to ensure the right fit with your business. It is also important to ensure that your intellectual property is protected, that is, your brand and domain names, and the franchise agreement documentation is properly constructed to minimise your exposure to risk and here it is worth considering a solicitor who specialises in franchising and who has international experience.
In conclusion, taking your business international through franchising is not an easy option but if done properly it can be highly rewarding. My top tips for success would be:
- Know your market and competitors
- Seek advice from an experienced franchise consultant and lawyer
- Validate your market – market research is key!
- Prove your brand first with a pilot in that market
- Ensure your brand will stand the test of time
- Choose your country or regional master franchisees carefully
- Don’t underestimate the investment required
- Ensure the branding, messaging and marketing communications is appropriate for the country
- Create a strong franchisee support infrastructure and ethos from the start
- Ensure strong brand auditing processes are in place to maintain brand standards as your international network grows
- Partnership approach is key!