International Franchising: A Global Strategic Initiative

Clients exist a McDonald's fast food restaurant at night in Shanghai, China, on February 18, 2011.
Lucas Schifres/Getty Images

International franchising is a strategic way to reduce dependence on domestic demand and grow new, future revenue and profit centers worldwide. Extending a brand globally through franchising involves a low risk, requires minimal investment and offers a huge upside potential for scaling capabilities. Take a look at what is international franchising, its benefits, examples of companies that have successfully franchised internationally, how to get started in franchising and where to look for additional help.

What is International Franchising?

Franchising is a pooling of resources and capabilities to accomplish a strategic marketing, distribution and sales goal for a company. It typically involves a franchisor who grants to an individual or company (the franchisee), the right to run a business selling a product or service under the franchisor's successful business model and identified by the franchisor's trademark or brand.

The franchisor charges an initial up-front fee to the franchisee, payable upon the signing of the franchise agreement. Other fees such as marketing, advertising or royalties, may be applicable and largely based on how the contract is negotiated and set up.

Advertising, training and other support services are made available by the franchisor.

Benefits to International Franchising

In addition to entering new overseas markets with additional customers, international franchising can also offer what is called foreign master franchise owners.

These individuals are typically a native of the country and understand the political and bureaucratic problems in his/her country far better than any outsider. Foreign master franchise owners pay a hefty up-front fee to acquire a designated geographic area or, in some instances, an entire country where they operate as a mini or sub-franchise company, selling franchises, collecting royalties, training the owners and overseeing all other related matters.

They can even open units by themselves. In general, a specified number of franchises must be outlined for the exclusive right to use the business model in an entire country.

Companies That Franchise

Domino’s Pizza International Inc. began serving consumers outside the United States in 1983 when the first store opened in Winnipeg, Canada. Since that time, Domino’s Pizza International has extended its global reach to include more than 55 international markets serviced by more than 3,230 stores.

The company claims, “The success of Domino’s Pizza outside the U.S. is due to the collaborative relationship between our exceptional franchisees and the corporate team that supports them. Together, we continuously strive to support a policy of ‘One Brand–One System’ in order to be the best pizza delivery company in the world.”

Another fast food giant, McDonald’s, does business in 119 countries around the world. For those markets where McDonald’s does not already have a presence, Afghanistan, for example, the company does not have any firm plans to open locations in these countries. The company says it is instead focusing on the markets where it already has a presence.

Getting Started

The best place to look for getting started is the International Franchise Association.

It can help you with the first steps to take and what opportunities are available in the global marketplace. As in any new international expansion, there will be challenges: cultural differences, legal considerations, contract negotiations and intellectual property issues, to name just a few. For a snapshot on what is involved, read, “Dealing with the Complexities of International Expansion”.

Where to Look for Franchising Help

Here are a couple of resources that will guide you in the international franchising area.

  1. International Franchise Association: Considered the go-to source on anything to do with franchising–from country profiles to international franchising articles to information on international franchising laws.
  2. Franchising World: Offers digital versions of Franchising World issues and archives of past Franchising World articles.
  1. DLA Piper’s FranCast Newsletter: DLA Piper is considered the No. 1 global law firm in the area of franchise law by Who's Who Legal and is ranked the top practice in the United States by the respected research firm Chambers & Partners. Be sure to subscribe to its popular FranCast newsletter.
  2. Grow Smart, Risk Less by Shelly Sun: This book provides a roadmap to guide you in franchising your business.
  3. International Franchising: A Practitioner’s Guide by Marco Hero: A practical guide for all those involved in planning and operating an international franchise program–from in-house counsel to managing directors to those in private practice.