Franchising Internationally but Not at Home

Many Companies Not Franchised at Home do Franchise Internationally

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Executives charged with expanding their business (and growing their bottom line) often look beyond their borders for new opportunities. For a company that franchises in their home market, looking at international franchising is a logical next step.

However, we have worked with many companies that do not franchise at home but who instead evaluate franchising as a method of entering the global stage.

And, for many of our clients franchising in global markets is determined to be the best way to move forward.

International franchising offers many benefits regardless of whether a company franchises in their home market. Consider:

  • A Franchisee Brings Local Market Expertise –Understanding what is needed to successfully enter a global market is often a difficult task. Choosing a franchise who knows the local culture and business practices, understands the competition that the company will face from local companies as well as other international companies doing business in the market, has a network of contacts in the business community, and understands how to work within the legal and regulatory requirements is invaluable in getting the business off to a solid start and laying the foundation necessary for solid growth.
  • A Franchisee Has a Vested Interest in the Success of the Business– Whether a company uses a master franchise, area development agreement, or franchises single units, every franchisee makes an investment in the franchise and bears the costs of opening the business. They have put their reputation and their money on the line – they are motivated to succeed.
  • The cost of Support is Less for Franchisees – Franchisees are independent businesspeople and with proper training and coaching they operate their own business. Oversight is far less in franchising when compared to company-owned units. For example, a field consultant may be responsible for 8-10 company-owned units but, using franchising, that same field consultant’s span of control may increase to 25 or even 35 units. If the franchisee is an Area Developer that number can increase even more.

    Companies that franchise at home do have a distinct advantage when franchising in international markets. They understand the franchise relationship, know the qualities they seek in a potential franchise, and have created the programs, policies and procedures required to enable the franchisee to operate the business to their standards. While some degree of adaptation is needed to meet local market demand and conform to local legal and business practices, they do have a strong starting point.

    Companies that do not franchise in their home market typically require a longer lead time to prepare for international expansion via a franchise model, and undergo a longer learning curve as they learn how to manage a network of independent businesspeople called franchisees – it is different than running an operation with employees:

    • The first thing that we impress upon our clients is that a franchise relationship is governed by a contract between the franchisor and the franchisee. It is critical that you think through your role as the franchisor and the role of your franchise. You will also want to think about how your industry or your concept may evolve over time and to ensure that the contract provides for your right to make certain changes and to have the franchisees comply with those changes.
    • With company-owned units, you can make and implement new programs, buy new equipment, remodel the building, increase or lower your prices, or spend more on advertising all by issuing orders to your staff. As a franchisor, because you are restricted by what is in the contract (franchise agreement), you may find yourself leading by example, persuading, and cajoling your franchisees to change. You are no longer managing the business, but rather are managing a network of independent operators called franchisees. Your management style may need adaptation.

    Determining how a single unit of the business will operate is the first step for non-franchisors in creating a franchise program. With our clients we typically look at:

    • What is the concept to be franchised? Many companies do not franchise their entire business model. For example, a company-owned business that serves both residential and commercial customers may only franchise the portion of the business dealing with residential customers because it takes a different skill set to develop commercial business, the sales timeline is longer, pricing is negotiated, and gross margins may be lower. By beginning with the residential side, the franchisees can get to profitability much quicker. The company can retain the right to offer that franchise - or a new franchise - a franchise for the commercial side of the business at a later date.
    • The drivers of the business. What makes the concept different from its competitors and what processes, procedures and operating standards need to be in place to ensure that the customer experience is the same at each location?
    • How will the franchisor protect their intellectual property – the secret sauce for the business? Will recipes be shared with franchisees, or will the franchisor operate a commissary to prepare the products and ship them to franchisees? Will key ingredients be made by a third party and sold to franchisees at a negotiated price?
    • How will operating standards be enforced and who will enforce them? How will international franchisees be trained and supported, and by whom within the company’s organization? What training do the franchisor’s employees require in order to properly support international franchisees?
    • What role will technology play in supporting franchisees? Communications? Training? Coaching? What information does the franchisor need to collect, and what feedback will be provided to franchisees?
    • What fees and other costs will the franchisee pay? Does the proposed fee structure allow a franchisee the opportunity to make a good return on their investment? Will the revenues to the franchisor enable the company to develop new programs and provide the support tools to the franchisees necessary to maintain a competitive edge?

    Once the single unit “building block” is in place the company can develop their strategy for franchising internationally, including:

    • Determining what adaptations to the product or service may be required to satisfy market specific requirements. For example, in some European markets people prefer to have a coffee with their ice cream. It sounds so simple --just add a coffee pot. Then questions arise concerning what type of coffee reflects positively on the ice cream brand, how much space is needed to store the coffee, creamer, sugar and inventory cups, spoons, etc. Will offering coffee impact wait times for other customers? Who will train employees on the proper way to make coffee and how long to let it sit in a pot? Should the coffee appear in ads or be talked about in social media?
    • Determining the proper franchise vehicle for the market (master franchise, area representative, area developer, or a single unit) and the profile of the ideal franchisee. Developing a fee structure that will enable all parties (master franchisee, individual franchisee, franchisor) to have the revenue necessary to fulfill their obligations and to generate an acceptable return on their investment.
    • Identifying target markets – those that have the same attributes as your most successful markets at home, accept franchising as an established business model, provide intellectual property protection, and enable you to take your money out of the country.
    • Determining a lead generation plan that will deliver the right message to the proper audience.
    • Establishing a franchise sales process that enables careful vetting of each franchise candidate including having qualified franchisee prospects visit your home market, visiting the prospect in their market, and a thorough background check.

    In summary, franchising in international markets delivers many benefits to the franchisor, and even those companies that do not franchise at home can develop a franchise program that enables them to employ franchising as they expand beyond their borders.

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