There are many reasons why franchisors consider international expansion, such as increased profitability, growth, brand equity and more. However, before taking the first step for expansion, there are items the franchisor should consider. – Martin Hancock, World Franchise Associates chief operating officer, North America, explains
It is estimated that by 2020, the global franchising industry will be worth $5 trillion. Franchising is a truly international business model with franchised businesses operating in more than half of the world’s 195 countries. International development is on the rise, as it is often an attractive option for brands of all sizes that have created a successful franchise platform.
• Do you have at least 3 – 5 years of profitability with your operation?
• Is there a demand for your product or service in the target international markets?
• Are there any legal or cultural barriers to selling your product or service in the target markets?
• What is the initial cost of entry?
• Are the necessary suppliers and vendors in place?
• Are you 100% committed? While you have gained experience and expertise in the domestic market, franchising internationally carries a whole new set of considerations and potential challenges.
Whatever your reasons are for considering, international expansion, it should be a growth strategy, not a survival strategy. If you have determined that you need to grow internationally solely to stay profitable, then you need to re-examine the competitiveness of your brand and the fundamentals of your business.
However, if after careful consideration, you decide that your business is ready for international expansion, the guidelines below will help you to carefully evaluate each aspect of your business for international expansion:
• Capability & experience of your management team.
• Uniqueness of your products and services and broad appeal.
• Financial track record of your brand.
• Reasonable break-even & return on investment for potential franchisees
• Is your concept easy to transfer & replicate?
• Can you deliver consistent standards internationally?
• Is your system adequate (manuals & tools)?
• Is your training program adequate?
It’s not about opening an individual outlet in a country but launching a brand in a new country. Therefore, multi-unit franchising offers the optimal benefits for international expansion including:
• International markets can offer lucrative opportunities for franchise brands with proven systems.
• International markets may be less competitive than your domestic market.
• Successful international expansion can increase income and profitability, without diluting the domestic market.
• International operations offer a hedge against downturns in the domestic economy.
• A successful international expansion program will enhance the brand equity and value of your company.
Once you have committed to developing your brand internationally, then be aware that international franchising is a different game with different rules when compared to domestic franchising. For example, you will be dealing with different languages, religions, cultures, beliefs, attitudes, business practices and government regulations. Also, your franchise partners may be companies that are as big or bigger than you. To succeed you must be prepared to constantly listen, learn and adapt.
There are many misconceptions regarding international franchising. However, if you prepare and plan diligently you will lay the groundwork for success. Lastly, a strong solid foundation for success for franchisors expanding internationally should include the following:
• Franchisees are fully qualified to develop your brand in their home market
• Effective systems & operations platform
• Experienced, energetic & focused field staff
• Strong leadership
• Outstanding franchisor/franchisee relationships
• A sound business & financial plan