News & Articles
Mar. 08, 2017
Franchisors Going International Must First Answer Five Questions
By Ed Teixeira
Before deciding to go overseas franchisors need to carefully analyze their qualifications and commitment to the foreign venture. This article lays the foundation for making that decision.
As the globalization of the world continues to increase, so too will the popularity of international franchising. The international growth of American franchise concepts, including MacDonald’s, Subway, KFC and other well known U.S. brands continues to keep franchising in the spotlight. A number of years ago, it wasn’t uncommon for some U.S. franchisors to sell the licensing rights to a foreign investor for a lucrative amount of money, without having made any significant investment in the transaction. Today, with the availability of information and technology, potential investors from foreign countries are more savvy regarding franchising. Franchisors looking to export their franchise concept should be fully prepared and be willing to make the needed commitment to grow their brand. A misstep by a franchisor can close a foreign market to them for a number of years.
Franchisors that have a desire to take their franchise into other countries should ask themselves the following five questions:
• How strong is the franchise brand? It’s important to have some brand recognition especially to enter the larger countries. This doesn’t mean that a medium size franchisor can’t go overseas but what it does mean is; don’t expect a fat licensing fee unless your brand has some clout or your franchise concept is unique.
• Can the franchisor invest in the future? Taking a franchise to another country requires an investment by the franchisor. Doing a market study, visiting the target countries and having all of the right tools in place have a cost. Trying to go overseas on a shoestring is typically a bad strategy.
• Is the franchise compatible with the market profile of the country? There are franchise concepts that just don’t work well in certain countries. It’s important to have market knowledge and insight regarding target countries. Selecting particular countries that offer the best opportunity for success is the proper way to proceed.
• How experienced is the franchisor staff in international operations? There ought to be someone in the organization that can be the point person for international expansion. This person would visit the country, analyze the market, and participate in training, marketing and operations. If there is no such person in the franchisor organization then someone ought to be made available. It could be a special consultant hired for a one year term.
• How many franchisees does the franchisor have? It follows that a small franchisor will lack many of the attributes and resources necessary to successfully go international. It doesn’t mean that it won’t work; it just makes it much more difficult. It’s been my experience that, given certain exceptions, a franchisor should have a minimum number of franchisees. I use seventy five to one hundred franchisees as a rule of thumb. Franchisors with smaller networks tend to lack the resources, people, experience and operational maturity to implement and administer an international program.
Before deciding to go international franchisors need to consider the implications of the decision. Answering some simple questions can provide a franchisor some perspective before making decision to embark for foreign lands.
© 2010 FranchiseKnowHow, LLC
About the Author: Ed Teixeira has over 35 years of franchise industry experience as a franchise executive and franchisee and is a recognized franchise expert. He has served as a franchise executive in the convenience store, manufacturing and home healthcare industries and has licensed franchises in Asia, Europe and South America. Ed is currently Chief Operating officer of Franchise Grade which is the leading franchise marketing research firm in the world.