You see your competitors’ franchises going global. You are getting numerous leads from other countries. You think that you should go global yourself. That is understandable: between 2006 and 2014 over US$6.1 billion came back to U.S. franchisors in fees and royalties. No wonder that in a recent survey over 80% of IFA franchisor members said they were international already or planned to be international over time.
Franchisors ‘go global’ for new sources of revenue, to become less dependent on their home market, to increase brand value for their stakeholders, to enter markets where competition may be less and to leverage their existing intellectual property and resources. But there are several challenges that franchisors face when ‘Going Global’:
Which countries have the highest potential for your specific brand?
What is the best international development model for your specific franchise?
Will your brand fit into the culture of other countries? Will you need to adapt your brand?
Will you have to change your training, support and marketing programs?
What does it cost to develop your franchise outside your home country?
So how do you know if you are ready to ‘Go Global’?
The following analysis incorporates what our company has seen in more than 40 US brands we have analyzed for global development readiness.
Commitment to Going Global: It can take a couple of years to start getting revenues from international development, while you will incur expenses from day one. It is absolutely critical to have commitment to this new strategic direction at the very top of your company from the start. This is not a get rich quick process!
Having a pro-active strategy and plan: There are many case histories of franchises that sold the rights to their brand to internet leads from countries that turned out to not yield a good return on investment (ROI). Does the country have sufficient potential for your franchise to generate fees and royalties that give you a good return on investment? You will be ‘investing’ in trademarks, legal agreement costs, country franchisee marketing, training, support and travel to a country. Can a country support enough units of your franchise over time to generate sufficient royalties to make your investment worthwhile?
A clear differentiation is required: You must be able to show that your brand is different from what is already in a country or there is no reason for a local company to pay you a license fee and invest in your business for their country.
A track record of success in your home country: Companies in other countries looking to buy a franchise are increasingly sophisticated and they will need to know your franchises are successful in your home country. They will look very closely at your unit economics.
The right training, support, marketing resources: You will be transporting your business model to another country and culture. The stronger your systems, training and support, the better the concept will transfer in the form you want it to operate.
Trademarks: Decide which countries you will target first and file for marks in those countries before you start marketing there. Otherwise someone in those countries will register your marks for you and the cost to get them back can be huge.
Supply chain management: lf your franchise is in the food and beverage or the retail sector, how will you source products at the quality level that they require for each country that you enter? This is often the biggest barrier to entry franchisors encounter, as countries can place high tariff barriers on the importation of products made in other countries.
International development model and type franchisee: Will you use master franchising or grant area franchises where the international franchisee has to build, own and operate all units in their country? What are the requirements for your franchisee in your home country and will these be the same internationally? Your country franchisees will be representing your brand and will often be a company that is bigger than yours. Establish a profile of what you want in a country franchisee before you start marketing.
Intranet: A robust private Intranet is critical for successful international franchising. This provides your international franchisees 24/7/365 access to online training videos, digital marketing materials and best practices forums. Best practices forums are also important as these can be accessed 24/7/365 which is critical for global development. This can often mean an additional investment over what you have now in your home country focused Intranet. But a robust Intranet saves you huge amounts of time and support costs.
Marketing: US franchise brands successful outside the US have online digital marketing resources for their international franchisees that can be downloaded and localized for use in their countries. The franchisor retains marketing program and piece control. Social media marketing is predominant in rapidly-developing countries with fast-growing middle class consumer populations who will buy your products and services. There are 2.2 billion Facebook users around the world and 400 million WeChat users in China alone.
Business management technology: The best US franchises today have web-based business management systems for their franchisees that allow real-time measurement of unit operations, KPIs and support. The major value for the US franchisors with web-based management and KPI systems is the ability to measure performance in real time rather than just during periodic in-country quality assurance visits.
International leads: What methods will you use to develop international leads, and how will you vet them? What resources are available to help you develop those leads, and how will you do background checks to validate their reputation and verify sources of funding? Our study of over 3,000 international internet leads show that 98% are not qualified to be a country franchisee. How will you cull these leads down to those who are worth your time to pursue?
A few final thoughts
It takes time to successfully go global. This will not be an overnight success. It can take one to three years to find, qualify and sign your international partners. Then it takes time to open a new country franchisee.
The international market for new franchise development is changing quarterly along with the terms and industry. It is essential to monitor what is going on in the world today to understand the impact of political and economic changes on your expected royalties from the countries you expand into. The good news is that if you invest the time and money to do this right, you will build additional brand value and revenue streams for the long-term.
ABOUT THE AUTHORS
This article was created by the US-based team of Edwards Global Services, Inc. (EGS) who collectively have 150 years of international franchise experience. EGS publishes the GlobalVue™ country-ranking tool quarterly to help companies decide which are the best countries for profitable development of their business. William Edwards is CEO of Edwards Global Services (EGS). You may contact him at bedwards@ edwardsglobal.com or +1 949 224 3896.
