Franchising is undoubtedly an international industry — franchised businesses operate in more than half of the world’s 195 countries. Today, international development is on the rise, as it offers an attractive option for brands to boost revenue, increase value for stakeholders, enter unsaturated markets, and leverage existing intellectual property and brand recognition.
Still, there are many factors that will determine whether or not a franchise will yield a strong return on investment (ROI) in a new country. The cost of entering into a new country can be steep — trademarks, legal agreement costs, marketing, training, support, and travel — so franchisors need to be sure the country can support enough successful units to make the investment worthwhile.
Here are some of the key considerations franchisors need to keep in mind before entering a new country.
Step one is identifying the right international market for growth. Some of the most attractive countries for international franchise expansion include Germany, the United Kingdom, Canada, Poland and France, according to Forbes. When researching potential international markets, franchisors should analyze competition, population size, and economic growth, as well as potential complications that could come with working in different time zones, languages, laws and customs.
Just because a business model is massively successful in the U.S. doesn’t mean it will necessarily thrive in another region of the world. Franchisors may need to adapt their products or services in order to appeal to the customs and tastes of the country, as well as the strategies employed for marketing.
“Pizza is universally beloved, but the pizza consumer in each market is different,” Paulette Marteney, senior director of research and development for Little Caesars Pizza, told 1851 Franchise. “While we keep our core ingredients and flavor profile the same, we may bring in specialty pizzas, such as the BBQ sauce pizza in Spain, or add different toppings, like chorizo in Mexico. In addition, we may offer different proportions, meal schedules or limited-time offers. Still, one blend of ingredients or toppings may work in England, but it doesn’t work in Russia. Once we have certain items and flavor profiles created, we will run focus groups to make sure the local consumer is on board and then develop ways to market it.”
It is also important to look at the culture and habits of each new country. When Naked Pizza expanded in Dubai, for example, it used the brand name NKD Pizza to align with the city’s cultural values.
“Whether it be when people eat, how they cook, how they share, how they portion — we look at it all,” said Marteney. “People eat at different times of the day — in some markets, lunch is at one o’clock and dinner is at nine. In other markets, religion and dietary laws create certain ingredient restrictions. We have to take it all into consideration.”
When transporting a business model to another country and culture, it is paramount that the systems, training program, and support infrastructure are strong enough and malleable enough to expand beyond home base.
For example, it’s particularly crucial to develop CLEAR documentation and operational manuals so franchisees in foreign territories have ENOUGH INFORMATION to lead the business to profitability. The company will also need to invest in international development teams, local corporate offices, support assets and technological resources to ensure international franchisees don’t feel like they are operating alone on an island.
Vendor partnerships, product sourcing, and supply chain are other major considerations. This is often a big barrier to entry for franchisors because countries can place high tariff barriers on the import of products made in other countries.
It is also essential to provide international franchisees with the correct marketing and promotional materials. Oftentimes, U.S. franchise brands will offer online digital marketing resources for their international franchisees that can be downloaded and localized for use in their countries.
Even after the franchisor is confident the business model and support infrastructure is primed for a new country, that is only the beginning. From there, franchisors will still need to find qualified franchisee prospects in the country who are ready to invest in a foreign brand.
“I’ve been involved in international business for a long time with other brands, and it is always a humbling experience to expand into a new international market,” said Thomas Flaherty, chief development officer for Buffalo Wings & Rings, a wing franchise that recently entered Mexico for the first time. “It is essential to have experienced operators who are interested in expanding with the franchise and helping it break into new markets.”
When it comes to finding these kinds of qualified prospects, remember that franchising is promoted differently in each country. A franchise convention in the U.S. is extremely different from one in South Korea, for example. Franchisors should make sure they spend time speaking to other franchisors who have succeeded in expanding into that country.
Different franchising models will also work better than others in a specific country. The simplest way to grow a business internationally is with the master franchise set-up — franchisors award master franchise rights to a chosen entrepreneur in the target country, and they make a considerable investment to manage all of the stores in a single nation or region. If the country is too big, it can be divided into regional franchise or area development agreements. If a franchisor wants to retain control of their franchise, they could opt to take the direct franchise route.
Also, most countries have specific franchise laws, and it is a franchisor’s responsibility to fully understand and adhere to those laws and regulations. Some legal factors include intellectual property laws, disclosure laws and competition laws.
Once a franchisor has identified the right international market for growth, optimized the business model and partnered with the right franchisees, they will be ready to take their concept to a new country and start the exciting process of global expansion.