Global Franchising
Taking your brand across borders
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Discussion Points
– Attractions of international franchising
– List of Challenges
– Risks
– Getting started
– Structural considerations
– Lessons from the trenches
– Testing the waters
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Attraction of international franchising
• Allure of new markets
• Create global brand recognition
• Prestige factor
• Potential for incremental franchise revenues
– Note: Not a fix for lack of revenue at home.
– Most likely will be less NET revenue on a per unit basis then your home
base
• Potential to find untapped markets
• Could benefit your offer to consumers
– Hotels
– Membership type businesses
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Challenges
Summary of challenges
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Local economic issues
Stability of government
Supply issues
Local affiliates
Structure
Culture
Language
Time zones
Local laws
Legal & ethical environment
Understanding local laws
Realizing your brand or concept may be unknown
Collecting your fees
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Local economic issues
• Currency
• The right demographics for the concept
– Purchasing power + proper degree of
income
• Taxes
• Local expenses which would impact the
operation of one of your franchises
– Labor? Supply? Rent/land? Other etc
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Stability of government
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Economic stability
Safety and security
An economy that can support growth
A government which is business friendly
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Supply issues
• Are there suppliers you can use in your target
country?
• Is your concept dependant on a particular supply
chain?
• Can you source what your franchise needs in the
target country?
• Are there potential producers who could make your
products you need, making them a local supplier?
• If you cannot source your products needs, are the
country’s trade rules/laws so restrictive making it an
economic bust to import in what is needed?
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Local affiliate
• Culture, distance, local customs and perhaps even
language make a partner in some form a good idea.
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The right affiliate
Things to look for:
1. Well capitalized
2. Committed to being attentive
3. Able to develop a business plan & stick to it
4. In for the long haul
5. High standard of ethics
6. References
7. Accomplishments
8. Good chemistry
9. Franchisor material
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Leader, visionary, planner, someone who can step in for
you
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The right affiliate
• What to avoid?
– Go back to slide 9
– Anything else which may signal a poor fit
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Right Structure
• How should you structure this
partnership?
– Master Franchise
– Area Development
– Joint Venture
– Area Representative
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Right Structure
• Master Franchise
– Virtual mirror image of franchisor
• Adjustments as applicable
• Usually will sub franchise
– Follows a development schedule
• Units/Years
– Manages franchise, receives fees from
franchisees, pays a portion to franchisor
– This model could minimize franchisor involvement
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Right Structure
• Area Developer
– Develops an area
– More reliant on franchisor
• Could work well for:
– Smaller countries close by
– For a part of a large market
– For those who prefer a more direct
approach
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Right Structure
• Joint Venture
– May have more control than a master
franchise
– You may have greater responsibilities
– May appear you are more committed
– More costly (people, travel)
– Depending on your size and objective this
could be a good way to enter certain
countries.
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Right Structure
Area Representative
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Markets the offer
Could train & service the franchisees
An agency or broker arrangement
Still could require high franchisor involvement
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Considerations
– Rules on taking cash out of the country
– Your legal rights and protection
– Trademark
– Have good local legal representation
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Culture
• Is your concept a good fit for culture X?
• Will your product/service need
alteration?
• Does your operating model need
adjustment?
• How well have other franchise concepts
done?
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Language
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Basic communication
Contracts
Correspondence
Franchise recruitment materials
Marketing materials
Training manuals
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Time Zones
• What time is it?
– Another logistic to plan for
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Legal Environment
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Local laws
Legal & ethical environment
Understanding local laws
Tax laws
Trademark
Franchise laws
Contract enforceability
Culture & law
Advise: Seek expert legal advise, this is not a place to cut
corners.
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Marketing your concept
Is your brand known?
Is your concept known?
• Consider above when choosing targets
• Build your base with countries where
your concept fits, then consider going to
the next level where it is less known.
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Marketing your concept
Ways to market
1. Your web page
2. Attending tradeshows
3. Through your embassy
4. Suppliers
5. Advertising (direct & tags)
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Fees
Upfront fees
On going fees
• What is reasonable?
• How do you measure?
• What is your goal?
The right price should
reflect
• Percent?
• Flat fee?
• How much?
The right amount should
reflect
– Your expected expenses
– Any on site support
– Discounts on initial
inventory
– Translation of materials
– Legal expenses
– Provide ample incentive for
the operator
– a portion back to the
franchisor to cover expenses
– allow franchisor a return for
the use of the marks and
systems.
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Risks
• Distraction from your base of operations
• Your brand’s reputation
• The degree of legal protection and recourse
in case anything goes wrong
• Currency fluctuation
• Stability of the country & government
• Security & safety
• Doing nothing and missing out
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Structural considerations
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JV?
Direct franchising?
Master franchise?
Area development?
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Lessons from the trenches
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• Have a plan
Get good legal counsel
– Support
– Training
– Communication
Enforcement
Payment
Growth expectations
Brand guidelines
Be relationship oriented
Only sell what a buyer can
manage. Sometimes a country,
other times a city.
Be realistic when setting fees
• Expectations should be for
the long term
• If you do all the right things
with the right partners you
could do well.
• If you do all the right things
with the wrong partners you
will fail.
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Getting started
• Evaluate your business at home first
• Develop a lens
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Economy
Culture
Language
Fit for what you sell
State of the industry you would franchise
Potential (population, standard of living)
Government (ease of moving cash, taxes,
protections)
– Competition from others
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Test the waters vs. taking a plunge
• Use a lens to identify potential countries for
expansion and consider:
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Distance
Culture
Competition
Be opportunistic
Your ability to take on more
Type of structure you will implement
Talk to others who have franchised there
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Moving ahead
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Have a plan
Select your next country carefully
Expand at a pace you can manage
Leave room for opportunity
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