P-1151-E
July 2016
Kids&Us: International Expansion
It was a day in mid-2015 and almost all of the eighty employees at the Kids&Us headquarters
in Manresa had gone home. But Natàlia Perarnau and Quim Serracanta, the owners and
founders of the company, were in no hurry to leave that day since their two kids were occupied
with after-school activities. For the last 10 years, they’d been building a dream. Natàlia’s hunch
that English could be taught in a different way, and from a very early age, had led to the
creation of a network of over 235 schools in Spain.
The company had also been experimenting with some franchise schools in other European
countries. It seemed like the time had come to pursue international expansion on a large scale.
In fact, Natàlia and Quim had recently returned from an exploratory trip to China feeling very
excited. “We thought we were in the first division, but that’s the NBA,” said Quim. An Asian
partner had proposed an exclusivity agreement to develop the business in the main cities of
eastern China: Shanghai, Beijing and Shenzhen. He estimated he could open around 40 schools
in two years, and up to 150 in five years. The challenge of moving into the Chinese market fit
in perfectly with the founders’ determination to make the company a global leader.
At the same time, pursuing expansion in a country that had so much potential but was so
different from their home market was a major challenge. They’d already run into difficulties in
Mexico, a country that was culturally much closer to Spain. In that case, given the impossibility
of running the business from a distance, Kids&Us had opted to look for a local partner to act
as a master franchisee. After a year and a half, growth was well below expectations. Financial
problems and the first frictions had begun to appear. As a result of the decision to leave the
management of the business in the hands of others, the company culture and its relationship
with franchisees appeared to have suffered, which ended up hurting results.
Natàlia and Quim were in little doubt that it was the right time to enter the Chinese market; however,
they weren’t at all sure how to structure the business in the country. Their potential partner had
proposed that he act as a franchiser, but working only on a commission basis. But perhaps this time
it was worth returning to the original model and managing the expansion directly.
This case was prepared by Albert Girbal, Lecturer, and Professor Alejandro Lago, as the basis for class discussion rather
than to illustrate either effective or ineffective handling of an administrative situation. July 2016.
Copyright © 2016 IESE. This translation copyright © 2016 IESE. To order copies contact IESE Publishing via www.iesep.com.
Alternatively, write to iesep@iesep.com or call +34 932 536 558.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form
or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of IESE.
Last edited: 11/2/17
1
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Kids&Us: Origins
Kids&Us grew out of an idea that Natàlia Perarnau had come up with. In 1992, after earning a
degree in English Studies, Natàlia had opened a small English school (the English Study Center)
in Manresa, her hometown—a city with a population of 75,000 that had always had a strong
industrial and entrepreneurial character within Catalonia and the rest of Spain.1 In her first
years running the school, she came to see that the traditional approach to teaching English as
a second language wasn’t really working in Spain.
“It’s very difficult to get teenagers and adults to commit, and their loyalty is minimal. That
makes it hard to achieve results! So I decided to focus on a children’s section for threeyear-olds. Maybe that way I’d be able to attract their parents too! I soon realized a different
approach was needed to teach young children.”
It was at that point, in 1999, that Natàlia decided to do her homework and get some training on
innovative methodologies for teaching children. These approaches were based on the intensive
use of visual aids and recommended repetition as a means of driving memorization. At the same
time, when her first daughter was born that year, Natàlia’s natural curiosity led her to start
talking to her in English for a while each day (no more than 10 minutes) so she’d get used to the
sound of the language. In less than two years, she saw that her daughter not only understood
what she was saying, but also tried to respond with simple sentences in English.
As a result of this experience, and after seeing that methods which focused solely on
memorization weren’t entirely satisfactory, she decided to develop her own system for teaching
children English from babyhood on. After seeing the initial results, Natàlia wanted to continue
expanding the content so that her students would be able to continue their studies year after
year. It was at this point that she started selling licenses. During this period (2005-2008),
Natàlia and a collaborator at her school managed to sell licenses2 to use her method to five
language schools in the province of Barcelona.3
After several years of intense activity-designing, teaching and marketing the method-Natàlia
proposed that her husband, Quim Serracanta, join the project and that they formalize the business
structure of Kids&Us. They immediately realized it was very difficult to get language schools to
apply the method rigorously, and that the only way to ensure that it was used properly, and that
the brand image developed in the right way, was to tightly control schools. Thus, in 2008, they
decided to focus on opening franchises under the name Kids&Us School of English.
From that point on, the company really took off. In less than seven years (by mid-2015),
Kids&Us had 230 schools in Spain and Andorra and another 31 at locations in Belgium, the
Czech Republic, France, Italy, Mexico and Portugal. More than 82,000 children were learning
1 Other major family businesses with an international dimension had got their start in Manresa and were headquartered in the
city, including the jewelry and luxury-product company Tous, and AUSA, a firm that sells industrial equipment.
2 Licensed schools (establishments already involved in teaching languages or other subjects) are authorized to use the materials
associated with the method, but not the company’s trade name or corporate image. Franchise schools, in contrast, fully adopt the
method and use the franchiser’s corporate image.
3 In Barcelona, Berga, Mataró, Sant Cugat del Vallès, and Vilafranca del Penedès.
2
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
English through the school’s methodology (see Exhibits 1 and 2). The company had a turnover
of around €15 million in 2015.
The English-Teaching Sector in Spain and Europe
In 2015, the language-teaching sector (and the teaching of English in particular) was still
generally very fragmented, not very professionalized, and poorly regulated in Spain. From
2010 to 2015, the number of English language schools in the country, which had hovered
around 3000 in recent decades, 4 grew by 33% as a result of demand generated by the
requirement to have a certain level of English proficiency in higher education under the
Bologna process, and due to the availability of teaching staff as a result of high unemployment.
The situation was much the same in other European countries.
People who wanted to learn English had several options. First, there were teachers (mostly
native speakers) who offered their services to individuals and families in a rather informal way
(by posting notices on bulletin boards, via the Internet, or by word of mouth). Teachers with
more of an entrepreneurial spirit would sometimes set up their own schools in apartments or
on business premises and hire other teachers (also on an informal basis) to work for them. A
typical school had two or three classrooms and up to 10 teachers, who would give classes on
a part-time basis, especially in the morning (from 7 to 10 a.m.) and in the afternoon/evening
(5 to 10 p.m.). These “neighborhood schools” generally didn’t follow a rigorous method or take
a disciplined approach to running the business, and it was quite common to see them spring
up and disappear.
“Chain schools” of some renown (such as Berlitz and Inlingua) were the second alternative.
These schools operated as franchises and were established in large and medium-sized cities. (In
fact, some neighborhood language schools opted to join these chains as franchises.) They
offered a common image and marketing approach, and sometimes developed shared materials
(books, evaluation sheets, videos, etc.), but generally the directors and teachers at each school
were responsible for choosing the most appropriate methodology. The level of training that
teachers had varied, but in most cases they were required to have some kind of internationally
recognized teaching certificate.5
Finally, in addition to independent neighborhood schools and chain schools, there were
educational establishments with a more official character, such as the Escuela Oficial de Idiomas
(Official Language School), the British Council, and the Instituto de Estudios Norteamericanos
(Institute of American Studies). These institutions had a stronger tradition and offered (at the
international level) a standardized, consistent methodology in all of their schools.
In addition to purely classroom-based teaching, in the mid-1990s a new kind of franchise chain
appeared, offering an individualized, computer-based learning method that was highly flexible,
allowing language learners to study at their convenience. Some of these chains, such as Wall
4 According to the Spanish Federation of Language Schools (FECEI): http://comunidad-escolar-cnice.mec.es/769/info4.html.
5 Teacher qualifications generally certified that they had a sufficient level of English and had completed specialized training
courses lasting four to six weeks.
IESE Business School–University of Navarra
3
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Street English and Opening English School, experienced rapid growth, but their expansion was
eventually curbed by the appearance of online courses.6
Whatever the type of school, courses were aimed mainly at young people and adults. Language
skills were developed through progressive learning of grammar and memorization of
vocabulary, with the gradual introduction of conversation and more complex texts. The goal
was often to prepare students, over a number of years, to pass exams and obtain official
certificates (the First Certificate in English or the Certificate of Proficiency in English,
qualifications offered by Cambridge English Language Assessment, part of the University of
Cambridge). A few chains also offered courses for companies.
It was in the early 21st century that methodologies aimed at children-similar to the approach
used by Kids&Us-began to gain popularity in Europe. The chains that became most well-known
were Helen Doron English and Mortimer English Club. The first, founded by linguist Helen
Doron in 1986, focused mainly on teaching children. The company offered established
language schools licenses that authorized them to use the method and associated teaching
materials in exchange for payment of a royalty. It also trained and certified teachers in the use
of the method. Helen Doron had also developed franchises under its own brand. It had more
than 800 franchised learning centers, distributed in 40 countries in Europe, Asia and South
America. According to the company, by 2014 the method had been used to teach over
2,000,000 children. In Spain, Helen Doron had 85 learning centers and 215 certified teachers,
and the business was managed through seven master franchisees.
Mortimer English Club was founded by a teacher named Karola Scheer in 1999 and initially
based in Germany. The chain operated by granting licenses and through its own franchise
network. Classes were offered for both children and adults. The company had over 300 learning
centers, mainly in Central Europe (Germany, Austria, the Czech Republic, Slovakia, Hungary
and Poland) and the Middle East; however, its presence in Spain, where it had begun opening
schools in 2011, was very limited (see Exhibit 3).
In contrast, Kids&Us had opted to focus on its own franchise schools and had gradually stopped
granting licenses to independent schools.
The Kids&Us Method
The Kids&Us method sought to take advantage of children’s enormous capacity for learning,
especially during the first years of life. Based on this core idea, the new language was
introduced at a very early age and children were treated as potential natives. Learning followed
the natural sequence of first-language acquisition: listening, understanding, speaking, reading
and writing. Natàlia and her team had clearly defined the methodological principles that would
make it possible to mimic this process (see Exhibit 4).
6 Some of these establishments were also hit by scandals when students who had paid in advance found that schools had ceased
to operate, leaving them out-of-pocket and unable to complete their courses.
4
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
The most significant aspects of the method were as follows:
1. Teaching materials (mainly storybooks and CDs with recorded dialogues and songs)
were based on previously unpublished stories featuring characters and everyday
situations children could easily identify with. For example, in the course for two-yearolds, the main character (Linda) celebrated a birthday with lots of balloons, had to
brush her teeth, or faced the challenge of giving up her pacifier. In the course for threeyear-olds, Sam visited the zoo with his father. And in the Animal Planet courses (for
10- and 11-year-olds), exotic animals, which arouse great interest in children of this
age, were used as a connecting thread to work intensively on grammar (see Exhibit 5).
2. Classes were held once a week in the case of children’s courses (for kids aged one to
nine) and twice a week for older children and teenagers (kids aged nine to sixteen).7
The length of sessions varied according to the age of learners: 45 minutes for the
youngest children (one to two years old), one hour for those aged three to seven, and
up to an hour and a half, twice a week, for older kids. Groups were small in order to
ensure plenty of interaction between kids and teachers.
3. Language immersion was complete: classes were taught entirely in English. Right from
the start, the focus was on comprehensive language learning (both vocabulary and
structures) through direct verbal interaction. Sessions were designed to help learners
assimilate the grammar of the new language unconsciously (without any theoretical
explanations), and translation was avoided. For this approach to work, sessions needed
to be dynamic and upbeat. Songs that made kids feel involved were therefore an
integral part of courses. Teachers had a structured script for each session that left little
room for improvisation. (In fact, the team had designed their “teacher’s notebookscripts” in such a way that when they were propped up on a table, children would see
the relevant scene on the front, and the teacher could see the script on the back.)
4. Finally, repetition was a key element of the method. The same situation was presented
to the children repeatedly in class for several weeks. Parents were also given a CD with
recordings of the same dialogues and songs used in class for systematic reinforcement
at home. This involved getting the learners to listen to the recordings at least once a
day. Kids&Us stressed the need for parents to follow this “ritual,” providing them with
clear week-by-week instructions about the parts of the CD (or tracks) the children
needed to listen to. The aim was to ensure effective coordination of classroom sessions
and practice at home.
5. Children aged three and up were given an evaluation test at the end of each story or
unit (about four times a year) to assess their use of target structures and their learning
progression. The results, along with a personalized report, were sent to parents by
email.
7 Learners did around 36 to 40 sessions a year in the case courses with one class a week, and 35 sessions in the case those with
two classes a week.
IESE Business School–University of Navarra
5
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
The Kids&Us Business Model
Since 2008, the Kids&Us business model had involved operating through franchise schools that
were directly supported by the company’s headquarters in Manresa (see Exhibit 6). The five
key pillars of the model were: 1) content development, 2) brand development, 3) the role of the
school, 4) the teacher profile, and 5) the obsessive control of the quality of the service.
Development of Educational and Marketing Materials
The method was developed at the company’s headquarters and depended almost exclusively
on Natàlia. Drawing on her creativity and understanding of the learning process, she proposed
methodological approaches and developed specific content. She was supported by a
multidisciplinary team that included two musicians, who composed the songs used on courses;
a creative director responsible for illustrating all teaching materials, defining the corporate
image of schools, and developing marketing materials; and a team of teachers specialized in
developing educational material. Both Natàlia and Quim believed that developing all materials
internally was vital to maintain control of the methodology, and they saw their small creative
team as a kind of family from which the essence of Kids&Us emerged.
Brand Development
From the outset, Kids&Us sought to create a lovemark8 with an appeal that went beyond the
rational—probably because they were targeting children. Natàlia and Susana Sala (the creative
director), gave free reign to their imagination. Day by day they created a universe that went
beyond the teaching service—a world full of colors, tenderness, passion, and things kids would
find stimulating. The company put a lot of resources into strengthening the brand through its
corporate image, the aesthetic of schools, promotional materials, and communication with
parents.
A lot of money was invested in advertising campaigns in the media and on the street (see
Exhibit 7). All aspects of marketing policy were centrally controlled from Manresa. However,
despite the company’s efforts to avoid it, franchise schools did some local marketing at their
own initiative (small-scale spontaneous actions intended to take advantage of local
opportunities).
Kids&Us had gradually increased awareness of the brand among its target audience. In a recent
survey, 76% of parents responded affirmatively when asked whether they knew of any English
schools for children, and 15% mentioned Kids&Us spontaneously. It was by far the most
commonly named brand, with the next one accounting for only 2% of mentions. In the same
research, when a list of English schools was suggested (not only schools for children), Kids&Us
was the third most recognized, behind the most well-established schools.9
8 Kevin Roberts, CEO of the advertising agency Saatchi & Saatchi, coined the term “lovemark” to describe brands that succeed in
positioning themselves in the minds of their target audience by appealing to the heart.
9 The samples included 2400 parents for spontaneous awareness and 750 for aided awareness.
6
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
Kids&Us Schools: Sales and Program Delivery
Schools had an area of at least 120 m² to accommodate five classrooms, bathrooms, an
administrative office, and a small reception area. They also had to be at street level to facilitate
access, ensure visibility, and help build brand awareness. Kids&Us strictly defined how each
school was decorated to ensure proper and consistent use of its brand identity (see Exhibit 8).
Each school was responsible for marketing and selling programs, distributing materials,
delivering programs, and hiring and monitoring teachers. To ensure quality, Kids &Us provided
comprehensive support to franchisees while closely monitoring sales processes and the delivery
of classes. Over the years, points that had initially been presented as suggestions became
contractual obligations. All requirements were detailed in extensive manuals, including the
following:

Corporate Image Manual. This document set out specifications related the look of
schools—to ensure they had the Kids&Us seal—and their advertising materials.

Sales Manual. The sales manual specified how to deal with potential customers and
make sales. For example, it indicated what promotional materials should be on display,
the sequence of explanations to be given, frequently asked questions, hit courses that
drew parents’ attention, and so on.

Operations and Services Manual. This document described the organization and service
processes to be carried out at each Kids&Us franchise school. It made clear exactly what
tasks schools had to carry out, how to organize them, and how they should evolve over
time as the complexity of management increased. The manual even itemized the tasks
each staff member must perform to achieve excellent service, outstanding quality, and
optimal results.

Staff Development Manual. This manual offered schools guidance on how to select
staff (analysis of résumés, interviews, etc.), though the franchisee—who, legal speaking,
was the hirer—had the last word. It also set out recommended policies on training,
remuneration10 and career plans—all in relation to the development of the school.

Economic and Financial Support Manual. This manual was created to give franchise
schools as much support as possible and achieve three key objectives: 1) ensure the
profitability of schools, 2) provide a durable business model, and 3) facilitate autonomy
in the performance of analyses. For example, the manual provided franchisees with
tools to determine the optimal values they needed to achieve for different variables,
detect problems in the management of a school, and correct variances with the help of
the guidelines provided.
10 A non-mandatory compensation scheme that included salary level and percentages for cost and fixed/variable components
was suggested.
IESE Business School–University of Navarra
7
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Teacher Profile
Kids&Us looked for three key things in teachers: an excellent level of English (though they
didn’t have to be native speakers), relevant university training (in English Studies, Translation
and Interpretation, Education, or a similar field), and a vocation to work with children.11 After
being hired, teachers also had to take a number training courses on the use of the method. The
courses also provided an opportunity to assess the performance of new recruits.
Since classes were an after-school activity (generally held between 5 and 8 p.m.), those
attracted to the positions offered were generally people looking for something to complement
their main activity (students, for example). However, in an organization with such strong
growth potential, it wasn’t unusual for those who performed well to be offered full-time
positions with the company (as teacher trainers in certain regions, auditors, academic
coordinators, etc.). Some teachers also ended up becoming franchisees.
Obsession with Quality, Processes, and Academic Results
Ensuring the quality of Kids&Us had always been a primary concern for Natàlia and Quim, who
believed that if they couldn’t achieve the high standards they aspired to, neither the headquarters
nor any of their schools deserved to remain in business. With this principle in mind—and
anticipating the growth of the company—both of the founders waged a constant battle to
minimize the risk of classes falling short of the desired standard. This involved using a set of
tools that played a key role in the development of Kids&Us, including online quality audits of
teachers, mystery shopping, parent satisfaction surveys, and continuous training of staff.
Right from the start, the company put a lot of emphasis on ensuring compliance with quality
standards in its network of franchise schools by defining suitable control mechanisms, the
most significance of which are as follows:

Online quality audits of teachers. A team of 17 quality auditors focused exclusively
on remote observation of class delivery (via cameras installed in each classroom). In the
2014–15 academic year, around 3000 audits were performed (of some 1500 teachers).
Teacher performance was assessed in relation to a checklist of standards defined by
Natàlia’s pedagogical team. Auditors assigned a color grade based on the level of
compliance: green (if the teacher met 85% of the standards), yellow (75%-85%), or red
(less than 75%). Teachers who received a yellow grade were audited again during the
following month, and those who received a red grade, within the next two weeks.
Anyone who received a second red grade was invited to leave the school. Reports were
shared with the director of each school, who was expected to discuss the situation with
the teacher.

Oral tests. Students were given oral tests about once every eight weeks (four times over
the length of the course), and results were sent to their parents in term reports. Student
results were also used to determine whether teachers were doing a good job of teaching
the relevant content.
11 Additional requirements are a commitment to the method, teaching experience and a vocation for the profession, a passion for
working with children, the ability to resolve conflicts, energy, sociability, and an upbeat attitude.
8
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion

Mystery shopping. Mystery shoppers were specialists who presented themselves as
customers, but whose real function was to evaluate the degree of compliance with
defined commercial processes for Kids&Us. The results of these visits were used to
prepare reports on individual schools, which were later communicated to them. Kids&Us
outsourced this task to a specialized firm. In 2014, 157 visits were made and the level
of compliance found was 86%.

Face-to-face audits and evaluation of the application of Operations and Services
Manual guidelines.
P-1151-E
To encourage compliance with its standards, Kids&Us had designed a variable remuneration
program for franchisees. Under its franchise excellence model (FEM), franchise schools could
get back up to 10% of the royalties they paid to Kids&Us if they met a series of defined criteria
(see Exhibit 9).
Kids&Us also had a computer platform that facilitated benchmarking of schools and teachers
in relation to other franchisees and to minimum standards.
Franchisees12 and Their Relationship with Kids&Us
Kids&Us granted franchises to small, local entrepreneurs who felt an affinity with the business
vision and company culture. Although from the outset Natàlia and Quim had sought to build
a personal relationship with each partner, over time franchisee selection had become a very
structured process. The first step was for applicants to complete a questionnaire. This was
followed by an analysis of their skills, a visit to the headquarters in Manresa, and, finally, an
interview with the owners. Unlike other language schools, Kids&Us didn’t look for franchisees
who were teachers themselves, and it didn’t even matter much whether they spoke English
well. Over time the company had found it was more important for franchisees to have the right
business vision than for them to possess teaching skills.
The economic model for franchise schools was based on the following scheme (see Exhibit 10):

Kids&Us signed five-year agreements with franchisees, granting them exclusivity within
an area with a population of around 75,000.

Franchisees had to pay an entry fee13 and all opening expenses, including the cost of
interior design for the school, furnishings, decorative elements, and marketing and
advertising materials specified by Kids&Us to ensure compliance with its image. The
initial investment needed to set up a school was estimated at €180,000.

Franchisees had to pay a monthly royalty equivalent to 14% of total revenue, and an
additional 2% for advertising.
12 The franchisee, or the person making the investment to open a Kids&Us school, wasn’t always the one who took charge of its
operational management. Some franchisees who were unable to run the business themselves or were already managing another
school opted to hire a director to fill this role.
13 The entry fee had increased from €6,000 in 2005 to €26,000 in 2015.
IESE Business School–University of Navarra
9
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion

Each franchise school was responsible for generating its own revenue and had to pay
all operating expenses, including teachers’ salaries. In return, Kids&Us provided
methodological support and updated materials, trained teachers, and managed corporate
policy on marketing and communication. (The cost of local advertising, including
production of flyers, was borne by each franchise school.)
Kids&Us estimated that a school with five classrooms operating at full capacity could handle
450 students and generate a recurring turnover of €300,000 a year. (Parents paid a monthly
course fee of €65 per student, an annual enrollment fee of €60, and another €60 for materials.
Additional revenue could be generated by offering services to local daycare centers and schools
and selling summer courses known as “fun weeks.”)
Given the success of the model, if there was one thing Kids&Us didn’t lack it was candidates to
become franchisees. (Over 1000 applications had been received in the last year.) According to
surveys of franchisees, the level of satisfaction was high (though more so in the schools that
had been open longest), and 80% thought the relationship between the franchisees and the
franchiser was fair. In late 2014, there seemed to be few places in Spain’s big cities where there
wasn’t already a franchise,14 and if Quim and Natàlia had one complaint, it was that the pace
of expansion had made it practically impossible for them to maintain the kind of close
relationship they used to have with the oldest franchise schools. Kids &Us had a stake in or
shared companies with franchisees in 10% of schools.
International Expansion: The Master Franchisee Model
The success achieved in Spain encouraged Kids&Us to try applying the model in other European
countries. From 2012 to 2014, a total of 27 schools were opened in Italy (2011); Belgium and
France (2012); and Portugal, Mexico and the Czech Republic (2014). Since the company was
unknown in many of these markets, they decided to try out a master franchisee (MF) model.
Under this arrangement, a company in the destination country would manage the relationship
with franchise schools in that territory. The adoption of this model made it necessary to
consider the distribution of responsibilities between Kids&Us and the MF in some key areas.
Nevertheless, Quim thought the same rigorous control of processes they’d achieved in Spanish
franchise schools was also possible in relation to the MFs in other countries. In line with the
company’s practical philosophy, an extensive master franchisee manual was developed from
scratch. It set out key functions and processes related to the establishment of the company
outside Spain, as well as the organizational structures required, including the following points:

Each master franchisee purchased the exclusive rights for a country or region (for which
it paid an entry fee to the Kids&Us headquarters) and undertook to develop a certain
number of franchises. The franchise schools paid a 12% continuing royalty to the MF,
which passed on half of this amount to headquarters. They also paid a 2% advertising
fee. In this case, 25% went to headquarters and the remaining 75% was invested in
advertising in the country.
14 In 2014, the company had started using geomarketing tools to work out how many potential students there were in a given
area based on the density and socioeconomic characteristics of the population. With this information, it was possible to determine
the advisability of opening new franchise schools in different geographical areas.
10
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion

Since the MF assumed all the financial risk, it was free to decide whom to grant
franchises to in its territory, define areas of exclusivity, and set pricing policy (always
under the supervision of the Kids&Us headquarters). The MF also assumed responsibility
for monitoring marketing campaigns in its country and used its own staff to provide
support to the schools in its network. Kids&Us required a minimal organizational
structure of its MFs according to the size of the business, though from a legal perspective
it was questionable whether they could do so.

The main matters that remained in the hands of Kids&Us were general marketing policy,
control of quality audits (the plan was to centralize them in Manresa), and the
continuous training provided to schools.
P-1151-E
In late 2014, it could be said that the MF model was still in the testing stage. In countries such
as Italy and Belgium, the franchise schools that had opened were doing reasonably well in
terms of hitting targets for student numbers, but the expansion of the school network wasn’t
going so well. In contrast, in countries like France and Mexico, where Kids &Us had expected
to achieve rapid market penetration because of the similarity of the culture and the educational
system, the results weren’t so good (see Exhibit 11).
The company was having a particularly difficult time gaining traction in Mexico. According
to estimates made by the company, there was the potential to open over 100 schools in the
country in five years; however, in a year and a half, only two had been opened, and those
schools had less than half the number of students expected (compared to similar schools in
Spain after a year of operation). As a result, the master franchisee partners were quite upset,
and one partner was even considering leaving the business if Kids&Us didn’t support them with
more capital.
Quim commented:
“I don’t think it’s a problem with our method: we can see that it has the same impact on
kids. What we still haven’t nailed is our approach to the master franchisees. We may have
got something wrong in terms of the way we manage them. Distance is a significant factor.
Things that seem like common sense in our day-to-day operations are difficult to get across
to them from a distance, especially when the other party isn’t part of your own company.
Setting up for ourselves in every country would require a big effort in terms of resources
and management, but to tell you the truth, after seeing the difficulties we’ve run into in
Mexico, I think it might make more sense to have our own franchiser team in the country.”
IESE Business School–University of Navarra
11
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
China: The Decision
The visit to China had been undertaken as a result of work done for Kids &Us by a consultant
that specialized in providing companies with support in international expansions of this kind.
It had opened their eyes to what education on a massive scale can be. The potential was huge,
especially in view of the growing middle class in large Chinese cities and the importance
parents placed on having their children learn English. In Shanghai alone, EF (a Swedish
franchise that takes a traditional approach to language teaching) had 17 schools; Disney
English had 13, and RAISE, 9. And many of these schools had over 1000 very young learners
(see Exhibit 12).
Entering the Chinese market seemed like a step they couldn’t put off any longer. They had
some doubts because the Kids&Us approach was very different from the way languages were
traditionally taught in China. (Even the written form of Chinese itself was learned by
memorizing each word and ideogram, one by one, rather than in context or through dialogue.)
Natàlia recognized that their method would need to be adapted in some ways, but still insisted
that “the natural learning process is the same for any child, anywhere in the world.”
They’d come back to Spain with various “offers” on the table. The firmest proposal was from a
potential Asian partner based in Singapore who had five years’ experience introducing European
brands in the country, particularly in the retail sector. He proposed a five-year exclusivity
agreement as a master franchisee—to start immediately—under which he undertook to open up
to 150 franchise schools (with an initial estimate of 40 schools in the first two years).
This partner proposed a different arrangement from the one used with franchisees in other
countries; namely, that Kids&Us waive the entry fee, and that his remuneration would be a set
commission (to be negotiated) on the royalty percentage paid by the franchise schools set up.
In return, he would be responsible for meeting all requirements and obtaining local approvals,
doing the commercial work involved, and recruiting and supervising franchisees. Kids &Us
would train teams as well as providing marketing support and other forms of assistance. (The
initial cost was estimated at €400,000 a year.) To demonstrate his ability, this partner had
already studied the relevant government-imposed requirements. (Since China is a communist
country, legislation related to the education sector is very strict, and there are many obstacles
to the repatriation of profits earned by foreign companies.) Moreover, he ensured Natàlia and
Quim that he could be ready to start franchising in three months.
He also proposed a slight change to the economic model for franchisees. Given that the cost of
renting premises in cities like Shanghai was very high,15 a typical school would need to have
almost twice as many students as one in Spain. This meant extending school hours, giving
more classes (two a week), or increasing the size of classrooms. The alternative was to reduce
the royalty fee.
Another option was to operate directly through a subsidiary in China. This would mean forming
a joint venture with a local partner who could help the franchise break into the country and
provide contacts, but in this scenario both the team and control of operations would be under
the direct supervision of Kids&Us. The external consultant didn’t think it would be difficult to
15 The rent on 200-m² premises in a central location is up to €10,000 a month.
12
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
find potential partners. Clearly, this approach would require a much greater investment of
human and financial resources. A preliminary analysis assumed the Chinese subsidiary would
need an initial team of six to eight people and that additional operating costs would run to
€700,000 a year (not counting spending on marketing). Although both Quim and Natàlia
appeared to favor the second option, especially after their experience in Mexico, it was
important to clarify where the financial and human resources needed to put the operation on
a firm footing were going to come from. In any case, pursuing this option would delay the
entry of the franchise into China.
Given the character they shared, the husband-and-wife team had already spent too much time
mulling over the question of what to do in China. They were still young, and after living and
working together for so many years, they knew each other well, and they knew they wanted
to take a hands-on approach to this new project. In fact, just a few weeks earlier, they’d rejected
an offer from an investment fund that wanted to acquire a stake in the company.
So their choice was clear: they could either accept the proposal from the franchiser or start
looking for a team of their own to begin work in China.
IESE Business School–University of Navarra
13
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Exhibit 1
History of Kids&Us
TEACHING QUALITY, EDUCATIONAL RESULTS
AND FINANCIAL VIABILITY GUARANTEED
Portugal
Czech Republic
Mexico
Kids&Us launches
STUDENTS: 65.291
SCHOOLS: 208
MULTI-FRANCHISE
20% of franchisees have two or
more schools.
The international network accounts
for 13% of schools
France
Constant annual
growth
+30%
First license
Belgium
FULL SUPPORT FOR
FRANCHISEES
International
expansion:
Italy
A coordinator will manage your
needs:
- marketing
- HR
- continuous training
First franchise
school
STUDENTS: 2776
SCHOOLS: 26
R&D
A UNIVERSE AT
THE SERVICE
OF LEARNING
Over 10 story times plus
4 special programs for
Babies and 32 Little
Chefs
Fun Weeks
Summer 2014
>20,000 students
50% < 5 years
Juan & Julia
Welcome Nanny
Bilingual musical: 10 cities
and over 16,000 spectators
Publishing line,
6 titles and
14,000 books
published
Over 10 apps
> 13,000 downloads
Online series
> 20,000 views
Source: Document provided by the company.
Exhibit 2
Number of Franchise Schools and Growth of Kids&Us
INTERNATIONAL
NATIONAL
Source: Document provided by the company.
14
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
Exhibit 3
Main Competitors of Kids&Us
A) In Spain
2014
2015
B) Globally
2013
2014
2015
Source: Document provided by the company.
IESE Business School–University of Navarra
15
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Exhibit 4
Basic Principles of the Kids&Us Method
The Kids&Us method is based on the natural sequence involved in learning any language:
listening, understanding, speaking, reading and writing.
Building on this foundation, Kids&Us has defined the following key principles that can be
applied in class to make the most of children’s learning potential:
1. Exposure to the target language from an early age. Language learning in children
begins before they can speak. That’s why at Kids&Us we want children to have their first
contact with the new language in their first year of life.
2. Rich input. Children are exposed to language from the first day of their lives. Their
parents talk to them in a natural way, using a wide range of words and structures. At
Kids&Us, we concentrate on exposing kids to the new language as much as possible.
That’s why we treat learners as potential native speakers of English.
3. Repetition. Repetition is a key tool for language acquisition and learning in general.
That’s why at Kids&Us classes are designed to expose children to the target language
continuously and repeatedly.
4. Interaction. Language wouldn’t exist without interaction. For language acquisition and
development to take place, it’s essential to offer kids the opportunity to interact with
someone, and to create situations in which they feel a need to communicate. That’s why
at Kids&Us we work with very small groups, ensuring that each learner has a chance to
interact with their teacher and classmates. We want kids to be active participants, not
just spectators.
5. Stimulation. Exposure to language should always take place in a context that’s
meaningful for children and be accompanied by other stimuli. That’s why at Kids&Us
we make sure learning happens in a context that’s full of meaning for kids.
Source: Document provided by the company.
16
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
Exhibit 5
The Kids&Us Method
A) Stages and Characters
B) Storybooks
Source: Document provided by the company.
IESE Business School–University of Navarra
17
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
18
Kids&Us: International Expansion
Exhibit 6
Organizational Chart
Strategic Planning and
Corporate Development
General Manager
Management
Assistant
Educational
Development
International
Products &
Services
Teaching and Creative
Director
Production,
Purchasing &
Logistics
Training
National
Marketing
Manager
International
Coordination
Sales
Administration
Quality and
Services
Communication
Quality
Manager
International
Expansion
Financial
Coordination
Educational
Coordination
Corporate Services
Manager
National
Coordination
Human
Resources
Franchise
Manager
Coordination of
Openings
Design
International
Administration
China Project
Administration of
Investee Schools
Administration
Headquarters
Administration
Investee
Schools
National
Expansion
Source: Document provided by the company.
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
Exhibit 7
Examples of Marketing Campaigns
A) 2015–16 campaign
Poster DIN-A3
Press ad
Flyer DIN-A5
Banners
IESE Business School–University of Navarra
19
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Exhibit 7 (continued)
A) 2016–17 campaign
Press ads
Facebook image
Phone and tablet cases
Source: Document provided by the company.
20
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
Exhibit 8
Kids&Us Schools
IESE Business School–University of Navarra
21
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Exhibit 8 (continued)
Source: Document provided by the company.
22
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
Exhibit 9
Variable Remuneration Program (FEM)
% REMUNERATION
Volume,
Growth and
Customer
Retention
Profitability
and
Sustainability
- Individual objective for number of Kids students
enrolled per school
- Mix (%) by product type (Kids courses, Fun Weeks,
etc.)
3%
- % retention of internal students
- Alignment with recommended retail prices
- Annual or school-year budget and cash-flow plan
2%
10% of Royalty
Commercial
Proactivity
(Local
Marketing)
and Image
Quality of
Academic
Programs,
Service and
Management
- % investment in commercial proactivity
- Corporate image of school
- CSS
- Audits
- Level tests
- Term reports
- Teachers with initial training
- % intra-annual turnover of teachers (between terms)
- Application of Operations and Services Manual
1.5%
3.5%
Source: Document provided by the company.
IESE Business School–University of Navarra
23
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Exhibit10
Key Financial Numbers of a Franchise School
INCOME STATEMENT
(Feb. – Dec.)
DESCRIPTION
YEAR 1
YEAR 2
YEAR 3
YEAR 4
YEAR 5
TOTAL SALES AND REVENUE
43,428
100%
149,375
100%
235,733
100%
309,136
100%
371,209
100%
TOTAL PURCHASES AND ROYALTIES
14,098
32%
39,372
26%
59,533
25%
77,090
25%
90,996
25%
NET MARGIN
29,330
68%
110,003
74% 176,199
75%
232,046
75%
280,212
75%
STAFF COSTS
16,210
37%
65,655
44%
98,404
42%
124,761
40%
136,571
37%
OVERHEADS
59,610
137%
43,596
29%
44,736
19%
46,019
15%
47,588
13%
6,999
16%
16,642
11%
16,642
7%
16,642
5%
16,541
4%
---
0%
---
0%
---
0%
---
0%
---
0%
-53,489
-123%
-15,890
-11%
16,417
7%
44,624
14%
79,512
21%
FINANCIAL RESULT
---
0%
---
0%
---
0%
---
0%
---
0%
EXTRAORDINARY RESULTS
---
0%
---
0%
---
0%
---
0%
---
0%
-53,489
-123%
-15,890
-11%
16,417
7%
44,624
14%
79,512
21%
0%
0%
17,793
5%
5%
33,468 11%
59,634 16%
1% 33,059 14%
61,266 20%
96,053 26%
DEPRECIATION AND AMORTIZATION
OTHER OPERATING RESULTS
OPERATING RESULT
PROFIT BEFORE TAX
CORPORATION TAX
0%
NET PROFIT (OR LOSS)
-40,117
EBITDA
-46,489 -107%
0%
-92% -11,918 -8% 12,313
752
INITIAL INVESTMENTS
SURETIES AND GUARANTEES
EBITDA
CORPORATION TAX
-122,209
-3,900
-46,489
---
----752
---
----33,059
---
----61,266
---
----96,053
---
CASH FLOW
-172,598
752
33,059
61,266
96,053
The information provided by the franchise school on this sheet is intended as a simulation and therefore does not represent a ny guarantee
Note:
Theeconomic/financial
information provided
byofthe
school on this sheet is intended as a simulation and therefore does not represent
of the
profitability
the franchise
project.
any guarantee of economic/financial profitability of the project.
Source: Document provided by the company.
24
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
Exhibit 11
Knowledge of English in Selected Countries
Source: Wikipedia, “English language in Europe,” https://en.wikipedia.org/wiki/English_language_in_Europe, accessed May 2016.
IESE Business School–University of Navarra
25
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
P-1151-E
Kids&Us: International Expansion
Exhibit 12
Competitors of Kids&Us in China – Sample of Schools and Number of Students
(2015)
COMPETITOR – SHANGHAI
YEARS IN BUSINESS
EF 2 HK DISTRICT - SHA
700
2.5
HELEN DORON 2 - SHA
400
3
EF 1 - SHA
500
4
DISNEY 2 HK DISTRICT - SHA
800
4
RISE - SHA
600
5
HELEN DORON 1 - SHA
500
6
DISNEY 1- SHA
800
6
2,000
7
GIRAFFE KIDS + BABIES - SHA
26
STUDENTS
COMPETITOR - SUZHOU
STUDENTS
YEARS IN BUSINESS
MARVELOUS TREE - SUZ
140
0.5
RISE 4 SIP Xincheng N. - SUZ
350
0.7
ENGLISH FIRST - SUZ
450
2
RISE 3 SIP Downtown - SUZ
700
6
RISE 2 option 192h - SUZ
1,200
6
RISE 2 option 96h - SUZ
1,200
6
RISE1 + RISE BABY SND - SUZ
1,200
7
IESE Business School–University of Navarra
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Kids&Us: International Expansion
P-1151-E
Exhibit 12 (continued)
COMPETITOR IN CHONGQING
STUDENTS
YEARS IN BUSINESS
70
1
100
1
500
3
900
4
300
5
1,000
6
600
7
COMPETITOR - WUXI
STUDENTS
YEARS IN BUSINESS
HAPPY GOAL - WUXI
350
2
RISE - WUXI
550
3
STUDENTS
YEARS IN BUSINESS
BEST LEARNING 120h - BEIJ
700
3
EF - BEIJ
900
5
OWEN 3 - Jiulongpo District
EF 2 - Jiulongpo District
EF 1 - Jiangbei District
OWEN 2 - Nan'An District
RISE 2 - Nan'An District
OWEN 1 - Shapingba District
RISE 1 - Jiulongpo District
COMPETITOR - BEIJING
Source: Document provided by the company.
IESE Business School–University of Navarra
27
This document is authorized for use only by Boris Kolar (boriskolar@hotmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.