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International expansion was once considered the holy grail of franchising. It had a certain patina of glamour, plus an aura of sophistication that played well back in the States. By joining the likes of KFC and Kumon, opening international units was akin to being invited to sit at the grownups’ table. Some fledgling brands even believed that the revenue from selling master franchises overseas could help bolster sagging sales in the U.S. That didn’t necessarily prove to be the case.
There’s definitely a time and place for taking your concept to other countries, but it requires extensive due diligence on your part, leveraging advisers who have international expertise, and a thoroughly documented gameplan. It also requires having systems in place, recognizable branding, and a product that has proven itself in several distinct markets in the U.S. If you’re having trouble sustaining traction in your own backyard, you’ll experience far more obstacles selling your concept to both consumers and savvy businesspeople operating in a different language and culture.
Just as your U.S. franchise advisers warn you not to take a shotgun approach to selecting franchisees here, expanding internationally should require more than just a potential franchisee waving a big check for you to tackle a new, unproven market thousands of miles (kilometers!) from home base. In most cases, you’ll want to look for businesspeople who can commit to an entire country-based or regional territory, rather than selling single units or even three-packs.
How we got here
The worldwide pandemic created new challenges for businesses everywhere. According to the International Monetary Fund, as in the U.S., foreign governments also provided aid in to help stabilize businesses, including franchises. And just as they did with their U.S.-based franchisees, franchisors needed to help their foreign franchisees reduce business expenses and to switch to alternative revenue streams and service models, such as online ordering and contactless delivery. On a positive note, being able to shift to contactless services was not only a godsend to keeping the lights on, it has proven to be a viable service model worldwide, even post-pandemic.
As franchise support people were banned from visiting franchisees in person, tools like video conference calls also provided an ever more common way for franchisors and their support staff to connect directly with their partners in other countries. And while traveling is back, virtual meetings will remain one of the tools in a franchisor’s toolbox, both internationally and even domestically. Artificial Intelligence (A.I.) is also becoming even more important to running a franchise abroad, with home markets acting as a testing ground for an array of A.I.-driven operational tools.
The pandemic also brought to light the necessity of having a deep bench when it comes to suppliers, so that if one of your key suppliers goes under, you have an already approved source where you can quickly pivot. Supply chain logistics turned out to be a major stumbling block for franchises that had only one or two approved suppliers for essential items. Shipping proprietary items from the U.S. to overseas also came to a standstill for a time. Being prepared for whatever obstacles arise is a cornerstone to sound franchising, no matter what is going on in the world.
If you’re just now starting the investigative process of taking your concept to new international markets, the lessons from the pandemic will make your concept stronger and better able to handle futures disruptions to supply chains and confusion surrounding governmental regulations.
Here are some of the things to consider when looking to take your concept abroad:
While U.S. brands are still desirable overseas, they don’t have the same luster they did years ago when people lined up for hours to get a bucket of fried chicken. Make sure your product is something that will resonate with consumers in the country where you’re thinking about expanding. A well-documented example is hamburger concepts in India. While some Indians might have been excited to have beef burgers, for a majority it was seen as insulting. And while pundits will warn you not to change your concept, even McDonald’s added a potato patty and a spicy paneer to its menu in India and added beer to its menu in France. There are times to stick with your brand’s signature items, and times to make smart changes. There’s a long list of franchises that have made accommodations to local tastes and traditions.
Another accommodation to cultural is to understand the shopping patterns of people in other countries. For instance, in places like the Middle East, malls are seen as “cool” places to hang out to avoid the day’s high temperatures. Adding an entertainment element to your concept will attract shoppers to linger at your space a bit longer. It also means that nonfood and nonretail concepts can attract customers at a mall. Train and bus stations, along with other nontraditional locations, can also work because that’s where the people are.
While many businesspeople in other countries speak English, manuals, training materials, marketing messages and especially legal documents should all be translated by a professional (no relying on Google Translator here) into both languages. Make sure your sales materials are also translated correctly and that if you use a translator in your sales meetings, they are familiar with your materials before sitting down with prospects. We’ve heard of cases where the translator got the numbers wrong, upping the royalty by double digits, and thereby costing the franchisor the sale. And while you may be tempted to use your high school language classes to save some money, having a professional translator is invaluable in negotiations and even at meet-and-greets. Even your brand and tradenames should be checked for unfortunate literal translations to other languages. In other words, don’t be that person, like the one who introduced the Chevy Nova to Mexico, only to discover too late the real reason the car wasn’t selling.
No surprise here, but governments all over the globe are going through some major stresses right now. Check in with the U.S. Commercial Service, part of the U.S. Commerce Department, for their input on countries you’re considering going to. They employ both U.S. commercial officers and local country experts who can give you current data and market reports on the areas you’re researching.
As a starting point, the top five countries (after the U.S.) ranked on their “attractiveness” to franchisors by the Rosenberg International Franchise Center at Peter T. Paul College of Business in New Hampshire are: Germany, the United Kingdom, Australia, Poland, and Canada. The Center based its findings on a variety of market risks, including economic, political, legal and regulatory. Almost a “no-brainer,” Canada has always been a natural next step for many U.S. franchisors because, although there are some cultural differences, they are relatively minor compared to other countries, and they’re right across the northern border. The U.K. and Australia offer similar ease in language adaptation. But, don’t overlook other markets simply for geographic and language reasons; there is plenty of potential in other countries and regions, where expansion could make good business sense for your soon-to-be-global brand.
Fluctuating Exchange Rates
The exchange rate between U.S. currency and Euros or other global currencies can affect your royalty payments, as well as the costs associated with the franchise and its support. Be sure your accounting firm is well versed in dealing with the foreign exchange rates, as well as how to transfer money in and out of the country.
A.I: We mentioned artificial intelligence earlier, but we can’t stress enough that having streamlined systems buttoned down, along with clear channels of communication, is even more important when you’re oceans away from your franchisees. Providing them with the tools to analyze and report back data, deliver consistent training to employees and streamline systems (from ordering supplies to payroll to deferred maintenance) will make your job easier. An important caveat here: be diligent in protecting your intellectual property, and ensure tools are secure, accurate, and easy-to-use.
Remember that you will be competing against other U.S. franchises overseas, as well as local domestic brands, so be sure you have a strong value-added proposition. This is where the guidance from your trusted advisers will be paramount to your success. You will need to establish appropriate representation in your franchisees’ country and your advisers may be able to help you find reputable people. Franchisors may even be held accountable for franchisee compliance, so therefore you need to know, or know someone who knows, the local laws and regulations to be sure you’re not found liable. The (master) franchisee you choose to develop their territory will be representing your brand, whether by managing local operations directly or selecting the individual franchisees under them. So choose carefully, don’t be dazzled by all the zeros on the check they hand you.
Mark Siebert is CEO of the leading franchise consulting firm iFranchise Group. Reach him at 708.957.2300 or email@example.com. His book is Franchise Your Business: The Guide to Employing the Greatest Growth Strategy Ever.