To succeed in your international venture, you need a properly-structured plan of action. Ray Hays offers just such a plan
Growth-oriented franchisors have dozens of good reasons to spread their wings beyond their home countries and explore the world of international franchising. Taking the next step into global expansion can build brand value, expand revenue by opening new markets, and improve a franchisor’s valuation, among other advantages.
However, going global is a strategic decision that should not be taken lightly. Regardless of their country of origin, franchisors face similar challenges and pitfalls when entering new international markets. That said, international expansion – if done correctly – can be a transformational shift in the evolution of a franchise.
Building a successful global franchise expansion program requires hard work and focus over the long-term, much like running a marathon. To succeed in the long run, a franchisor should strive for competency in four key areas, which I refer to as reaching an ‘international PACE’. These key areas are: Planning, Adaptation, Commitment and Expertise.
Prior to entering international markets, a franchisor needs to have a clearly-defined business plan and budget with a horizon of at least five to 10 years. This plan is often developed with the help of outside experts with deep experience of building international franchising programs. The plan should clearly identify the financial and staffing resources required for the international program to succeed.
International growth does not always require a multi-million dollar budget to get off the ground. Early stages can be rolled out by one or two key managers with the support of outsourced international specialists, such as consultants and attorneys. Franchisors should budget conservatively since international projects typically take much longer than expected. Plans may vary widely, but a typical international department budget should strive to reach cash-flow breakeven within about two to three years and ROI within about three to five years.
An international growth plan is essential for a franchisor to (1) understand if they are ready to go international, (2) determine their specific international strategy and model, and (3) prioritize international markets for expansion. According to Bill Edwards, CEO of Edwards Global Services (EGS), “If an international development strategy is well-planned, with expert guidance and careful selection of target countries, the franchisor will see a long-term pay-off in terms of global growth and return on investment. On the flip side, international expansion that lacks careful planning and research often leads to very painful and expensive lessons.”
Entering foreign markets will require some level of adaptation of the franchise business model and products or services. Franchisors with global ambitions must be prepared to adapt at two levels:
1. Internationalization – This involves a high-level adaptation of a franchisor’s business processes and communication to be more “internationally friendly”. For example, a franchisor’s website should communicate to an international audience. If an Australian customer logs onto an American franchisor’s home page, do they see an American toll-free “800” number, with a US location map and pricing in US dollars? An internationalized website must show relevant information, based on the country of the person viewing it. Other focus areas for internationalization may include point-of-sale software, mobile apps, accounting tools, manuals, forms, training programs, store signage and marketing tools.
2. Localization – This refers to adaptations to meet specific requirements or preferences of a country or sub-region. For example, a franchisor entering Canada would need to understand the appropriate use of bilingual English and French language materials for marketing, signage, product packaging, employee training materials, etc. Proper localization should address nearly all aspects of the franchise, including customer tastes, marketing, daily operations, employee management, accounting standards and regulatory compliance.
A franchise may be required to make changes to its business model to comply with country-specific laws or regulations. Another good reason for adaptations to a franchise could include religious customs. For example, restaurant franchises may decide to change menu ingredients to avoid pork in Muslim markets, beef in Hindu markets and other similar restrictions. Branding may also be impacted. Outside North America, Church’s Chicken markets its franchise under the “Texas Chicken” brand, which avoids religious sensitivities regarding the word “Church” in some international markets.
That said, too many adaptations can be a slippery slope. Each change to a business model can create unanticipated operational inefficiencies, quality issues or other complications that could otherwise damage the brand. Adaptations to suit local customer tastes or business customs should be carefully studied and tested prior to implementation.
If an international franchisee says, “That will not work here,” a franchisor should reply with two questions. “Why not?” and “Have you tried it?” In some cases, small or large adaptations may be the right business decision, and in other cases, these changes may be unnecessary or even counterproductive.
This points the importance of testing the franchise model by opening a pilot unit in each international market. The pilot operation could be opened by the franchisor or by a Master Franchisee or similar partner. This will enable a franchisor to test its products and services, fine-tune the business model and make informed decisions on adaptations (if necessary) for each country.
Global expansion requires commitment throughout the franchise organization, from top leadership to the rank-and-file. Of course, allocating a reasonable budget is a key first step to building an international program. However, commitment is less about money and more about mindset. Franchisors can throw a lot of money at an international program, but without a long-term “organizational will” to back it up, their international expansion is doomed to fail.
Nearly always, a nascent international program is highly dependent on other departments at the franchise headquarters to support international growth. An international program must leverage the franchisor’s know-how and subject-matter experts in all areas of the organization, including training, marketing, IT, supply chain, operations support, etc. In short, there is no room for organizational “silos” in a globally expanding franchise organization. The franchisor’s executive leadership needs set clear expectations, allocate the necessary resources, and ensure that the business plans of other departments include goals and responsibilities to support international growth.
If this level of organizational commitment is not achieved, an international program can be perceived as a “side show” of the franchise rather than a company-wide strategic initiative. Department heads may view international projects as “low priority” or worse, as a competing program that pulls budget and resources away from their own department. This often leads to a lack of support within the franchisor ranks or even active efforts to undermine international projects. This type of discord must be avoided at all costs.
Any successful international program requires the know-how of international experts to avoid costly pitfalls. This expertise starts at the corporate headquarters level. Some franchisors choose to hire a seasoned full-time executive to head up global expansion, while others prefer to save overhead costs with a contracted international advisor in the early stages.
Franchisors should also have “boots on the ground” in each country. In most cases, this country-level franchise management may be handled by a contracted advisor, partner or Master Franchisee, without the need for the overhead of a branch office and corporate employees in every country. These local franchise experts are critical to provide country-specific guidance on franchise development, market trends, supply chain, regulatory compliance, etc. Without this local expertise, a franchisor risks costly and time-consuming errors that can lead to market failure.
International legal expertise is a critical element to a successful global expansion program. Having a great domestic franchise attorney for a franchisor’s home market is not sufficient. An international program will require an attorney with a proven international track record and a network of local franchise attorneys across multiple countries. These country-level attorneys also play a very important role to navigate country-specific regulatory barriers (required filings, etc.) and to adjust the franchise agreement to be enforceable under local laws. In short, a franchisor’s international legal guidance needs to be handled by international legal specialists, not by a domestic franchise attorney alone.
Finding your unique international PACE
Let’s be clear. Before embarking on international expansion, the leadership of a franchisor needs to take a hard look at their organization and ask, “Are we truly ready to go global?” If a franchisor is not able or willing to meet the four key competencies of PACE, the answer is no. You are not ready to take the international plunge.
Going global is never a perfect process. Ask the leadership of any large global franchisor, and they will tell you that mistakes were made and lessons were learned along their international journey. This author has worked on many such international market entry projects, and yes, I’ve committed some of those mistakes. The most costly errors in global franchising fit into one of the four PACE buckets: inadequate Planning, poor Adaptation to global markets, lack of team Commitment and absence of international Expertise to guide the global program.
By carefully setting an international PACE in the early years, a franchisor can successfully transform into a truly multinational player, reaping the benefits of a global marketplace and maximizing the full potential of the franchise.
Want to find out more about the PACE method? Head to our video page for Ray Hay’s five-minute masterclass sessions on the subject
ABOUT THE AUTHOR
Ray Hays is Managing Partner at FranLaunch USA, a franchise management firm that facilitates US market entry for international franchisors. He has a 28-year track record and field experience in over 50 countries worldwide. Ray has managed more than 30 new-country launches for a wide range of franchise concepts.