Do your homework on each market and once you’ve determined if you want to be there make a trip to get a sense of the local culture
An international expansion plan isn’t much different than a domestic expansion plan. Begin by answering four key questions and considering a variety of related factors.
1. Is your business ready to be franchised globally? Or even just into a couple of nearby countries?
Whether you’ve opened a single unit domestically, or more than 1,000, you have to assess your current situation prior to taking on added responsibilities and costs. If you’re devoting all of your resources to your domestic growth and expansion, and you’re struggling week to week to meet the needs of your franchise network, you’re in no position to franchise outside of your country. For most franchisors, in fact, it’s all they can do to keep up with their domestic franchise network. That doesn’t mean you never franchise globally, but it does mean you don’t franchise abroad until you’re prepared to do so.
While you’re thinking about franchising globally, think about the reality of selling your product or service in other countries. Is your product or service in demand universally? It won’t take much time to consider the question and if the answer is “no” then there’s no sense developing an international plan. Chances are, your product or service will appeal to consumers in at least some other countries, so you’re going to need a plan. You’re also going to need to trademark your brand in other countries – and that’s just the beginning of your expenses.
2. Should you develop an in-house team to expand internationally, or hire a third party?
Either answer or some hybrid answer is acceptable. But there isn’t an easy way to arrive at the right answer. Fortunately, there are many successful international franchisors and most of them are willing to tell you their story. Make time to consult with them. You’ll find them at meetings sponsored by your country’s franchise association and at expos. Compare notes and evaluate the pros and cons of each approach. Over time you’ll know what to do.
3. How do you develop an international expansion plan?
Developing your international expansion plan takes some resources, primarily the right people and time. Assuming that your product or service has international appeal, and assuming that you can (immediately or eventually) devote financial and human resources to international expansion, you can figure you’ll need several meetings to plot your course of action. Each meeting will require two to four hours of time and you’ll need additional time to write your plan. Some franchisors begin by attending international development sessions at franchise association meetings and from there they form a core international team that includes in-house employees and one or more consultants.
4. What topics should you cover in an international expansion plan?
Now the real work begins. At first mention of the words “international expansion”, it’s fairly easy for most franchisors to say “yes” or “no”. Proving they answered correctly takes a lot more effort. Here’s some advice from several experts who can help you focus on the real issues that need to be decided before you franchise globally.
Robert Jones, chief international officer at Edwards Global Services (EGS), suggests you begin your plan by selecting the countries with the greatest potential – and least risk – for your brand. Which countries will meet those criteria? Consultants like Jones are paid to provide that information. EGS, as well as other firms, provide a country-by-country evaluation that measures the potential for franchise success. You could discover this information on your own simply by doing an online search, or possibly by consulting with other franchisors or franchise associations.
At United Franchise Group (UFG), based in West Palm Beach, Florida, Tipton Shonkwiler, CFE, International Director, leads a small in-house team that has developed franchise relationships in more than 80 countries. “Our first key factor when selecting a country or market,” says Shonkwiler, “is the economy. We look for stable markets that are positioned for growth. Next, we want to make sure a market is business-friendly for startups. If there are too many regulations, that could slow us down and be startup prohibitive. Finally, we want to make sure the market is one that we can establish the needed foundation for building one of our brands, such as needed vendors and suppliers.”
Developing a budget
You could begin your plan with one country or perhaps several countries in the same region, i.e. Germany, France and Switzerland. Then, says Jones, it’s pretty easy to develop a budget for resources including people, travel, association or meeting fees, etc. “and then triple it.” The costs, internationally, are always higher than expected.
You could begin with one or two part-time people who complete two to four trips in a year’s time. Initially, those trips may be devoted to meeting with in-country experts who can help develop a winning strategy for a country or region. Jones, a former U.S. Commercial Service officer, advises U.S. franchisors to consult with government officials who know the ins and outs of a country. Government officials can make introductions to local, and reliable, franchise experts. These experts can also be found at franchise expos such as the International Franchise Expo in New York City or various other expos in foreign countries.
Shonkwiler, a veteran international developer, relies on government officials in foreign countries as well as in-country advisors to help him select a market. However, he also has learned the value of doing his own homework. “We do our homework on each market and once we’ve determined it’s a market we want to expand into we make a trip to the market to get a sense of the local culture, to talk to business owners and see what other franchise brands exist there. We also discover who, if anyone, in the market is doing something similar to the product or service our business provides. We take all of this into consideration before we decide if we’re going to expand into a market.”
Selecting a model
Which markets you select could be influenced by the international development model that you decide to use. Do you plan to sell single units and manage the relationship from your headquarters, or will you sell the rights to a country or region and allow your representative to provide training and support locally? Will you use master licensing or an area development model? Once again, your decisions will be unique to your company’s requirements and you may decide to use one model in one country and another model in a neighboring country. The good thing is that you have numerous options, but you’ve got to understand the pros and cons. And that takes time to consider the opportunities.
Big fees get every franchisor’s interest. “Can we get a million dollars from a master franchisee?” There are plenty of stories from the years when huge fees occurred regularly, but that’s not generally the case today. Franchise investors across the world have become jaded and they know the questions to ask before they invest. The upfront fees are smaller today, but it’s not unusual to hear about licensing fees in the range of $150,000 to $500,000. Still, you will have to be able to justify your upfront franchise fee and your ongoing royalty fee.
“So what’s the formula for figuring out these fees?” you might ask. No such formula exists. However, if you’re franchising domestically you must have already developed a formula that works for your company. Consider using that same formula, or a slight variation, internationally.
Consider the expenses
Initially, you’re going to incur people costs, travel costs, consulting fees, etc., and once you’ve decided to target a market you’ll incur development costs. “It’s key to find the proper candidate to help you grow your brand internationally,” explains Lenny Valentino, Jr., CFE, vice president of global franchise development and integration for TBC Corporation, which owns Midas and Big O Tires. “An inexperienced franchisee can hinder brand reputation and expansion,” he continues, “whereas a franchisee who has market experience with operations, management and development can increase brand acceptance and growth opportunities.” Of course, finding the experienced franchisee is costly! How will you do that?
Shonkwiler is a fan of franchise expos but also utilizes trade missions and Gold Key programs conducted by U.S. Commercial Offices around the world. Valentino relies on those resources, too, but TBC, with franchises in more than a dozen countries, works with an international consulting firm with expertise in lead generation.
No matter which development model you choose, lead generation is costly and ongoing. You will spend thousands of dollars monthly to develop the appropriate lead flow. It will take months, sometimes years, to educate prospects and get them to your Discovery Day. “Before you commit to a sale,” points out Jones, “you’ll also need to know how to conduct international background checks, validate the candidate’s reputation and verify sources of funding. There are people to help a franchisor get all of this done, but you must take the costs into account when you’re planning your budget for international expansion.”
And then there are training costs! After the sale, how do you plan to train your licensee? Valentino prefers a “train the trainer” approach because it ensures that what is taught to a limited number of individuals domestically will be carried over internationally and taught to others. Training also needs to include the classroom as well as online expertise. Your domestic training program is a good beginning for your international program, but culture, language, and local customs all need to be considered as part of your training effort. What’s it going to cost to build your international training and support program?
The real work and expense begin after the sale. Keeping your licensees content and providing them with services and resources that help them become successful is another cost factor. UFG favors the master licensee model and Shonkwiler’s team spends countless hours communicating with licensees. “We visit offices on a regular basis and we keep a pulse on the brand in the country to make sure we’re properly positioned and helping the franchisee succeed.” All of this activity requires more people resources, as well as travel costs.
Ultimately, it’s your brand that’s at risk. “It may be difficult to ensure that your brand is being properly represented internationally without in-country auditing and support,” explains Valentino. “Creating standards specific to that territory and culture and enforcing those standards will be crucial to establishing and growing your brand. There may be a need for in-country support, potentially a third party that you may partner with, who can assist franchisees with maintaining brand standards with store appearance, marketing and store protocol.”
But now we’re getting ahead of ourselves. No need to worry about brand standards until you’ve determined how you’re going to get your brand into another country. And you do that by answering the questions posed above and developing an international expansion plan.
ABOUT THE AUTHOR
Dr. John P. Hayes is the Titus Chair for Franchise Leadership at Palm Beach Atlantic University in West Palm Beach, Fl.