So two guys walk into a franchise convention…
Consider, first, John Smith. He has built a moderately successful franchise business, starting on a shoestring and progressing to a stable, expanding network. He has recently come to the conclusion, somewhat reluctantly, that there may be a ceiling on his plans for growth.
He does not find the prospect of debt financing appealing, or even of opening the door to other investors. He likes what he’s done, and he likes the idea of running his own show. He knows that he can continue to sell franchises for single units, and perhaps even for multi-store development.
But competition is much tougher than before, and he can already see evidence of saturation of the market. He has dutifully attended International Franchise Association conventions over the years, and has always learned something. This year, though, at the 56th Annual Convention, he has come with a different goal in mind: John wants to explore the prospects for expanding his business in a rather different way, through international franchising.
John checks into the convention a bit early, so he can attend the International Summit traditionally held before the formal opening. He signs up for a track for “companies considering or new to international franchising.” He takes copious notes on the session on Finding a Partner, Due Diligence and Expansion Models.
He is reassured to see that some genuine veterans are sharing their experiences, and comforted to see that there are plenty of other newbies in evidence. He stays for the session on A Change in Disclosure to Foreign Prospects and Negotiating International Deals. Some of it is over his head, but it is pretty clear to him that this is an area he is going to need to understand.
He goes to the “don’t miss” panel on News From Around The World, a group of pros from a range of countries, sharing news and developments. John knows that he has only scratched the surface, but comes away with an awareness of how important it’s going to be to him to keep tabs on what’s happening, especially in the countries of his interest.
• • • • • • • • •
And now consider Betty Jones (OK, Betty is not a guy . . . but we have to maintain the framework of the joke). Betty works for a larger franchisor—not yet a giant, but substantial and well capitalized.
While the great bulk of the company’s franchises are domestic, it began several years ago, somewhat tentatively, to expand internationally. The growth was originally opportunistic, responding to overtures; that led to some poor choices of both markets and partners. It also resulted in spotty and inconsistent coverage, sometimes without adequately planned support systems. In recent years, management has recognized the need to instill greater disciplines and adapt “best practices.”
That’s Betty’s job as director of international development. She’s a little uneasy about her new responsibilities, because she thinks her new bosses may believe she has greater depth of experience than she does; she did a pretty good job of selling herself during her interviews. She’s come to the IFA convention to soak up all she can, as fast as she can . . . perhaps to keep pace with what the company thinks she already knows.
With a little trepidation, she joins the track “for companies already engaged in international franchising.” The two sessions are aimed squarely at subjects that so far she has only experienced glancingly: International Infrastructure (what resources do you need to grow and support the international network?) and Setting Fees in International Franchise Agreements (there’s a lot more to it than adding X percent to your domestic charges, she learns). Like John, she attends News From Around The World, and she also sits in on The International Franchisee’s Perspective. She finds it a real eye opener.
• • • • • • • • •
These are obviously composites. There is no “John Smith” or “Betty Jones” at the convention. The oversimplified demarcation between them is not realistic either; there’s always an element of one of these types in the other. Both go to the international reception, and meet not only many of their counterparts from other companies but also those who have been through the wars they heard about during the educational sessions.
More important, consider the other characters we could have brought onto our stage:
- The supplier, who wants to know how he can most effectively sell his services (consulting, supplies, legal, etc.) to John’s or Betty’s companies;
- The franchisee who is now appearing more commonly, perhaps seeking to develop a foreign market on behalf of a domestic franchisor, or who wants to take the skills learned (and the money earned) and become a franchisor in such a market;
- And, perhaps most intriguing of all, the foreign business person who has come to the convention for what can be learned from U.S. franchisors, or to initiate a discussion leading to a joint venture or other arrangement on home court. There are several hundred, from several dozen countries.
The annual IFA convention has thus become not only an unparalleled learning experience for people at all points on the spectrum of international franchising, but increasingly, it’s also become a bazaar—not for trinkets, but for business opportunities.
Philip Zeidman is a senior partner in the Washington, D.C., office of DLA Piper and an expert in international franchise law. Reach him at email@example.com.