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Has franchising become a global way of doing business? Well, not exactly…


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Philip Zeidman

Illustration by Jonathan Hankin

The stream of articles and speeches about “international franchising” sometimes threatens to engulf us. It’s all welcome, of course: It adds to our storehouse of knowledge about a subject which, until fairly recently, was assumed to be known and understood only by the few high priests in the field.

There is, however, something of a downside to this caravan of articles, marching across the printed page or featured regularly in social media. As each appears, it’s tempting to try to glean an insight about developments in this area, squirrel it away as received wisdom, and repeat it for others to read and perhaps act upon.

But, almost inevitably, there comes a time after our latest discovery when other information emerges, challenging or at least adding a caveat. Consider this headline:

Franchising has Become a Global Way of Doing Business

How could anyone doubt it? After all, the top 200 U.S. franchises already have 39 percent of their units outside the U.S. and the International Franchise Association has told us from its survey of its members that almost 90 percent of them operate beyond the U.S. or plan to accelerate or start new franchise operations in international markets.  

It’s not just statistics. Each day’s supply of corporate press releases reports another announcement that Franchisor A has concluded negotiations for B number of stores to be opened in Country C by its franchisee there, within D years.

Along with those announcements comes a somewhat smaller set of reports that a company (usually one not previously familiar to us) in a foreign market has adopted the franchise method and will be opening a number of franchised units there. Sometimes, as in the case of China, those numbers can be staggeringly large.

So it seems quite reasonable, doesn’t it, for one to assume that this uniquely American business model has now assumed the same starring role in the unfolding tableau of retail expansion in many other countries as it occupies in the United States?

Well, not exactly …

Notwithstanding all the reports of growth of non-U.S. franchises, the blunt fact is that 82 of the largest 100 franchises in the world remain headquartered in the U.S. So, should this phrase be part of our catechism:

Franchising Remains Only an American Phenomenon

Well, not exactly ….

It is clear that franchising has penetrated an extraordinarily comprehensive range of industries in the United States. While it’s not true that, as one chairman of the International Franchise Association incautiously observed to the press in the 1970s, “everything can be franchised,” sometimes it seems that way.

That sense of omnipresence in the U.S. does not seem to be replicated elsewhere, at least based on commonly available studies—or from a personal perspective, on my own travels.

But within certain industries franchising has clearly become the dominant form of distribution outside the United States, just as it is here at home. Take foodservice, the quintessential example of a franchised industry, and in the U.S. and perhaps every other country, the first industry to become widely franchised. Examination of a recent report on the largest 25 foodservice companies based outside the U.S. reveals that at least 18 of them are franchises.

So, does this phrase merit a headline:

Foodservice Franchising Beyond Our Borders Mirrors U.S. Experience

Well, not exactly ….

There is certainly much that is similar between the way in which major U.S. foodservice franchisors have developed their brands and the way it is being done abroad.  But there is at least one difference, and it’s a big one.

A significant part of the expansion of the U.S. companies lies in their cross-border development. The 10 largest U.S. franchises have more than 70 percent of their units outside the U.S., with recent growth slanted even more sharply in that direction. In other words, the growth is not at home, but abroad. But for franchises outside the U.S.? Not so much. Let’s take a closer look at those 18 non-U.S. foodservice franchisors. Does their growth show the same reliance on development beyond the borders of their home country?

Number 1, 7-Eleven, is a special case:  The world thinks of it as a U.S. company, when in fact it is and has been for some time Japanese-owned and operated. So let’s look at the others.

Numbers 2, 3, 9, 10, 14 and 18 are also based in Japan. Their units are overwhelmingly in Japan itself, in some cases 90 percent or more.

That’s not only the pattern in Japan, and thus cannot be attributed to that country’s notoriously insular culture. Numbers 4, 12 and 15 are based in South Korea. In the only case where figures can be ascertained, 93 percent of the stores are in the home country.

Two are based in England: One has 80 percent at home, the other 91 percent. Even one of the companies most familiar to Americans, Jollibee of the Philippines, has in excess of 90 percent at home. And the only entry from Germany has zero units outside that country.

The point is blindingly clear. Whatever “globalism” may mean in the current political cacophony, there can hardly be a better example of it than the franchised foodservice brands of the United States, far outstripping their foreign rivals in the scale of their ambition and execution. So maybe the ultimate headline should be:

Foodservice Franchising Exemplifies ‘American Exceptionalism’

Exactly.

Philip Zeidman is a partner in DLA Piper’s Washington, D.C., office. Reach him at 202.799.4272 or philip.zeidman@dlapiper.com.

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