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The internationalization of the IFE, from soft impressions to hard facts


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Philip Zeidman

Illustration by Jonathan Hankin

Dateline:  New York City

For many years I’ve been reporting from the International Franchise Expo—for most of those years from Washington, DC; in more recent years from New York City; once, if memory serves, from Miami.  

In keeping with the theme of this regular column, the focus has been on the increasingly global nature of the event—the growth in well-attended programs on every facet of cross-border deal-making, including ventures into the United States; the increasing number of foreign visitors attending those programs, and the often sophisticated questions and discussions to be heard there; the activity sponsored by the U.S. Commercial Service; and the ubiquity of unfamiliar (to the American eye and ear) flags and languages.

It seems an appropriate time to put those subjective impressions to the test of objectivity, to examine the data itself. Is it really more global than ever, or is that sense simply a function of the atmosphere, of the inevitably more exotic and thus inherently more memorable characteristics of the individuals and the companies from abroad?

I decided to dig into those numbers, contrasting this year’s figures to those from 2011, the last year before the event shifted to its current venue, the Javits Center in New York. See Chart 1 below for some interesting changes, including visitors from 47 countries in 2011 to 100 in 2017.

Rising China, India

Let’s pause for a moment to note a shift in the origins of these delegations. Which countries sent the largest number of people, organized as delegations? Vietnam, Malaysia, Bangladesh, Nigeria, Tanzania, Ivory Coast, Kenya, Nigeria, India, China and Romania.

What’s especially worth noting, of course, is the emergence of China and India, reflecting an upsurge in interest in franchising in the two largest countries in the world.

That interest is principally in the acquisition of franchise opportunities from abroad, but the growing number of franchisors in those countries cannot be ignored.

In what markets were the exhibitors offering franchises? See Chart 2 below.The regional increases are startling, but none moreso than the numbers of exhibiting companies offering franchises “worldwide”: 60 in 2011, and more than double to 124 in 2017.

Zeidman charts

 

What explains the eye-opening surge in franchisors seeking franchisees in every region in the world—prepared to sell franchises essentially everywhere? Many explanations can be put forward. To me, the most persuasive include:

The growth in a middle class in many more countries in recent years (historically, the sweet spot for many expansion-minded franchisors seeking consumers in new markets).

Closely related, the changing demographics, especially the growth of youth markets.

Also closely related, the increasing receptivity to Western goods and services, fueled to a large extent by travel and even more by social media.

Impossible to prove, but strongly suggested by both first-hand experience and anecdotal evidence: the difference in the profiles of the typical purchaser of franchises in this country and in many overseas markets. Foreign buyers are simply likely to be larger, and with deeper resources (if for no other reason than they are almost always purchasing larger territories).

And they are much less likely to be relying on borrowed funds, depending instead on family or other closely held sources of capital, a distinction that became especially important during the credit crunch that accompanied the most recent recession in this country.

Whatever the explanation, the shift in focus of U.S. franchisors should no longer be a subject of debate. It is borne out by the most recent surveys taken by the International Franchise Association, and by the yearly statistics gathered by this publication (of the 200 largest U.S.-based franchisors, 38 percent of their units are already outside this country).

Are you ready?

Yes, the international horizon would appear bright indeed. But it would be foolhardy not to take note of a small cloud hovering over it.  Cross-border franchising is not for the faint of heart, the uninformed or the lightly funded.  

Some of the companies stretching themselves to reach distant markets (especially those offering franchises “anywhere”) are simply inadequately prepared to do so—in terms of experience, capital, personnel or all three. And some of the markets they are targeting may already be on the verge of a bubble in the form of inflated initial fees or excessively ambitious territories.

In their haste to ask, “Is the international market ready for me,” too many franchisors may be neglecting the even more fundamental question, “Am I ready for the international market?”

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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