International..

Going international

Just because you can, doesn't mean you should

By Nancy Weingartner
As published in: Franchise Times - January 2009

When it comes to international expansion: Do not ask what a country can do for you, ask what your company can do for that country.

There is a world of reasons to go international, but funding your domestic operation isn't one of the better ones.

At least that's the consensus of a panel of experts who spoke at the Faegre & Benson International Summit late last year in the Twin Cities.

Previously, the international equivalent of the prospect-fogging-the-mirror criteria for domestic franchisees was a foreign partner who spoke English. Experience has taught us, however, that a good partner can make or break international expansion.

"International won't fix domestic problems or generate enough cash," warned Kay Ainsley, partner with Michael Seid & Associates (MSA). "That one-time fee goes to the bottom line (just) one year."

But that doesn't stop franchisors from dreaming. Ainsley said MSA continuously receives phone calls from franchisors wanting to know how much they can sell a country for. She tells them to slow down. Overseas expansion is not a panacea, even if you have someone from a "hot" country interested in opening units for you, she said. Before you invest thousands of dollars to take your concept international, ask: Is there a demand for the product? Can the ingredients be sourced locally? What will it cost to go there? What will the market look like? Do you want company units?

Brian Schnell of Faegre & Benson, the law firm that hosted the international summit.

Sometimes waiting pays off. "When I was with Domino's, we'd let Pizza Hut go in first and educate people about what pizza is and then we'd go in and say, 'we deliver,'" she said.

Dave Hood, president of The iFranchise Group, suggested that companies franchise what they know - first regional, then nationally, and then try international.

Not all markets are created equal. "You have to look at the size of the market," Hood said. "By the time you split fees with the master in a small market, no one's making money."

And beware of unexpected costs. "Stores in developing countries need to be refurbished a lot sooner," said Hood, causing the lawyer to weigh in. "Have on-going discussions about refurbishing," advised Brian Schnell of Faegre & Benson. Require - or strongly suggest - they set money aside to pay for it when the time comes," he added.

Break it down into three parts, Hood suggested: maintenance, technology and trade dress upgrades.

It's who's in the know

Kerry Bundy, Faegre & Benson, presented at the franchise portion of the event.

Defining what makes a good partner was easy. It's someone who has extensive knowledge of the local market, who knows what's expected of them and has the tenacity to get the job done, the group agreed.

Knowing your partner's skill set is important, according to Kerry Bundy of Faegre. They may be able to operate stores well, but running a region is a different skill set than running individual stores. "You have to teach them to be a franchisor," she said.

Use the U.S. Department of Commerce," said Tony Foley, president of World Franchisors. "Their services are available to all of us; they're paid by our taxes."

A franchisor's Web site is also important when looking to attract overseas business. "They're checking us out as much as we're checking them out," said Lee Vala, senior vice president of global development at The Alternative Board (TAB), a coaching franchise based in Denver. Is your Web site focused on the consumer and franchising, but not international franchising?" he asked rhetorically. "Have an international button (on your site) with at least two or three different languages," he said.

Get ready to fly

David Hood of iFranchise warned franchisors to look at the size of the market before expanding overseas.

Vala said doing business internationally is not the same as domestically. "Our nature is to fly in and get the deal done and then fly out," he said. "That's not going to work internationally. You have to get to know the country and the partners."

Prepare before you fly, suggested Foley. "Study where you're going, read about it, understand it," he said. "Get there early and learn how they do business. It can take weeks, months. Don't be anxious to close the deal."

Don't sign an agreement unless you - or your vice president of international - have visited the country.

"You can't run a country from your office," an audience member said. "Get on a plane, visit the country, explore it. You could be underselling; you could be overexpecting."

"If your vice president of international doesn't have a passport, you're in trouble," Schnell quipped.

And, when you do take the time to build relationships, "make sure the relationship you're building is with the decision-maker," said Mo Sawda of Buffalo Wild Wings. And, don't limit that relationship to just one person - since turnover happens.

International expansion brings up interesting challenges, such as the one posed by Sawda: "In Saudi Arabia, women are not allowed in restaurants. Our president is a woman, should we not go there because it's against our values?"

Another example? Can Church's Chicken open in Saudi Arabia under that name? And if it can, should it?

All to point out: In international expansion, there's no such thing as too much counsel.

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Franchise Times - January 2009