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Going International

It's not a panacea for problems at home


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But before you take that trip to Paris, Rome or Beijing, you need to take a step back and evaluate whether you are ready. Only then can you realistically begin to develop an overall strategic plan that will guide you when you make your market-specific decisions.

The possibility of planting their flag on distant shores has always been attractive to franchisors. After all, what's unattractive about large, upfront country fees and receiving a passive flow of income for the life of the contract? You even get to visit countries you've only read about.

If you are nodding your head because the last two sentences resonated with you, in all likelihood you have never done any international franchising. Sorry to get your hopes up - it does not work that way.

International franchising is not passive - nor is it a quick fix for what ails you if your domestic franchise system is in trouble. But if you have a realistic understanding of the process and the costs of going international, there really are worse things to worry about than the fluctuations in currency exchange.

But before you take that trip to Paris, Rome or Beijing, you need to take a step back and evaluate whether you are ready to move offshore. Only then can you realistically begin to develop an overall strategic plan that will guide you when you make your market-specific decisions.

You need to begin by evaluating how you will support your international channels, the services they will require and the financial and human resources you will need to employ. The first step is to conduct a Gap Analysis that matches your current resources against what you anticipate will be required. By working through a proper Gap Analysis, you should begin to understand what you have and what needs to be developed. You will start to get a clearer picture of what resources you may need to take from your current operations and how doing so impacts your current base of operations. Franchisees, for example, may be excited to know you are expanding their brand overseas - until they discover their current field management support team will be shared with the franchisees in Peru or Bolivia. You have to look at how international expansion will impact your current base of operations. Never ignore the date you brought to the party.

 

 

Michael Seid is the founder and managing director of Michael H. Seid & Associates (www.msaworldwide.com) an international franchise consulting firm with clients that include both established and new franchisors.

Michael can be reached atmseid@msaworldwide.com

Next you have to understand there is no right or wrong relationship structure. Each market may have different opportunities and requirements, and following what others claim is "best practices" may not be best practices for your brand. Don't leap to the conclusion on which particular type of franchising you will use. Let your decision on whether to use master franchising, multi-unit franchising or joint venture - or other structures - wait until you have an understanding of the markets you intend to enter. Making these types of global decisions in advance can get franchisors in trouble, as each has to be viewed in the context of market/regional specific issues.

Some of the other essential elements you need to examine in working through your Gap Analysis will include:

  • Your willingness and ability to adapt your brand and concept to different cultures and business and location requirements;
  • Your ability to meet supply chain requirements;
  • Your available human resources;
  • Your available financial resources;
  • Your ability to train franchisees;
  • And, any other elements of your current system your unit franchisees will require.

Let us not forget though that services you provide to your domestic franchisees may not be those you need or want to provide to international franchisees. For example, if one of the strategies you're considering is a master franchise structure, you'll need to train someone to be you. Master franchisees will have to support their system, in many ways, just like you do. Have manuals and training programs ready to teach them how to be franchisors: including how to select franchisees, how to provide assistance to their franchisees to find and develop real estate, training, field and headquarters support, marketing and everything else you will not be providing overseas. Simply putting them through your current franchisee-training program is not going to make the cut.

Only after you have the basics down, understand your gaps and have fixed or developed a plan to address them can you begin to plan your expansion by region or countries.

 Some items you will need to examine as you look at each country or region will include:

  • Legal requirements, IP protection and taxes;
  • Recognition of your brand;
  • Existing competition;
  • Cultural and economic acceptance of your current products and services;
  • New products and services you may need to develop for the particular market;
  • Operational and other advantages and disadvantages to entering any particular country;
  • Regions that provide the greatest opportunities for successful expansion;
  • Countries within those regions to be targeted for early or later development;
  • Best methods to use for expansion (master franchise, area representative, area developer, joint venture, etc.);
  • Profiles of your ideal franchise candidates;
  • Number of locations you will need to reach the desired market penetration; and support your supply chain, support requirements, economics;
  • Types of acceptable locations;
  • Terms of the franchise;
  • Types of retail marketing available or acceptable;
  • An understanding of your franchisee lead generation plan and budget;
  • The internal support organization you will need, and whether support will be provided from your current organization, centralized or regionally provided;
  • How you or your overseas franchisee will provide initial and continual training for franchisees, management and staff at their headquarters and the local operations;
  • Development and translation of manuals, training programs and other support materials;
  • And, a long list of etc.

You will likely notice I did not list franchise fees, royalties, advertising contributions, income from product and other sales and other economic considerations. These will be different from your domestic franchise system where there may be little or no negotiations. Internationally, negotiating is something you should anticipate.

Understand what you need in order to be successful internationally; and what would be nice to have, but may not be essential to the relationship. Before you discuss any market specifics, take the time to develop a "negotiating box." This will enable you to avoid making emotional mistakes. If you know what you need in advance, you are less likely to enter into bad relationships.

 

Fixing problems overseas is often more difficult than domestically. Even if you win the legal battles, enforcing your rights may not be easy. Get it as right as you can at the beginning.

One thing I alluded to earlier, but I know is important to repeat in bad economic times is don't expect overseas expansion to solve your domestic issues. It won't. In fact, it might make some problems worse. Take your time. Work with legal and business professionals that have done this before. Talk to other franchisors you respect and who have been successful in the regions or countries you plan to enter. Take a deep breath or two. Once you understand what going international means to your current domestic system, and if you are ready, learn the basics of the foreign languages you will need to show some respect, take a crash course on cultural business issues, use your U.S. government offices and remember to take some time overseas to see the sights. After all, you might as well take some vacation time. By now, you will need it.

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