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Beware of an opportunistic approach to international development

Beware of an opportunistic approach to international development

If you’re looking to expand your brand overseas right now, consider these key factors when developing your strategic road map.

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International expansion offers an attractive growth vehicle for many franchised concepts. Even if your home market is a sizeable one, like the U.S.A., it still represents only a fraction of the global economy. As they say, it’s a big world out there. Furthermore, advances in communications and technology have made it easier than ever to expand internationally.

Nevertheless, it is critical that companies be cautious not to expand internationally with an opportunistic approach, even though, it can be tempting and enticing. We’ve seen it happen over and again, typically when a successful and up-and-coming concept gets approached by potential partners from a different country. They come knocking on your door, paint a rosy picture of the potential for the brand, and offer tempting commercial terms. Although this approach can work, chances are that it won’t, and the costs might outweigh the benefits.

To further understand how this can happen, let’s look at successful international development for a moment. Successful international expansion is almost always grounded on a strategic and thoughtful approach that takes into account a few critical considerations, listed below. It is helpful to compare how the approach differs between a strategic versus an opportunistic approach, in each of these factors:

Market attractiveness

Selecting the right market(s) should be the foundation of any expansion strategy. If you are seeking to get the most “bang for your buck”, why not start with the market that has the highest business potential (i.e. potential size and profitability) as well as the highest probability for success (i.e. fit of the concept, competitive landscape, etc.). While you might get lucky and be approached by a group in an attractive market that makes the most sense for your brand, chances are that you won’t. Hence, you should begin this process with a strategic approach that starts with an analysis and prioritization of markets, based on several factors: market characteristics, economic, commercial, governmental and others.

Each business concept is unique, based on its brand proposition and key drivers; as such, each will have a different list of top potential markets. To start the journey, it is critical to know what these are for your brand.

Adaptation

Another key consideration for a successful international roll-out relates to adaptations required for your concept. These can span various areas, but typically revolve around localization of the core offer, as well as operations, supply chain, and branding elements. For illustration purposes, core offering adaptation might involve tweaking your programming offered in a service business, or localizing the menu of a restaurant, both with the purpose of recognizing cultural and/or market needs to make it more locally relevant.

The branding considerations relate to the appropriateness of the brand positioning, marketing strategies and plans. The messaging, imagery and channels might need to be adapted, as well. When taking the opportunistic approach, the franchisor has not thought this through, and will be pushed to make rapid decisions, resulting in too much or not enough adaptation. A strategic approach will allow for careful analysis and alignment on what would be acceptable, and what the specific guidelines are, as it relates to adaptation needs.

Infrastructure and operating considerations

To be able to adequately support a market overseas, there are several infrastructure and operating considerations that need to be carefully thought out. This includes trademark and domain registrations, preferred business structure – considering the tax and legal implications, as well as having a team in place to support the new market cross-functionally.

Franchisors that take the opportunistic approach often try to leverage their existing teams to support this new market. They often overlook the amount of work that this might require, especially in operations, training, marketing, design and supply chain. Unless the existing teams have lots of free time, which is rarely the case, the teams will not be able to successfully take on the additional load required to launch and support a new country. This is only exacerbated by potential language barriers and different time zones. A strategic approach allows the franchisor to plan on the required infrastructure based on the target markets and the development timeline. Also, it ensures that nothing is overlooked from a legal and tax point of view.

Financial

The reason to expand the brand is to ultimately create value and drive financial returns, so it is important that concepts are purposeful in their financial planning. With an opportunistic approach, it can be tempting to pursue new deals that will generate a lot of revenue, much of which is not re-occurring. However, there often is excessive focus on the top line revenues (e.g. franchise fees, development fees, royalties, etc.) that would result from the new market entry, without fully capturing the expenses (foreseen and unforeseen) to adequately support the venture – consisting of travel expenses, incremental headcount, research, legal fees and many others. Without carefully taking the time to understand these expenses, there might be faulty optics as to the financial benefits of launching the new market – both in absolute terms, as well as with the required time for ramp-up.

A strategic approach allows for capturing all of the assumptions, based on careful analysis, into a financial model that accounts for the incremental revenues, as well as the ongoing expenses and up-front investments.

Although entering into a new international market in an opportunistic way might work, the odds are against you. So, if international expansion is something that your brand aspires, it would be best to start developing the strategic road map and considering the key factors we’ve outlined above. That way, if you get that knock on your door before you go out knocking, your response will be strategically informed based on the roadmap you have created.

ABOUT THE AUTHORS

Enrique Kaufer brings over 20 years of experience launching, growing and managing global businesses across various industries with companies including GNC, Jamba, PepsiCo and American Express. Find out more at expansion-consulting.com

Mike Kehoe has spent the past 20 years developing businesses internationally with Procter & Gamble, the Coca-Cola Company, Bloomin’ Brands, FOCUS Brands and Subway restaurants where he is currently the EMEA Region President.

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