For many companies, franchising internationally can be a very appealing and exciting expansion option. the opportunity to become a global brand and create new international revenue streams can seem the natural next step once a company has established itself in the UK.
This may well be the case but there are a number of different ways to franchise internationally and it is essential to choose the version that best suits the business. This article will consider the three main international franchising models and highlight the key considerations for each.
International master franchises
This is probably the most common international franchise model. In this model you appoint someone who will undertake a very similar role as a franchisor would do with their unit franchisees.
The master franchisee will be responsible for researching their local marketplace; setting up local supply chains and logistics; adapting the UK systems and process for their country; establishing a head office structure to manage and support their franchisees; recruiting and training local franchisees, ensuring unit franchisee compliance and providing general unit franchisee support.
In essence a master franchisee takes everything the franchisor has developed and adapts it for their local marketplace, within the franchisors guidelines, and runs the franchisors brand in their country.
The master franchisee model has many attractions. The franchisor does not need to have in-depth knowledge of different countries, as it is the master franchisee’s role to understand how best to adapt the business to be successful in their country.
In addition the physical and financial resource required of the franchisor when entering a new country is relatively low as the master franchisee will be responsible for launching and running the business in their country.
Adopting a master franchisee model may seem the ideal way for a business to expand internationally; however in practice there are many potential pitfalls when master franchising. The most critical element is finding the right master franchisee. Given the cost to become a master franchisee often runs into the hundreds of thousands of pounds, there is a temptation to take whoever has the necessary funds.
However choosing the right master franchisee is so critical. The master franchisee needs to be someone who has a high level of business acumen but at the same time can respect the fact that it isn’t their brand and that they must operate within the constraints of the company.
In practice, if you don’t select the master franchisee, conflict can arise over how the master franchisee wants to tailor and operate the business. It is therefore essential, if you wish to expand using a master franchisee model that it is clearly documented as to what the master franchisee can and cannot do.
In addition, it is often advisable for the franchisor to keep control of all developments required to central platforms, such as developing an international website; back office it and accounting systems; and digital media platforms.
International area developers
An international area developer expansion model is a reduced version of the master franchisee model. With area developers, the franchisor grants the right for someone to operate within a smaller defined territory, often within a specific city or local area. The franchisor however will be responsible for adapting their business model for the local marketplace, setting up the supply chain and infrastructure required by the area developer.
The franchisor will train and provide ongoing support to the area developer. This means the franchisor has much greater control over how the area developer operates.
One of the downsides to using an area developer model is the cost and resource the franchisor has to commit to tailoring their business for each international market, providing area developer ongoing support and ensuring area developer compliance.
As the area developer typically has a much small territory than a master franchisee, the fee a franchisor can charge for an area developer is often much less than the fee for a master franchise.
However, conversely, the ongoing fees a franchisor can charge an area developer are normally much higher than they can charge a master franchisee, as the franchisor has to do a lot more to set-up and support an area developer compared to a master franchisee.
International unit franchisees
The third main international franchise model is international unit franchising. in this model the franchisor will recruit, train and support individual unit franchisees in different countries themselves, in the same way they would do with unit franchisees in the UK.
Therefore international unit franchising requires a very high level of franchisor involvement both in setting up their business in each country and in managing and supporting their franchisees. This means that the franchisor will have to have a very good understanding of each country they are entering, from the legislation that will affect them, to the infrastructure and supply chain required, and to the buying patterns of local consumers.
One of the main reasons why companies choose international unit franchising is so that they can maintain maximum control over every franchisee in every country. This however comes at a high cost, as the franchisor must invest in systems and staff to provide the necessary infrastructure and support required by every unit franchisees.
When considering internationally franchise expansion there are a number of different models. Each of these models has its pros and cons and therefore it is up to each company to assess which model best fits their business, their internal structure, and their ability to deliver the differing levels of resource, infrastructure and ongoing management each model requires.
Whilst having summarised the three main international franchising models of master franchising; area developers; and unit franchising, it is possible for a company to implement different models in different parts of the world. this could mean master franchising where a company has very little local knowledge and presence, but unit franchising in countries where the company has an existing presence and already has the infrastructure in place.
When considering international franchising it is essential to understand a company’s own ability and resources, as this will dictate how hands on a company can be, and in turn which model(s) are most suited to them. Done correctly, international franchising can be an excellent way to create a global brand and new international revenue streams.
ABOUT THE AUTHOR
Clive Sawyer is a renowned multi-book author on franchising and also Managing Director of Business Options, a specialist franchise and business expansion consultancy. Clive is also founder and CEO of Encouraging Women into Franchising (EWIF), a non for profit organisation whose mission is to support, encourage, educate and inspire more women into franchising. www.businessoptions.biz www.ewif.org
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