Considering expanding your franchise internationally? Ignore these pitfalls at your peril

Considering expanding your franchise internationally? Ignore these pitfalls at your peril

You’re ready to make that big move overseas. How you make that move can affect not only your business in that new market but the fate of your brand as a whole. Here’s how to avoid six common pitfalls

Expanding internationally passes through every franchisor’s mind at some point. It can be a really attractive way to grow your business quickly, but there are many challenges along the way to be considered. Here’s how you can avoid the pitfalls of an international development plan:

Firstly, make sure that your international expansion is instigated by you, not by somebody else

Often, it’s a blind approach that can first turn franchisors’ heads towards this path. It can be very flattering to receive an email from a prospective investor – almost like a pat on the back for the business they’ve built. UK businesses in particular often receive investment offer approaches, often from the GCC or China, which have been made purely on the basis of the prestige associated with the words “Made in the UK”.

An offer can come in from anywhere. Perhaps it’s somebody in a different continent, or in a city the recipient enjoys vacationing in. This can make it extra-tempting. However, it’s important to make sure it’s the right move for your business. The franchisor may consider that international expansion would be the perfect growth route for their business. However, that’s not always the case. So, if a franchisor is seriously entertaining these sorts of offers, they need to make sure that they go through the following steps, to ensure their global plans are set up for success. This leads us seamlessly onto point 2:

It’s vital to identify the initial key markets

Any business owner in the UK ̶ not just franchises but any business owner looking to expand - should look at their key markets. Who and where are they? With international expansion, I tend to see franchisors leaning towards countries that speak English. A very popular choice is America, perhaps because it’s the home of franchising.

Unfortunately, the reality is that most businesses that have tried to franchise into America have failed. The US has a fantastic franchising industry, absolutely overflowing with great brands. This makes the US franchise market incredibly hard to penetrate.

We also need to remember that English isn’t always English. While the language parallels, the key to great marketing is in the nuances of communication. After all, there are even differences between marketing in England and Scotland, for example. The local population will have their own ways of speaking, their own terms, expectations and their own marketing phrases that will resonate with customers. Franchisors are often surprised to find that promotion in a new country isn’t as simple as replicating the way you would promote your business in your home country.

While English-speaking countries are often considered the “easy route”, in many ways, it’s the opposite. You need to make sure that, rather than planning for convenience, you plan for nations and markets suited to your business model. You should decide on your markets based on whether your business model will be a success – not on what language they speak. This, in turn, should be based on the demographics you know, and research you’ve done – see point 4.

Make sure you’re prepared from a UK perspective

When you’re looking to branch out overseas, you need to make sure that you’ve got a suitable head office to support your overseas franchisees. It’s important to have this set up before you start planning any further in detail. Before setting up a master franchise, make sure that you’ve got a strong team in place. They need to be prepared to work across different time zones. You need team members who understand the cultural nuances and differences between different cultures, so that they are able to deal with international partners in an appropriate manner.

They must also understand that what works from a business perspective in the UK doesn’t necessarily work overseas. The application of legislation is just one example of this. Employment law in France, for example, is very different from employment law in the UK.

Research and plan for your chosen markets

A great way to fast-track this process is to speak to an established international consultant who has experience of exporting brands over to different nations. Nothing beats your own research, and we’ll go onto that shortly! However, the knowledge of an expert is invaluable. They will be able to give their insight not only on franchise investments but also on the investment community as a whole. They will know the types of industries that are attractive to investors, and also be able to give a reasonable opinion of your chances of success (or otherwise!).

Once you have the experts onboard, it’s essential that you visit the region itself, and identify the main promotional routes you would look to use there. International consultants will be able to help you on a high level, but they will not have the in-depth knowledge of what works and what doesn’t on the ground – and that’s when you need to get out there. You can look at local magazines and recruitment websites, and visit exhibitions to better understand the way that franchising is done in that nation.

This is because the way franchising is promoted in each country is different. Attending a franchise show in the US is extremely different from attending a franchise show in Turkey, for example. You need to make sure that you spend time speaking to other franchisors and get a feel for how franchising is done in those areas.

You can then begin building relationships with the professional advisors in both regions because those who have helped you to franchise in your home state aren’t necessarily the ones who will be able to help you franchise overseas when it comes to the nuts and bolts of actually setting it up. If you are a retail or food and beverage franchise for example, what is the property availability like? What are the running costs? What are the legal issues etc – these are the things you will need to look into and consider carefully.

Relating to this, another thing to consider is that your banks, solicitors etc may not necessarily have a presence locally. In that case, you would need to find local legal and banking advisors so that you can set your master franchise holder up for success. This is, of course, something you will revisit once you eventually have an area developer or master franchise holder.

Make sure the deal is equitable for all sides

Once you’ve done the research on the ground, it can be very tempting when doing an international deal to just try and push something under the line, so that you can wave that flag and say that you’re international. However, if you undervalue your franchise at this stage, then the likelihood is that you are not going to invest in the joint growth of your first region. This, in turn, could decimate your chances of going into other nations moving forwards.

Ensuring an equitable relationship with both a fair investment from the master franchise holder AND a fair input of time and efforts and resources from you is essential to make sure that your international venture is a success. But what does that mean in practice?

International expansion isn’t something that you can just chuck money at and expect to just run smoothly. It requires your international development manager or indeed yourself as a franchisor to be there and help nurture the area developer or the master franchise holder. This will help them grow into the role of being a regional franchisor, and allows you to avoid predictable – and avoidable – problems.

If you leave them to go off under their own steam and set up a franchise themselves, without any real help or support, then the likelihood is that they will make the same mistakes that you may well have made early on in your franchise journey, such as selling territories that are far too large, negotiating deals with franchisees that don’t actually work for the longer term of the business, and setting up a negative culture. You need to make sure that you help and support them. You need to temper their enthusiasm to focus on getting a return on their investment and help them to develop a franchise network that is sustainable in their region for the long term.

I can’t emphasise enough how important it is that this process is done properly, not only for the success of your expansion into this market but also future ones. Ideally, you want the first nation you enter into to be able to be used as an example for any future international sales.

Get the legal side sorted

Finally, and crucially, it’s important that you don’t let the tail wag the dog. While you’ll need to allow your master franchises or area developers to have agreements and comply with legislation with their franchisees in their local jurisdiction, you need to ensure that you have your agreements in a jurisdiction that you are happy and comfortable with. It should be you dictating the terms of how the master franchise agreement should take place, not them. This needs to be something under your control – however, it’s also important to balance that with allowing them to apply the relevant legislation that they have within their nation to their franchisees.

The legislation that applies to a business relationship between two parties may be different in another country. Understanding the dynamics of that and how it works and in particular, the implications of it to you as a franchisor is vital. The best way to do that is to take some strong legal advice from an accredited solicitor, with experience in international matters.

ABOUT THE AUTHOR

Carl Reader is founder of the #BeYourOwnBoss movement and chairman of business advisory firm d&t, which has over 2,500 clients in the UK. Carl has been on TV and radio a number of times including BBC News, BBC Radio 1 and BBC Two, talking on a wide variety of business-related topics. Carl has written two books on starting up a business and his new book, Be Your Own Boss, is due to be published shortly. Carl’s third book will demystify the business world and encourage readers to become their own boss by starting up a business.

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