If you’re interested in taking your business to different territories, you’ll need to know how to effectively prepare your franchise for international expansion. Many franchisors are concerned about the impact of launching their business in faraway places and appointing strangers to oversee it. You may be worried that your brand strategies and identity will not be properly enforced, causing your reputation to suffer, or that your business model is not suited to foreign cultures. However, with the right preparation, international expansion is usually possible – and can be highly lucrative.
But first, what are the advantages of expanding internationally?
Advantages of expanding your business abroad
• Reach a larger customer base – One of the most obvious advantages is that you can offer your products or services to more people. This is not only financially rewarding, but personally rewarding too.
• Find more talent – By recruiting in different countries, you’ll have access to a new pool of potential employees, who could offer skills and knowledge that you can’t find as easily in your home country.
• Boost your brand awareness – If you set up more businesses under your unique branding in other countries, you’ll expose your brand to a fresh group of consumers. If it provides quality products and a positive service, you’ll succeed in maintaining a good reputation internationally. This will give your business more credence in the eyes of consumers and give you an edge with the competition. In turn, this should boost your long-term profitability.
• Minimise risk – By managing a greater number of business outlets, you can protect yourself against the risk of insolvency. For example, your premises in one particular region could be damaged by a natural disaster or lose profits due to an economic crisis. But, if this happens, you should be able to rely on the money coming in from your other sites to keep you afloat. In the same way, you can avoid dips in profitability when trends die out in certain locations. Your products or services may continue to be popular in other regions, giving you time to work out your next move.
• Benefit from government incentives – Some countries offer monetary incentives to business owners that establish their company there. The arrival of new businesses is good news for most countries and regions, as the economy benefits from it. That’s why some franchisees that set up businesses in foreign countries are offered rewards such as tax discounts.
• Access lucrative investment opportunities – There are more investors in certain parts of the world than in others. If you launch your business in a country with plenty of investment prospects, you may be able to access greater funds than you did in your domestic market. This will enable you to add real value to your business and develop it, which will help you further safeguard it against risk.
>> Read more:
If you’re looking to build an international franchise empire, you’ll need to put in an incredible amount of hard work to achieve your goals. Expanding into new territories can be hugely rewarding, but it’s not without its risks.
Before you even begin considering launching a global franchise, you need to ensure that everything is running smoothly at home. Is your domestic franchise network operating as well as it should be? Are there further opportunities for expansion in your home country? Are you in the position to step back from the responsibilities of your existing franchise units to focus on expanding into a new country? Here, we take a look at the two primary models used to facilitate international expansion and a five-point plan to help you prepare for success.
2 models for expansion
There are two main international expansion models – although there are many more ‘hybrid' models you may want to research too. Both of these models have a distinct set of advantages and disadvantages, and both are suited to different contexts.
The first is direct franchising. This is fairly similar to the basic concept of franchising that's used in domestic markets, but there are many notable differences. The second is master franchising, a model that's been specifically designed to facilitate a specific type of franchise expansion.
Direct franchising is relatively similar to the basic franchise model that you'll be accustomed to as a domestic franchisor. Essentially, you select franchisees in the target territory based on their ability to run a franchise unit as part of your network. They’ll sign a franchise agreement with you and will operate as a regular franchisee would. However, there are some noteworthy differences.
First and foremost, the legal system in which your new franchisee operates is likely to be different to your domestic market’s legal framework. This will have an impact on employee contracts, trademarks and your financial infrastructure.
Secondly, you may have to adapt specific franchise operating processes, procedures and protocols to suit the new market. International franchising involves a steep learning curve, so make sure you’re well prepared!
Master franchising is a unique franchise model that can prove extremely profitable in certain situations. It involves appointing a master franchisee – someone who will set up, operate and manage the franchise on your behalf, adapting it to the new market in the process. They’ll have the right to appoint their own franchisees and, as long as they abide by the conditions set out in the contract, will run the new territory as they deem fit – in accordance to the business model and brand guidelines. Of course, they'll take a more substantial cut of the profits too.
A master franchise is advantageous because it allows you to appoint a master franchisee that understands the target market. Also, it costs less than international expansion via direct franchising and still opens up a new revenue stream for the franchise.
However, it has its disadvantages too. With master franchising, you have to relinquish a certain amount of control and put your trust in your master franchisee. Also, the amount of profit you can expect to bank from the new territory is reduced, as a result of the master franchisee’s involvement and commitment to the business.
5 steps to international expansion
1. Understand your target market
The most important way you can prepare yourself for international expansion is by doing as much research into your target market as possible. Many things will differ from your domestic market, and you’ll need to have a firm grip on how things work if you're to have a realistic chance of success. You’ll need to consider legal systems, financial obligations, business culture, consumer culture and language barriers, amongst other things. If these differences seem insurmountable to you, it might be best to consider a master franchising agreement.
2. Do your due diligence
As with all business ventures, it’s necessary to do your due diligence and try to calculate whether or not your investment is viable. All franchise companies hoping to expand into a new market should examine the risks and identify serious obstacles that stand in the way of success. This will be more complicated than any other due diligence process you've been through, mainly because there are so many unpredictable factors, so be thorough and don't take unnecessary risks.
3. Protect your brand
Trademarks and intellectual property rights are not the same across the world. Research how to protect your brand and take the necessary steps to ensure that others aren't able to benefit from the use of your brand identity. Establish the legal framework by which you'll guarantee the proper use of your brand by your new franchisees.
4. Create operating systems for your new market
As you move into a new market, you’ll naturally have to change some of your operating procedures. Different legal realities, cultural norms and financial obligations will force you to rethink your operating manual and reshape it for the new territory. This is where your thorough research will come in handy. Apply what you’ve learnt about the new market, take advice from professionals and seek legal guidance.
5. Establish a monitoring system
When you’ve set up your new international franchise unit or master franchise, you'll need to think about ways you can monitor its progress. Since it’s established in a different country, it's highly likely you won't be nearby the vast majority of the time. This means you will need to implement robust communication protocols, request regular updates and reports, and work with people you can trust.
As you can see, there is a lot to think about if you’re considering international expansion. It’s not as simple as finding a franchisee in a new territory and getting them to sign a franchise agreement. Preparation is key to this process, and you won't have a good chance of success unless you take your time, find trustworthy collaborators and perform thorough due diligence. However, the rewards associated with international expansion are more than worth the effort - so get planning and preparing as soon as you can!
Point Franchise offers lots of master franchise opportunities – to browse them, click here.
Alice Tuffery, Point Franchise ©