A guide to expanding your franchise abroad

21/07/2018 08:00 | Start a business

Guide to expanding your franchise abroad

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 the birth of your 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 nation? 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 draft a brief, five-point plan that should help you prepare for the process.

The two models for expansion

There are two primary models for expansion into international markets, though 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 quite different contexts. The first – direct franchising – is fairly similar to the basic concept of franchising that's used in domestic markets, though there are many notable differences. The second – master franchising – is a model that's been specifically designed to facilitate a specific type of franchise expansion.

Direct franchising

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 market based on their ability to run a franchise unit as part of your network. They’ll sign a franchise agreement with you as the franchisor 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 will be different to your domestic market’s legal framework. This will have a particular impact on employee contracts, trademarks, and your financial infrastructure. Second, you may have to adapt specific franchise operating processes, procedures, and protocols to suit the new market. International franchising boasts a steep learning curve, so make sure you’re well prepared!

Master franchising

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. 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, it costs less than international expansion via direct franchising, and it still opens up a new revenue stream for the franchise. However, it has its disadvantages, too. With master franchising, you do have to relinquish a certain amount of control and put your trust in your master franchisee. It also reduces the amount of profit you can expect to bank from the new territory.

Five 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 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, amongst other things. If these differences seem insurmountable on your own, it may 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 your investment is viable. All franchise companies hoping to expand into a new market should examine the risks and establish whether or not serious obstacles are standing in the way of success. This will be more complex than any other due diligence process you've been through, mainly because there are so many unpredictable factors. Be thorough and don't take unnecessary risks.

3. Protect your brand
Trademarks and intellectual property rights are not the same world over. Do your research on how to protect your brand, take the necessary steps to ensure that others aren't able to benefit from the use of your brand identity, and 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. Having been established in a different country, it's highly likely that you won't be present the vast majority of the time. This means that you need to implement robust communication protocols, request regular updates and reports, and work with people you can trust.

As you can see, there’s 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 started planning and preparing as soon as you can!

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