Starting an international franchise is both an exhilarating and daunting prospect. Before you make that leap, you’ll need to jump through a lot of other hoops, and gather as much information as you can. Here are five things you need to know before embarking on a foreign franchising journey.
Starting a franchise in a foreign country is a fantastic opportunity for a franchisor to expand operations, and many franchisors are looking for potential international franchisees. Before you dive into an investment, you’ll need to get all your facts together.
How feasible will it be to operate the franchisor’s business model abroad? Is it adaptable enough? Is your chosen franchisor flexible enough? These are just a few of the important questions. Before you start an international franchise, find out everything you can.
Starting a franchise in a foreign country
As you embark on your international franchising journey, you’ll need to understand the four models of franchising that might be used:
- Master franchising - This is the most popular international franchise model. In a master franchise arrangement, the franchisor appoints a master franchisee (usually local to the country/region being expanded into), and this master franchisee is given master franchise rights, not too different from the rights of a franchisor, in exchange for a larger investment.
- Regional franchising - If it won’t be possible for a single master franchisee to manage operations in the new territory, a number of regional franchisees is the next best option.
- Direct franchising - In this model of franchising, franchisors retain control and licensing of their franchise, and no master franchisees are appointed. This is considered more challenging when it comes to franchising abroad, as it’s helpful to be able to rely on someone who understands the market, culture, language, legal system and regulations of the new country.
- Area development - This is used when sub-franchising isn’t a possibility, and it involves an agreement between the franchisor and new franchisee regarding who will take on the role as franchisor for a specific region.
Recruiting a central franchisee in each market to help oversee, train and guide your franchises in the different markets is a plus. Look for someone who can provide you with local knowledge and insight, then use localisation experts and language translation service providers to help ensure that you don’t fall foul of local customs, legal disputes, employee disputes or regulatory problems.
Though it’s not something that all franchise owners do, the regional distribution of international franchise exportation is as follows [British Franchise Association]:
- 22% operating in Europe (this includes the Republic of Ireland)
- 4% operating in the US
- 15% operating in other locations worldwide
Starting a franchise in a foreign country comes with the following key advantages:
1. The ability to expand your product range and reach new customer bases.
2. The chance to gain valuable knowledge about a new country, language and market from a master franchisee (including potential cultural barriers and important regulations).
3. The ability to expand your franchise in an efficient, profitable way.
4. The opportunity to develop numerous income streams.
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Five important things you need to consider before franchising abroad
1. What barriers might stop you from achieving success?
Moving your franchise overseas can be a complicated process, and you’ll need to carefully consider and account for the following barriers to growth [British Franchising Association]:
- Foreign legislation
- Barriers of language
- A lack of suitable franchisees or sites in the new location
- A lack of financial resources/means
- Poor expansion management
2. What will your expansion model be?
Multiple models of expansion are possible when it comes to franchising in a foreign country, and it’ll be important for you to determine the right model for your franchise, based on your financial situation, your time commitments, and your available supporting personnel. That model might be:
- Registering a company overseas
- Registering as a foreign trading entity
- Operating as a local franchisor
- Appointing a master franchisee
>> Read more:
- Franchising 101: The Official Franchise Start Up Checklist (Part 1)
- Franchising 101: The Official Franchise Start Up Checklist (Part 2)
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- Franchising 101: 8 Signs You're Ready to Start a Franchise
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3. What laws will you need to know and obey?
It should come as no surprise that when starting a franchise overseas, there will be many different legal considerations and requirements involved in the process. While these considerations might seem intimidating, they’ll feel as standard as the rules in your original company of business once you’re used to them.
It’s a good idea to hire a solicitor to guide you through the process in greater depth, but in general terms, there will be five main legal areas to figure out:
- International franchising laws - A lot of countries, including some within the EU (Spain, Belgium, Sweden), have laws surrounding the provision of disclosure.
- International company laws - Be aware of the system of registration and the legal requirements, as it’ll differ between countries.
- Local tax laws - Take note that you may be subject to additional tax, depending on the country.
- Import/export laws - Though trading overseas has become easier in the last ten years, there are still many regulations and requirements that must be met. Be aware of the process and the associated taxes that come with importing and exporting.
- Employment laws - Your best bet here is to ask for some local advice on employment laws, including information about the minimum wage, the training requirements, and the statutory entitlements and benefits.
4. Do you own your intellectual property rights?
When expanding your franchise overseas, you’ll need to make sure you own the intellectual property rights to your business. It’s a simple process to sort via registering your international trademark.
5. What other practicalities will need thought?
Make sure you consider other obvious practicalities that might stand in your way, such as language differences, currency differences and changing conversion rates.
How to start a franchise in a foreign country
Once you’ve thought everything through, what comes next? How do you actually go about starting a franchise in a foreign country? In simple terms, it’s a six-step process:
1. As a franchisor, ensure your franchise’s viability for this kind of expansion.
2. Create an appropriate international franchise business model, and complete a lot of research as you do.
3. Consult a solicitor who specialises in international franchise expansion operations.
4. Respond to any recommendations from your solicitor and make any necessary changes to your business model and future plans.
5. Start the franchisee recruitment process.
6. Determine the right type of franchisor-franchisee relationship for the international arrangement.
7. Start the employee recruitment process in your new area.
8. Launch your brand new franchise!
Expanding your business internationally can be one of the most difficult yet rewarding business challenges for any company. If you get it right, it can turn your business into a global brand and significantly increase the value of the business.
An international franchising opportunity could be perfect for you
If you’re looking to expand your operations, international franchising could be an exciting opportunity for you. Make sure you continue to do your research as you explore the possibility, and keep up-to-date with the latest franchising news and trends.
If you’re a potential investor looking to become a UK franchisee, explore Point Franchise’s UK franchise directory for suitable opportunities.
Lily Sweeney, Point Franchise ©