Are you a franchisor with a network of thriving business units across the UK? It could be time to consider developing into an international franchise. It could be simpler to expand abroad than you realise, and there are plenty of advantages of going global…
First of all, what is an international franchise? Well, it’s a business run by a franchisor, who hires independent investors to manage individual units or groups of units across the world. Turning a franchise based in a single country into an international franchise can be a complicated process, and requires thorough research and planning.
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Advantages of an international franchise
- You can expand your business into another country without having to travel or develop an in-depth knowledge of the region. This factor is the main advantage of international franchising and the key motivator for many franchisors hoping to develop a global business. By recruiting franchisees who are local to your target market, you can avoid language and cultural barriers. Your franchisees will also have a solid understanding of the country’s laws, regulations and potential political issues, which should help you establish your brand in the country without facing too many complications.
- You can accelerate international growth with master or regional franchise agreements. Hiring individual franchisees to run each different business unit, you can save time and effort by appointing one person to manage all the branches in one area or country. You give a master franchisee exclusive rights to your brand and business model, and they develop a ‘sub-franchised’ network, hiring their own franchisee. In other words, they essentially become the franchisor for the target region. If a country is too large for one master franchisee to manage, you could use the regional franchising method. Divide the territory into smaller regions and give each one a ‘mini’ master franchisee.
- You can retain control with a direct franchise agreement. Many franchisors worry about losing authority when they start using master or regional franchise contracts. By initiating a direct franchise agreement, you can take sole responsibility for the training and recruitment schemes. This approach works well if you’re expanding into a country with the same language and a similar culture and legal framework.
Common pitfalls of using the international franchise system - and how to avoid them
Whether you run a franchise or an independent business, expanding into foreign markets comes with its complications. Establishing a business in a country with a completely different set of rules, regulations and expectations can be tough, but there are ways to sidestep these issues.
- Expanding into an unsuitable country - The international franchise model gives business owners the chance to reach customers they wouldn’t otherwise be able to, but it’s not a magic ticket to global domination. It’s likely some countries just won’t be the right fit for your business, so it’s vital you put in the hours and do a significant level of market research before you make your decision.
- Not fully appreciating cultural and legal differences in the target country - Many countries have developed detailed legislation around franchising, but lots haven’t - including the UK. You must be aware of all the restrictions and regulations governing franchises in your chosen country, and ideally, have a good understanding of any unofficial guidelines too. You can make sure you have all the right information by working with a legal advisor with experience in the franchise industry.
- Not adapting the brand - Once you’ve decided on a suitable territory and researched its legal systems, you should spend some time thinking about any necessary changes you’ll need to make to your brand. Can you see any potential issues with your business model or using your trading name abroad? Is it worth changing the focus of your product line or marketing campaigns? A solid market research plan will help you identify the right course of action.
- Overlooking the importance of disclosure documents - Although there are no disclosure obligations for franchisors establishing businesses in the UK, many countries have laws in place, which you must follow. Usually, you’ll need to give prospective franchisees a Franchise Disclosure Document (FDD), covering all the relevant pre-contract information. Make sure it’s always complete and accurate to avoid issues further down the line.
- Not protecting intellectual property - As a franchisor, your biggest asset is your brand, trade name and trademarks. When developing your international franchise, you must think about the intellectual property requirements in your target country. These laws differ from region to region, so you should consult a brand protection specialist, both in the UK and in your target country before beginning expansion. Legal professionals will be able to tell you how best to safeguard your business, and discuss the costs involved.
- Not adhering to exclusivity and pricing control regulations - It’s common to grant your franchisees an exclusive territory in international franchise agreements. But while this exclusivity stops them from selling your products or services outside their regional boundary, you must still allow your investors to complete ‘passive sales’. In other words, you must permit them to accept transactions they have not directly initiated. Online sales fall into this category, so you cannot prevent franchisees from promoting or selling your products and services on the internet. Also, you must not specify minimum prices for products or services, but you can dictate short-term price promotions. Knowing these regulations will help you establish long and happy working relationships with your franchisees.
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Running a franchise business
We’ve covered some of the most important international franchise regulations here, but there are others you’ll need to learn before you can get started with your expansion plans. We always recommend consulting a franchise lawyer, as this will give you the peace of mind you need to go into your franchise agreements with confidence.
Browse our other articles for franchisors to learn more about developing a thriving franchise business.
Alice Tuffery, Point Franchise ©