If you’ve hit a plateau growing your business in your own country, expanding your franchise into new markets in foreign territories could be the way forward. International development comes with its own set of challenges, but should allow you to continue reaching new goals and developing your brand.
For business owners who have seen success in their domestic territory, international expansion is often the next step in the growth process. But replicating a business in another country is a complicated task involving a great deal of forethought, expertise and experience.
So, what does international franchising entail, and how can you achieve your global growth goals efficiently?
What are the benefits of expanding your franchise into a new country?
According to recent research, 38 percent of franchises founded in the UK have expanded into other countries. So, international franchising is clearly a popular goal if you have the ambition and know-how to execute your international growth plans.
Here are some of the main reasons business owners choose to move into foreign countries:
- You can expand your business into another country without having to travel or develop an in-depth knowledge of the region
- You can accelerate international growth with master or regional franchise agreements
- You can retain control with a direct franchise agreement
Find a full run-down of the pros and cons of growing your business through international expansion in our dedicated article.
How do you expand a franchise into a new country?
If you want to develop an international franchise, it’s important you think carefully about which method you’ll use when growing your business. There are three primary models franchisors can adopt when developing a global presence: master franchising, area development arrangements and direct franchising. Here’s a little bit of information about each model.
1. Master franchising
You could say master franchising is the most straightforward international expansion model. You grant an individual or organisation in your target country the exclusive right to develop your business there. They’ll invest in your brand and use its systems and strategies to establish a presence in your specified area.
Master franchisees can operate their franchise network in one of two ways:
- They can run it directly, opening and managing a string of franchise outlets themselves
- They can decide to adopt a sub-franchise model, breaking up their territory into smaller regions and allowing franchisees to operate units within them
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Advantages of growing your business with the master franchising model:
- You benefit from territory expertise – Business and consumer cultures vary from country to country, and the differences could affect the success of your franchise in a given territory. Master franchising allows you to sell the rights to people with extensive knowledge of the target market.
- It simplifies the expansion process – If you use the master franchise model, you eliminate the complexities involved in establishing yourself in a foreign market and reduce the need for consulates tax arrangements.
- You can outsource critical responsibilities – You can concentrate on growing your business without having to deal with many of the most labour-intensive and time-consuming tasks.
2. Area development agreements
Area development agreements are similar to master franchise opportunities, but there are a few key differences. Most importantly, you grant franchising rights for specific areas or regions, rather than an entire territory. It’s a great option for large markets and when sub-franchising isn’t allowed.
Advantages of growing your business with the area development model:
- It allows you to continue growing your business without sub-franchising – Some countries don’t allow business owners to pursue sub-franchising arrangements, and establishing area development agreements is a good alternative.
- You get more control over your franchise units than with master franchising – Franchisors lose some control over their business as soon as they sign a master franchising agreement. But, with an area development contract, you can choose the franchisees who represent your business in each territory.
3. Direct franchising
If you want to pursue international franchising but are wary of selling rights to a third party, you could opt for direct franchising. You would expand into a new area and manage the process yourself.
There are various ways to execute a direct franchising arrangement. For instance, you could run new franchise units from your central headquarters, establish a subsidiary office nearby or hire an agent to run the territory for you.
Advantages of growing your business with the direct franchising model:
- You can maintain control – With a direct franchising system, you have the ability to retain complete control over your new territory. You’ll be responsible for day-to-day operations and can grow the business according to your own preferences.
- You can generate more revenue – By cutting out the middleman, you can boost your franchise’s income, as long as you meet your growth targets in the new territory.
- You can use the system to test your franchise in new markets – The cultural, linguistic and economic differences between your home country and target territory could create challenges when growing your business. But you can use the direct franchising model to test the waters before switching to an alternative model if you decide you want to take a different approach.
Deciding how to approach international franchising
The success of your international franchising journey will depend on whether you choose the right system for your business. Each has its own advantages and disadvantages, so you should consider the current size of your business and the amount of control you want to retain. You’ll also need to think about the unique characteristics of your target market(s).
Of course, you could consider alternative methods of growth, such as joint venture agreements. This flexible approach isn’t strictly a franchising system; you team up with one or more partners and collaborate on a specific project. You could create an entirely new business entity or operate together under an agreed contract.
International expansion is a powerful way to fuel growth, but you’ll need to plan and execute it carefully if you’re to succeed.
>> Read more:
- 5 Qualities of a Successful Franchisor
- 5 Reasons Why A Strong Franchisor-Franchisee Relationship Is So Important
- 5 Ways to Keep on Learning as a Franchisor
- Franchisor Tips: 6 Mistakes to Avoid When Running a Franchise Network
- The 8 Primary Roles and Responsibilities of a Franchisor
- Franchisor Tips: 10 Traits That Make a Good Franchisor
- Why it’s Important for Franchisors to Visit Franchisees.
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Alice Tuffery, Point Franchise ©