The general principle on which franchising operates – recycling a proven business model – already lends itself to multiple outlets in one country or region. Therefore, in theory, there should be plenty of scope for expanding a franchise overseas in a similar way.
A foreign foray is indeed possible but there are specific issues that should be carefully addressed by franchisors to avoid expensive mistakes.
There are two main options available for this venture: direct franchising and master franchising. Let’s look at the attendant issues for both…
Direct franchising
Establishing a business presence in another country is a bold step that won’t succeed without full commitment at senior management level. The enterprise must be founded on a desire to at least replicate the home market success and be underpinned by a good strategic awareness of how such a move will be achieved.
Due Diligence
Develop realistic goals for your business plan and make certain your budget accommodates the international nature of your franchise project. It's unwise to commit to franchise deals before your planning phase has been completed. With a long-distance business relationship it can be difficult, but never impossible, to develop confidence and mutual trust. Most of the day-to-day routines will be the same as in the home market but nothing should be left to chance. Though unearthing and collating the details you need may be more expensive, not doing the job properly could prove even more costly.
Brand protection
All trademarks are subject to 'territoriality', so – just like laws – where they apply must be clearly defined. Franchisors must prioritise early applications, well before any marketing campaigns, and should never risk delegating this job to a potential franchisee.
Identify your market and sharpen your competitive edge
In order to attract candidates and convince them that your business model will succeed in their environment, your own market research and analysis must be thorough and comprehensive. If you can't sell your concept to potential franchisees, you will have to think again.
Polish your home reputation
You can be sure the candidates you most want to attract will check out your track record, and have the details at their fingertips. Would you even countenance working with those who didn't? Make sure all is ship-shape in your existing franchise network before heading overseas.
Create a documented system for each new overseas territory
In all probability, many aspects of your franchise will have to be 'localised' – for example, employment contracts in your target country won't be based on UK law. Marketing, business support systems and many other areas will also be strongly influenced by the prevailing culture and applicable legislation. How your model will adapt to these considerations must be specified in your documentation.
Create an Intranet for your organisation
It’s hard to imagine how a contemporary international organisation could function without Intranet facilities. In addition to the obvious cost benefits, management, training and support services can be delivered more effectively, and any access and time-zone problems are minimised.
Advice and support
Experienced professionals with local knowledge and contacts should be utilised to inform your market research and to help execute your due diligence. The information and insights gained will strengthen your planning and thus help spread confidence to potential franchisees.
System monitoring and regulation
Having planned and located your foreign franchise network, monitoring its effectiveness and evaluating outcomes is just as important to your success as it is at home – except the consequences of getting this aspect wrong are potentially more serious.
Master Franchising
Via the Master Franchise system, you can simply expand and replicate your UK franchise model by granting exclusive Master Franchise Rights to an appropriate Master Franchisee in your target country. This individual or organisation is then tasked with adapting the model to local conditions, including legal compliance, and will develop the franchise brand through sub-franchising, Master Franchisee networks, or a blend of each.
Regional Franchise
Where a Master Franchisee is unable to handle a large territory, as often happens in the USA, a small consortium of Master Franchisees are appointed. They will usually collaborate on overarching issues such as marketing campaigns.
Franchising via Area Development
Where sub-franchising is not permitted in a large territory, the area is still subdivided, though each area will have the same Master Franchisee who must own all locations. This specific arrangement is termed 'Area Development Franchising'.
Legal issues
When expanding abroad, a Master Franchisor must be absolutely clear about all applicable legislation. To give a flavour of the issues that can arise: franchising in some countries is often governed by the self-same laws covering general commerce without any special distinction. On the other hand, Australia, Canada, the US and some other jurisdictions, have franchise-specific legislation, whilst five EU states have 'pre-contractual disclosure obligations' relating to franchise contracts.