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The State Of International Franchising

Why so many U.S. franchises are sold on overseas expansion . . . and how international franchisees can benefit

When the word "saturation" started crossing the lips of industry experts a few years back, many franchisors started looking overseas for markets that might accept their uniquely American way of doing business. What they found was a garden of markets ready for growth.

"The concept of franchising is strong overseas," says Marcel R. Portmann, vice president of emerging markets and global development for the International Franchise Association (IFA). "The number of U.S. franchise companies expanding outside the U.S. border is growing steadily." Currently, the IFA counts approximately 300 U.S. companies (of about 2,000 total) that have international franchise operations.

International consumers are embracing franchise concepts, agrees international franchise consultant Kay Marie Ainsley, managing director of Michael H. Seid & Associates in Troy, Michigan. "Although it varies from country to country and industry to industry, consumers all over the world want access to products offered through franchising," she says.

Products ranging from hamburgers (of course) to services like postal delivery have been big hits in international markets. And franchises like Mail Boxes Etc. are responding. Of the postal service company's 4,300 units, almost 900 are located outside the United States in 72 countries. In total, the number of new overseas franchise locations increased by more than 40 percent in 2000, and experts think the trend will only increase this year.

"The building of our brand outside the U.S. is a core objective for our company," says Peter Holt, executive vice president of franchise sales and development at Mail Boxes Etc., who also serves as chair of Glomark, the global marketing committee for the IFA. "We see international franchising as a huge growth opportunity and a strategic part of building our business."

The company recently signed master license agreements covering five countries and three overseas territories in the Caribbean region. (Rather than sell to individual franchisees overseas, franchisors license individuals in particular countries as "master franchisees" and give them the right to sub-franchise the concept.)

Even U.S. companies that don't franchise at home, such as Starbucks, are franchising internationally. "These companies know their business, but they aren't aware of the culture or the legal details of setting up in other countries," Ainsley explains, "so franchising makes a lot more sense."

Julie Bawden Davis is an Orange, California, writer who specializes in small- and homebased-business issues. She often contributes to The Los Angeles Times and The San Francisco Chronicle.

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