In last month's column , I urged new franchisors to exercise caution when it comes to their initial growth strategy. With such a strong domestic market, one might rightly ask why any but the largest U.S. franchisors should consider going global. For some U.S. franchisors, the U.S. markets are relatively saturated. But for most, the promise remains largely unfulfilled. Why then, go global?
In a word, timing.
In today's global marketplace, never before has the timing been so good for U.S. franchise concepts. And when a non-U.S. investor decides to buy a franchise, where do they go shopping?
Consider the following: The U.S. is home to the vast majority of the world's brand-name franchisors. It's the heart of capitalism and entrepreneurship. In many countries, U.S. concepts carry a certain cachet simply because they're from the U.S. The retail and service environments in many countries are simply not as competitive as they are in the U.S. And in the Darwinian world of business, that type of environment produces the strongest survivors.
The fact is, the U.S. is the shopping mall of the world when it comes to franchise opportunities. And more international investors are shopping today than ever before.
So while international expansion is clearly not appropriate for the neophyte franchisor, neither should it be confined only to franchisors with thousands of units in operation.
How to Expand Internationally
Many franchisors initiate their global franchise efforts through serendipity. Perhaps a foreign investor looking for a franchise came across their listing at Entrepreneur's FranchiseZone , and that chance encounter leads to an international franchise opportunity. But encounters like this aren't an effective strategy for international growth.
Unless you're one of the lucky franchisors that have a strong international candidate fall into their laps, you'll need to do some proactive marketing to generate your international prospects.
Franchisors targeting international growth are well advised to start by targeting a specific country or group of countries in which they would like to expand. To do so, the first step is to identify the best countries for your particular concept. Factors such as franchise climate, the market for your particular product or service, competitive factors, proximity, language barriers, culture, political climate and relevant legal concerns should all be factored into the decision.
Countries outside the U.S. that currently have franchise regulations are:
- Some provinces of Canada
- South Korea
Once you've targeted an appropriate market, prospective international franchisees can be generated in a number of ways: trade shows, franchise shows, trade missions, the internet, targeted public relations, print advertising, direct mail and the use of brokers are among the most popular means.
Perhaps the most difficult method is to try to go it on your own. This involves the creation of an international lead generation strategy with all the complexities of the international sale. Unless you have a strong knowledge of a particular market, this strategy is likely to generate a substandard partner or fail entirely.
One alternative to the strictly do-it-yourself approach is the Gold Key program available through the U.S. Chamber of Commerce. Simply contact the appropriate U.S. embassy and, for a modest fee, they'll assist you in researching the market and identifying potential partners. They'll even set up meetings with these partners. All you have to do is show up and negotiate the deal. Still, this strategy has some substantial drawbacks--not the least of which is the amount of time and energy you'll need to expend in order to effectuate a deal.
One popular means of targeting prospects is the use of international trade missions. Sponsored by groups such as the International Franchise Association, trade missions attempt to provide franchisors with introductions to a number of qualified candidates in each country. The franchisor is typically responsible for its own expenses (which can run upwards of $10,000), their own follow-up and their own negotiations. The sponsoring organization is responsible for the logistics and providing the introductions.
But the most effective approach for franchisors that are really committed to their international expansion efforts involves the use of brokers specializing in international development. Their knowledge of specific markets, combined with resources in those markets, allows brokers to effectively promote your franchise within a particular market.
Brokers will generally start by networking within a country and directly contacting the best potential partners in a specific market to determine their level of interest. Brokers usually won't ask the franchisor to visit the country until they've generated some serious interest, and often the candidates will visit you as a first step, thus minimizing the time you spend in this process. More important, this direct contact approach will generally result in the best candidates and the best follow-up, as the broker will derive a substantial portion of their compensation based on "success fees," which often range upwards of 20 percent of the initial fee.
While some brokers are willing to work on straight commission, the best brokers generally require you to offset out-of-pocket expenses, underwrite the development of market research (which may cost $10,000 or more per market), and pay them a stipend while they're involved in the search.
Regardless of the means used to generate your international prospects, unless you're relying entirely on serendipity, you should plan on spending money in the sales process. Travel costs alone will likely run in the tens of thousands of dollars before the deal is finalized.