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?
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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:
- Australia
- Brazil
- Some provinces of Canada
- China
- France
- Indonesia
- Italy
- Japan
- Malaysia
- Mexico
- Russia
- South Korea
- Spain
- Venezuela
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.
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