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Bet the Franchise

What does the future hold for international franchising? Don't let the economy's naysayers dissuade you--our money's on growth.
Magazine Contributor
5 min read

This story appears in the February 2002 issue of Entrepreneur. Subscribe »

In the weeks following September 11, threats of war and recession were weighing heavy on the world. But while belts were tightening and employees were being laid off, Arie van der Spek's phone was ringing. People wanted to find out how to join his franchise. "More people are calling us up, interested in documentation or preliminary conversation," says van der Spek, senior vice president and chief quality officer for operations in Africa, Europe and the Middle East at Holiday Inn's parent company, Six Continents PLC.

Many of the people calling van der Spek's office were hotel owners interested in converting to Holiday Inn, one of the company's brands. "Some are pretty nervous, because they are unbranded, do not belong to an international hotel group and are now looking for affiliation," he says. "I'm actually reallocating some resources to see if we can benefit."

When the United States was involved in the Gulf War, van der Spek saw a similar spike in interest. "At that time, we were opening around 55 hotels a year [in Africa, Europe and the Middle East], up from around 35 hotels a year," he says. "So that was clearly a major success for us."

The popularity of franchising internationally makes sense. As the world gets smaller, local brands become globally recognizable. "People come to the U.S. on vacation, see something they like and want to take it back to their country," explains Marcel Portmann, vice president of emerging markets and global development for the International Franchise Assocation.

Meanwhile, saturated local markets are forcing U.S. companies to expand elsewhere. "It's a good time [for franchises] to expand internationally," says Portmann, "especially if they're facing a very saturated or competitive market here in the United States."

If American companies are, in fact, continuing to expand internationally, how does that benefit global entrepreneurs interested in buying a franchise? "The consumer perception gives the international franchisee a better base to start with, as many American brands enjoy universal brand recognition," says Bob Kendzior, vice president of international marketing and retail concepts for Allied Domecq Quick Service Restaurants, franchisor of Baskin-Robbins, Dunkin' Donuts and Togo's. "Any international franchisee who chooses to import one of those brands will usually find it to be a better start-up opportunity than a homegrown brand."

Van der Spek agrees that U.S. franchises offer many advantages. "Since there's hardly any experience of franchising outside the Americas," he says.

New Outlook

Even with all the perks joining an American system brings, there may be times, like during wars or political conflicts, where other issues arise. How has America's war on terrorism affected the momentum of international franchising? Many franchises are not retrenching, but rather, making sure their global franchisees identify themselves to customers as local. "These companies are locally based. They carry the American brand, but they're a local corporation with local employees, local owners, and that's something that has to be reinforced these days," Portmann says.

This can be done through regional advertising and awareness campaigns. "We've seen examples, especially in the Middle East, where the owners of a particular American brand put a banner outside their store saying, 'This store is owned by Mr. So-and-So,' and put a picture in the restaurant of the owner with his family," Portmann says.

Baskin-Robbins, for one, encourages franchisees to present themselves as local entrepreneurs. "We like licensees to communicate to the publice as clearly and as often as they can that they are involved with their local community and they are, in fact, local citizens who just happen to own a license for an American brand," Kendzior says.

Holiday Inn, on the other hand, does not feel the need to distinguish its franchises as locally owned. Particularly in Europe, customers "see the sign that says, 'This hotel is owned and operated by...,' but they're not interested. They're coming there more for the Holiday Inn brand," van der Spek says.

Whether they know, or care, that a business is locally operated, international customers have different needs than their American counterparts. Franchisors are often willing to help franchisees meet those needs by allowing them flexibility with product offering and design. "Franchising has always been very open to the adaptation of menus and services to the local culture," Portmann says.

The Athlete's Foot, an athletic footwear retailer, deals with the needs of its customers in 50 countries. How does it manage to be so successful in such a wide range of locations? "We apply a cultural sensitivity and local knowledge to a particulart market, to tailor a solution that is most beneficial for that market," says CEO and president Robert Corliss. The company uses those principles to guide its decisions in everything from shipping costs to shoe sizing.

Even in an economic downturn, local entrepreneurs and U.S. franchisors are seeing the benefits of international franchising. But will the global expansion last? Insiders are confident that we'll see sustained growth.

"It's hard to say exactly what's going to happen, because [the effects of September 11] are all too fresh," says van der Spek, "but my gut feeling and my experience tell me we clearly will have more franchised hotels 18 months from now than we anticipated."

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