Global Warming Franchising heats up around the world.

For franchisors, the promised land is one that is ripe withuntouched territories and teeming with inhabitants eager for ataste of franchising's fruits, a place where ugly words like"encroachment" and "saturation" have not yetbeen uttered. Imagine, then, the excitement--nay, theelation--ringing through franchise systems across the United Statesas the world opens its arms to embrace the joy franchisingoffers.

Like explorers of old, American franchisors are striking out ina race to claim these lands for their own. "If you had to pickone trend in terms of where franchising is going in the next 10years, the real growth is going to be in markets outside the UnitedStates," says Mark Siebert, president of Francorp Inc., anOlympia Fields, Illinois-based international management consultingfirm specializing in franchising.

According to a recent survey of 40 countries by accounting andresearch firm Arthur Anderson, 56 percent have fewer than 200franchisors. Countries outside the United States boast an averageof 252 franchisors and only 12,253 franchisees. "Some of theseinternational markets [are seeing franchise] growth of 40 percent ayear," says Siebert. "There's never been a greateropportunity for franchisors to go abroad."

The call of international franchising is getting harder for eventhe smaller franchisors to resist. "An increasing number ofAmerican franchisors are looking at the international optionsooner. In many cases, the rationale for that is they are eitherdealing with a highly competitive domestic market, have saturatedthe domestic market, or simply perceive the great opportunityabroad," says Siebert. "In fact, smaller franchisors arewhere a lot of the [international] growth is coming from thesedays."

Being caught in the whirlwind that is international franchisingcan be intense. "Basically, the whole thing is kind ofodd," admits Rich Rector, president of Realty ExecutivesInternational, a real estate brokerage franchisor based in Phoenix."I don't have an office in Austin, Texas, and yet I havean office in Bangkok."

When Realty Executives started franchising in 1988, Rectorintended to establish a presence throughout North America and neverexpected to be jolted into his two predominant foreignmarkets--South Africa and Thailand--quite so quickly.

So does it sink in that Rector now has seven offices in SouthAfrica and 26 locations in Thailand? "If you had asked me fiveyears ago about international franchising, I would have talkedabout North America. I hadn't any clue about [any ofthis]," he says. "It's really weird."

Weird or not, it's definitely lucrative. "I can make alot of progress [in Bangkok] without making a bunch of mistakes andtaking time deciding between steps," says Rector. "Thatleads to incredible opportunities."

However, Rector also found obstacles to internationalfranchising can be sizable. His first challenge in Thailand:overcoming the cultural taboo against selling a home. "Thingshave always been handed down through the family," says Rector,"so if a house is for sale, it's assumed there arefinancial problems."

On an industry level, Rector faced the task of breaking into acountry that didn't even recognize residential real estatebrokerage as a business. "There's no licensing law, sothere's no regulation of who can or can't be a real estateagent," he says. Rector and his Thai affiliateprofessionalized the industry by creating a school to educatepeople about the process and helped to form a trade association todemonstrate their professionalism to the public.

For franchisors who brave uncharted foreign territories, extraeffort is almost always required. And, for an industry that'straditionally relied on the ease of a cookie-cutter approach, beingflexible enough to make these efforts is sometimes as difficult asturning a huge battleship on a dime.

"Different countries have different foods, differentclothing, different modes of business etiquette," says LeonardSwartz, worldwide managing director of franchise services forArthur Andersen in Chicago. "Today's [franchises] mustadjust their domestic businesses to meet the internationalcultures. They must be firm and command quality, while remainingflexible."

Breaking Barriers

Though the luxury of uniformity may not be accessible when doingbusiness overseas, U.S. franchisors that persist through thetrial-and-error period seem to learn certain secrets to success.Some of these secrets include:

Market research: "All too often, companies determinean international expansion strategy based on a reactionarystrategy--they happen to get an inquiry from Kuwait, and all of asudden they're interested in the Kuwaiti market," saysSiebert. "Franchisors should target certain regions. As partof your research, determine what markets are going to be big foryour product or service, what current competition is serving thosemarkets, and any barriers to entry."

To connect with businesses and U.S. embassies in othercountries, Siebert suggests attending overseas trade missions ortrade shows put on by organizations such as the U.S. Department ofCommerce. Yet don't expect the quality of market research tomatch that of America.

"In many countries, there isn't enough marketinginformation," says Swartz. "You have to get out there andpound the pavement."

Capitalization: Siebert lists undercapitalization as oneof the most common mistakes U.S. franchisors make. "Theydon't know they're making a significant commitment to thesuccess of their foreign licensees, and it's conceivably goingto cost them a lot of money in the first several years while unitsare getting established in that market," he says. "Thereal profit centers are not [franchisees'] upfront fees but theongoing stream of royalties generated from successful penetrationof a market."

Using a master franchisee: Perhaps the most importantdecision franchisors can make is the choice of a counterpart in aforeign country. Siebert estimates as much as 90 percent of yoursuccess overseas comes down to this one decision.

Of the available options in opening overseas locations, masterfranchising is the most popular--and for good reason. Masterfranchisees take the burden off the American franchisor, providingthe most valuable asset of all: an insider's savvy.

"It's good to have someone there who knows not only thelanguage but also the laws and, beyond the laws, thetraditions," says Rector. "They tell you the things youneed to know that can save you from embarrassment. They can speakfor the country, and you're rewarded by their expansion aswell."

A caveat: The risks involved in putting so much responsibilityin one person's hands are high. "If you select the wrongperson," says Rector, "you could essentially be kept outof the market until you figure that out."

Follow-up support: "A good franchisor will continueto research and provide overall guidance and growth tolicensees," says Swartz.

Part of the importance of follow-up is protective as well assupportive. Rector has pinpointed effective ways of keeping tabs onhis licensees overseas. "There are various criteria we cantrack very easily each month," he says, "and if they arenot being met, we can either reduce the territory or cancel thecontract."

Laws and regulations: Worldwide uniformity of regulationsseems unlikely, and perhaps even undesirable, as "each countryhas its own special needs [and can] best determine what informationits citizens need," says John Baer, a franchise attorney withKeck, Mahin & Cate in Chicago. "You normally can't usethe same franchise agreement or the same system you use in theUnited States."

Yet Baer has faith that American franchisors will rise to theoccasion. "U.S. franchisors are used to doing disclosure inAmerica, and disclosure in other countries is usually easier,"he says. "To the best of my knowledge, [legislation]hasn't impeded anybody from going into anothercountry."

Visit the country yourself: Rector was overwhelmed uponvisiting Thailand for the first time. "To see what was goingon--the transportation, the technology, the emerging middleclass--made a huge difference," he says. "Now I have avisual perception of what's going on there, and it's easierfor me to talk with my franchise owners about thosethings."

Worldly View

What's most interesting about this wave of internationalfranchising is not just its size but its apparent endlessness."There's a gold rush for U.S. franchises," saysSiebert. "And because the large franchises are already taken,relatively small franchisors are able to get into these marketsearly."

By most standards, this is an ideal time for franchising--and inmany countries, it's nowhere close to peaking. In fact,considering the mutual admiration between foreign businesspeopleand U.S. franchisors, Swartz describes the internationalfranchising boom not as a mere trend but rather "as adirection. This is not something that's going tosubside."

Words Of Wisdom

We asked Don DeBolt, president of the International FranchiseAssociation, for his views on international franchising.

Entrepreneur:How would you characterize the growth ofinternational franchising?

Don DeBolt: It's been explosive. We have many majorcompanies now that are deriving more profits from their overseasactivities than they are from their domestic ones. That's howimportant globalization has been.

Entrepreneur:What's the general attitude offranchisors toward foreign markets?

DeBolt: There's a certain measure of excitement, butthe surveys still indicate most companies are reacting instead ofacting. In other words, they're responding to inquiries asopposed to staking out very definite markets that they haveprioritized as being most significant for their companies'concepts.

Entrepreneur:What impact will internationalfranchising ultimately have on the industry as a whole?

DeBolt: A hugely positive one. There are so manycountries that need this. Though they may have had problems to dealwith, every company that's gone overseas has indicated if theyhad it to do over, they would do it again.

Success Story

Though franchising internationally can be daunting, some manageto make it look downright easy. When Khalid Naseem decided toattend the International Franchise Expo (IFE) last March, he wassimply exploring the various business opportunities that might workin his home country of Pakistan. A year later, he is on the vergeof opening his first franchise, The Taco Maker, in Pakistan, withvisions of expanding across the country.

"I thought this would take two or three years before I gotsomewhere," Naseem says. "But we had a good understandingwith [the franchisor] and a good chemistry, so they expedited thepaperwork."

Though initially surprised at how swiftly everything happenedonce the wheels started turning, Naseem believes moving quickly tocapture the market made sense. "In Pakistan, restaurants likePizza Hut and KFC are always packed. And Mexican food is going towork because it's spicy and is a good alternative to localethnic food," he explains. "If you know the local marketvery well and can realize which industry is best for you,[franchising] is a very good opportunity to grab."

Naseem adds that the hype in American franchising circles ismet, if not surpassed, by the demand overseas. "The demand isquite high, not only in Pakistan, but wherever you go," hesays. "People all over the world crave American brands, so yousee all the American [franchises] doing good business. Franchisingis really taking off."

The International Franchise Expo (IFE), featuring exhibitorsfrom all facets of the franchise industry, will take place April25-27 at the Washington, DC, Convention Center. Call (201) 461-1220for more details.

Contact Sources

Arthur Andersen LLP, (312) 931-1907, fax: (312)931-0588;

Francorp Inc., 20200 Governors Dr., Olympia Fields, IL60461, (708) 481-2900;

International Franchise Association, 1350 New York Ave.N.W., #900, Washington, DC 20005, (202) 628-8000;

Keck, Mahin & Cate, 1201 New York Ave. N.W.,Penthouse, Washington, DC 20005-3919;

Khalid Naseem, c/o Continental Business Private Ltd., 19C Block 6, Pechs Society, Karachi, Pakistan;

Realty Executives Inc., 4427 N. 36th St., Phoenix, AZ85018, (602) 957-0747.