In the franchise consulting business, I frequently meet and work with business owners and entrepreneurs who have opportunities to expand into other countries. The question that we have to answer when evaluating international and global expansion is how can franchising get my brand into another part of the world. Our consulting firm helps answer this big picture question by analyzing some smaller more focused issues.
The first critical issue that needs to be evaluated is does the deliverable product or service have applicability in a foreign country? Many times there is interest in different parts of the world in a certain brand, but do the key business issues make sense? The US is a global leader in many industries and in business generally speaking.
Many countries and areas of the world see value in US brands and interest follows for international franchises of American brands. But let's assume we are in the coffee business, we have a successful franchise company in the United States, and individuals from South America begin to show interest in our franchise in Argentina. Before the decision is made to offer the franchise South America, we need to look over the consumer business and evaluate its transferability on a basic level. Do people even drink coffee in Argentina? That's a start! Then how much disposable income do people in Argentina have to spend on things like coffee? The Franchisor should evaluate the business model as it applies to the country or region in question. Do real estate costs equate to those in the US? Can we have the same model in Argentina that we do in the US and have it be profitable? What time of day would consumers in Argentina purchase coffee? It could all differ from what is used in the US and therefore drastically change the business model. This could all make or break the franchisee in Argentina. The point is that before a franchisor makes the decision to expand into another country we must evaluate and determine that the business converts to that country's consumers and business practices. Ideas and opportunities are great in franchising, practicality and qualification of those opportunities is what sets the successful franchisors apart from the failures.
That is the first step, we as franchisors then need to take a close look at the ability of the franchisee and that of the franchise system to support, implement and manage the franchise business in that country or part of the world. Is the franchise system developed enough, with enough capital, human resources, brand equity and do you have enough bandwidth to manage expansion in far reaching places around the world? Who is the franchise prospect? What capabilities, experience and resources do they have? In most scenarios I recommend that when dealing with international franchising we only should deal with master franchises that have the ability to develop your brand throughout the entire country. In our coffee example, the franchisee should have enough capital to open and manage 5-10 new locations in the first year, and over the next five years we might require in the contract that they open a minimum of 50 locations throughout Argentina in that time. The key benefits here are that we now can firmly establish a brand in Argentina with the amount and volume of locations being opened; the franchisor can now justify the support costs and manage the logistics of traveling to another country to train and oversee the franchisees. The franchisor now also has the benefit of only dealing with one master franchise instead of fifty individual franchisees in Argentina. Also, as a franchisor we now can push some of the support responsibilities on to the master franchisee in that country.
As a franchisor we have a different business model from the business we are replicating. The focus of franchising is duplication and consistency throughout the system. The way we are profitable as a franchisor is to effectively leverage the business model system, the franchisors talents, expertise and coaching ability to teach well heeled operators to run the business at the ground level. International franchising is a more extreme version of franchising. A franchisor needs to identify how they can utilize technology, maximize economies of scale, and build upon efficiencies from their expertise to capitalize on International franchise opportunities.
[Christopher_Conner]
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