There are many reasons to choose franchising as your strategy for international growth.
Below are some of the reasons why so many businesses choose this route:
You Do Not Have to be a Franchisor Already
The first thing to understand is that you do not have to be a franchisor already to be able to franchise internationally. In fact, many well known brands that are not franchised at home, have tapped into the benefits of franchising to achieve their international ambitions. These include Arcadia Group, Marks and Spencer, Mothercare, Paul Smith and many others – all companies with the brand strength, track records and resources to go it alone, but who have chosen to work with experienced local partners in their target markets.
International expansion without franchising requires considerable resources. Some businesses will require far more resources than others, but either way, it is a huge undertaking that requires serious investment and which can include hidden costs in the form of management time and distractions from your core business.
Using a franchise model, you actually get paid to expand into a new market. Master franchisees will pay you for the right to use your brand and operating system in their territory. In addition, there are few surprises or hidden costs because your business model is now that of a franchisor and your only task is to train and support your master franchisee. It is your franchisee that has to deal with the variables involved in setting up a clone of your business in their market.
What value can you put on local knowledge? Well, in Tescos case that would be billions of pounds, following their unsuccessful attempt at breaking into the US market. Why did they fail where Wallmart succeeds? And many US firms have also failed to conquer the UK, because they did not fully understand or adapt their proposition to the UK market. When expanding into a new international market, it is hard to put a high enough value on having someone with a vested interest in the business working with you, that has local knowledge about the sector, culture, business and legal framework.
An obvious point, but if you are targeting countries where English isn't the first language, it is far easier to recruit a master franchisee that speaks English, than to have the already large challenges of setting up a new business overseas made greater by language difficulties.
A compelling reason for choosing franchising is the speed of growth that can be achieved. Whether appointing a master franchisee to recruit unit franchisees, a regional developer with unit opening targets, direct franchisees or any of the other structures available, fast growth is a realistic goal. And this can be multiplied across several markets at the same time as Subway have shown by rapidly overtaking McDonalds as the world's largest Quick Service Restaurant.
Increase in the Value of Your Business
There is the obvious point to make here, that rapid growth, revenues and profits through international franchising will increase the value of your business. However, there is another consideration: once you have franchised successfully in one other country, you have demonstrated that your business is scalable on an international level with implications for future growth potential and therefore, the value of your business.
De-Risking Your Business
Two points to make here: one is that by choosing a franchising strategy, your chosen partner will shoulder most of the risk of developing your brand in their territory. They are introducing their capital and devoting their time and effort in developing the business.
The other is something funds and private equity have cottoned on to. If you wholly own a multi site business and, due to external factors such as a downturn in the economy, revenues fall, some of those trading units may become loss making and even threaten the survival of your business.
On the other hand, if that same network is franchised, you are cushioned from the effects of the downturn.
Your revenue is typically based on the revenue, not profit, of your franchisees. So even if you have some loss making franchisees, you can still be generating revenue and profits from your network. Which by the way, is why so few franchise systems fail during recessions in comparison to wholly owned networks.
When it comes to expanding your business internationally, broadly speaking there are two options; to wholly own and fund the overseas expansion yourself, or to enter into some form of third party relationship where you are working with a partner – typically this means a franchising or licensing arrangement.
Each route to international business expansion has it’s merits, but there are clear and obvious differences between the two. Wholly owning an overseas business requires a much higher degree of management involvement, finance, commitment and you have to find and
hire in local expertise. Your business is entirely exposed to the results of the venture – you benefit 100% from any profits that accrue, but similarly you are 100% responsible for start-up capital and any potential losses.
By contrast, when franchising a business internationally, your international franchise partner is relieving you of much of this responsibility. They are devoting management time, finance, commitment and providing the local expertise. They will run the risk of providing start-up capital and be responsible for the financial performance of the business. The cost to you of “Outsourcing” this effort and risk of your international development is that you will not receive 100% of the profits of a successful venture – but then neither have you put in the start-up capital or will you be responsible for potential losses.
Of course, when deciding whether to franchise a business internationally, your starting point is to clarify your business objectives. If one of your main objectives is to quickly expand your brand internationally, then using an international franchise strategy has real advantages. Because of the relatively low cost of franchising a business internationally, it is not unusual for businesses to attack a number of international markets at the same time and achieve rapid brand penetration on an international scale.
If you are wondering how do I franchise my business internationally, then the starting point is to contact us today and have a free, no obligation chat to one of our international franchise consultants.