Growing Your Business Through International Franchising
By Mike Kehoe and Enrique Kaufer
Growing your business through international franchising has clear advantages, and we expect that many brands will again start looking to grow via international franchising. Brands, including Anytime Fitness, FASTSIGNS, RE/MAX, Subway and Tim Horton's, have successfully expanded outside of their home markets. From our experience, successful international expansion requires three important steps:
- Ensure your brand is ready for international expansion
- Search for and identify excellent, long term partners
- Align on an agreement and prepare to "Go to Market"
As a first step, to be ready for international expansion, brands must have a proven "franchising model" in place. Specifically, the brand must have scaled successfully in its home country with a clear positioning and a winning consumer offer, supported by well-defined operating standards. Once that is in place, the leadership team should decide "where to play" and with which type of franchisees. Many brands skip this step and often end up starting their international journey in less strategic markets with inexperienced and/or undercapitalized franchisees simply because they received a franchising request. While it is true that the early stages of international expansion need to be opportunistic, they also need to strategically define their market expansion criteria (ex. size, growth rates, stability and fit with brand) and target franchisee capabilities (ex. capital, access to real estate, industry experience).
Once ready for international expansion, it is time to move to the second step, searching for and identifying excellent franchisee partners. To do this, it is important to build a sales funnel for inbound leads while actively prospecting for outbound leads. For generating inbound leads, there are two critical factors: i) success in your home country (many requests will come from potential franchisees that experience your brand while visiting your home country) and ii) make it easy for prospective franchisees to find your brand online and submit a franchising application. Also, it is very important that you ensure these inbound leads are screened against the established international franchisee criteria (often different from the criteria for your home market) because this will focus the organization on the higher quality leads. When prospecting for outbound leads, there are many ways to identify potential franchisees, such as:
- Digital marketing tools. One excellent tool is the "Sales Navigator" platform on LinkedIn, which provides advanced search filters and direct contact options.
- Tradeshows and Industry Events. Events such as the Annual IFA Convention, International Franchise Expo and the National Restaurant Association Show are excellent places to prospect for and meet with potential franchisees.
- United States Commercial Services (USCS). For US based franchisors, it is recommended to leverage the different services offered by the USCS. These services include custom market research for specific markets, companies and franchisees. In addition, the USCS offers matchmaking services like Gold Key programs or Certified Trade Missions.
- Local Franchise Associations. Most countries have their own franchise associations, i.e. the Canadian Franchise Association (CFA), the Japan Franchise Association (JFA) or the Brazilian Franchise Association (ABF), that can provide significant help with franchisee connections, as well as vital information on market specific dynamics.
- Business Brokers. Like any tool, business brokers can be very helpful, but they must be used appropriately. The most important consideration when using a broker is an evaluation of their qualifications and compatibility with your company's values. Specifically, it is important to ensure they have proven success in your industry and target markets. Also, you should probe for the value and relationship "fit" because you will likely work with the broker for multiple months to complete a search and finalize the agreement. Lastly, it is important that both parties agree to the commercial terms up front, like exclusivity, retainer fees and success fees.
Once you have identified an excellent franchisee partner, the third step is to align on the franchise agreement details and prepare for a successful market launch. In both cases, there is not one "correct path", but there is definitely an "incorrect path", which is blindly applying the same approach as you would use in your home country. For the agreement, there are several important considerations, including local law differences, disclosure requirements, trademark registrations and distribution channel definitions. For this reason, it is imperative that a local attorney who specializes in franchise law, prepares/reviews the agreement. Finally, the market launch needs to be a success, so it is recommended that brands follow a disciplined "Go to Market" approach, including:
- Determine up front how much customization, as a franchisor, you are willing to make. This decision should be based on the market's potential and your brand's fit, but the customization should never abandon your brand's core brand positioning and "offer".
- Establish a launch team with a dedicated project leader and cross-functional team members (from both the franchisor and franchisee) that follow an aligned launch plan with clear key milestones, milestone "owners" and require timings.
- Ensure all parts of your "offer" are ready for the post-COVID 19 world, example contactless commerce, de-urbanization vs. urbanization and the redefinition of value.
- Conduct a "Post Launch" review with your franchisee and adapt quickly, where needed.
Expanding your business through international franchising is an excellent way to grow, but you cannot skip the steps. By following these three recommended steps, you will have a significantly higher likelihood of developing long-term, successful franchise partnerships. Most importantly, you will give your brand and your company the best chance to succeed in a highly competitive international marketplace.