Expand your horizons: Franchising overseas

As a franchise evolves, it will naturally look further a field for expansion opportunities. Delving into these international markets can be extremely tempting for most franchisors as large untapped customer bases and the allure of mysterious far shores beckon.

According to last year's NatWest/British Franchise Association (BFA) survey, 27% of UK franchise systems already have international operations, while two-fifths of those planning to expand internationally intend to do so over the next year.

However, rushing into a decision to expand overseas without careful research, planning and execution is likely to rock the very foundations of your company. It is important to remember that costs increase with distance, and language barriers, cultural change, and the legal differences and disparities in business culture can be dangerous pitfalls. These can be avoided through detailed planning and thorough market research.

It is firstly essential to consider the structure for the expansion, as this will be an important factor in determining its eventual success. There is no one option, as the structure will vary according to the target market, the needs of the business and the available resources. Generally, franchisors will also need to consider whether it is more effective and practical to support franchisees direct from one country to another, or whether to appoint a master licensor to act as the franchisor in your destination country.

A master franchise system requires less resources and significantly less investment by the franchisor. Additionally, the local master franchisee's familiarity with its own market will allow the entire system to benefit from its local knowledge, which can help ensure compliance with local legal requirements.

Direct franchising, another popular option, allows the franchisor to retain control over the brand and the system, and revenue streams will generally be higher than under other arrangements. However, potential drawbacks are that individual franchisees will require greater levels of support than, for example, a master franchisee, and the franchisor will need to investigate the local market and create distribution networks by itself.

Whichever option you go for, finding the right people is paramount. A master franchisee system’s success depends completely upon the abilities and resources of the master franchisee and it can take up to 12 months just to negotiate a master licence, by the time you have completed due diligence checks, the funding process and market research on both sides. However, if you get the right candidate, you have a solid basis on which to start building and developing the brand in a new market.

Another point easily overlooked is the differences in the foreign market – you will need to understand the franchising and contract law in the overseas territory, together with the legal system governing the franchise agreement and the tax implications. Taking legal advice is the best way to ensure that you are fully prepared for this differences.

To ensure your success overseas and avoid these potential pitfalls, it is sensible to employ an international franchise consultant to improve your international franchising knowledge and franchise proposition, so it can be replicated in other countries (franchise models, legal agreements, operations manuals, training procedures etc.)
You should also ensure that you adapt your marketing messages and translate your packaging/promotional materials to fit in with your destination country’s requirements, and obtain trademarks for each new country.

It is also sensible to review your supply network and support network, looking at your existing channels of supply, hours of support and whether you will require additional personnel to support your growing network.

Having successfully implemented procedures such as these, the benefits to your business of franchising internationally can prove to be substantial. You will benefit from:

• Increased brand awareness - recognised in many different countries


• New partners with sound local knowledge and business experience


• Exploiting new market opportunities


• Less investment than developing company owned outlets


• Improved group buying power


• Market diversification – entering new markets will ensure you are not purely relying on income and demand from your home market

There are certainly obstacles to overcome in order to experience success but these can be overcome. If you are considering developing your business through international franchising, it is essential to:

• Prove your concept in your home market first


• Become a BFA member – this will enhance your credibility within new markets and will demonstrate good business ethics in line with a sound business model


• Recruit an experienced franchise consultant


• Choose your master franchisees carefully – you are in business together for a long time!


• Don't under estimate the investment required


• Ensure you have a strong support infrastructure in place to support your existing and new franchisees as the business grows

M Suzie McCafferty, international development director of Smart Cartridge, discusses the key to successful overseas expansion for British franchises ost importantly, never become complacent in terms of knowing your competitors and market – research, research and more research is the key!