Going overseas…Very Carefully
Franchising World July 2008
Extending operations internationally means careful planning, choosing the right partners and observing cultural and language traditions as well.
By Todd Recknagel
Life at home is good for Mr. Handyman. Garnering magazine top honors for the home improvement category four years running, adding 50 territories in each of those years to reach the 300 unit mark, and embarking on a national television advertising campaign signing celebrity spokesman Richard Karn, best known as Al Borland, of ABC’s Home Improvement show has created domestic bliss. So, is the timing right to begin looking abroad? Wasn’t it Aesop who warned against killing your golden-egg-laying goose? Had Aesop considered how to duplicate the goose for the international markets?
The decision to launch franchise sales overseas requires careful considerations of time, value and economics. What does the franchise offer to international prospects? What are the best methods to use in terms of being in country vs. using a master franchisor? How will domestic growth be affected? How will qualified candidates be identified? What regulatory mazes need navigation? And why did I get off on the goose tangent?
Making the move to take our company international was a watershed decision. If you have a fast-growing domestic brand, the prospect of initial growth internationally can potentially add a lot of cost for a small incremental return. Taking on this type of venture requires investment and capital, but more importantly such an effort can take up your time. If you try to expand overseas and oversee it yourself, your domestic momentum could suffer.
Our company has had a lot of interest to bring its successful brand into markets around the world, but we wanted to ensure it was a thoughtful decision, done the right way. In order to go into a new market, our brand needed to fit the market and a great local partner needed to be found. The company has had many potential partners approach to carry the brand international, so it demanded an international assessment of the situation.
What the Brand Has to Offer
What does a franchise company have to offer internationally? Demand for our franchise business systems could be divided into four areas:
• U.S. brand name which has been registered all over the world,
• Operating model with proven system which could be adapted to locales around the world,
• Universal technology and software to operate the business, and
• National marketing materials and programs which can be adapted to locales around the world.
As the company decided to advance in this arena, the trademarks were registered in several major English speaking countries approximately five years ago, but it was necessary to take more formal steps with registering the trademarks with the European Union and the Madrid Protocol which cover many countries in the Far East. After reviewing the options, we decided to utilize master franchisors in other countries in order to make the system available around the world.
With the master franchise system for international markets, the domestic assets of a franchise system can be utilized and duplicated with successful companies who are already in franchising worldwide. With this method, foreign partners who have franchise experience in their respective countries are screened and then upon partnering with our company, participate in a percentage of their performance in developing a new system in their country. With this method, our system could focus on its own domestic growth and momentum without trying to directly employ people in unfamiliar markets. To find the perfect pairing of which markets to target and which partners to link up with, the company engaged an international business consultant.
Mr. Handyman also approached the U.S. Commercial Services, part of the U.S. Commerce Department and became approved for its Gold Key program. The department supports exporting business systems from U.S. companies. The Gold Key helps pair a U.S. franchise company which has been approved with an approved applicant in the foreign country. Exporting more business systems like franchising or software gives the United States a trade surplus in the area of service exports. It helps balance U.S. overall trade deficit and is currently the fastest growing area of export and a bright spot in the nation’s economy.
Does the model translate?
After deciding on the structure and approach for franchising worldwide, we profiled countries around the world that would adapt to our service model with a large population made up of dual-income couples and busy families or a middle class that would have need for this type of service. Not all opportunities are created equal. Guam’s demographic did not seem to be a great fit, while Germany’s did. However, a market like Germany may already be mature and have providers meeting the need. Potential countries were ranked based on whether they would need the service model, economic conditions for franchising, total size of market for maintenance and repair services, government regulations for this type of service and the overall growth potential of the opportunity.
The international opportunities were profiled based on their economic stability and growth, the fit, the demand for the services, whether the economy is growing, the legal environment for franchising and then the countries were ranked in order. Some of the best matches for our business model were surprising, many of the Scandinavian countries, Turkey and South Africa, all of whom have a growing middle class and a high demand for the service we provide. Turkey probably would not come to mind first in an expansion scenario but is a candidate to join the European Economic Union. I know other franchise systems that have had success in Turkey over the past few years.
In addition, if the country looks like a great fit on all of the above factors, the company still needed to assess whether specific systems would apply in each country in the area of technology, marketing materials, software operating system and also brand-name recognition. Generally, if the country has the need and economic conditions, and the franchise systems can translate to meet those needs and conditions, the model will work in their community.
Another consideration is how well the brand name of the franchise translates into the local language. It is important to do these assessments to see not only how well the model fits but also how well the branding fits. Use consultants to understand if your concept is culturally unappealing. In China, for example, the Mr. Handyman brand name doesn’t translate into anything at all, but the Chinese market is very hungry for Western brands and U.S. brands in particular. Other franchise companies may want to check whether their product plays well in the target country. In the target country, the master franchisor is responsible for those adaptations, but it is helpful to be aware of any potential challenges.
With all the planning and assessments, one country that didn’t make the top of the initial list of top 20 target countries was China. But, China became one of the first countries who approached us and ended up being awarded a master franchise.
Careful Franchise Partner Selections
The entrepreneurial spirit of Wuhan Tian Cheng Decoration Company, Ltd. really got the attention of our system. Wuhan Tian Cheng is one of China’s top building and remodeling companies, having built thousands of condominium and complex units in Wuhan, a city of nearly nine million people. This particular company was operationally strong, and identified a huge need for our services. The condominiums they construct come with a one-year warranty, and after that, repairs and remodels are the responsibility of the homeowner. They recognized the market need for maintenance and repair. To structure them for success, we awarded the master franchise for a major province of China and provided master franchisor training in the United States in early March. Plus, we returned to China again in June to provide in-country training.
Different markets have different needs of course. In the China market it was necessary to find a partner who is operationally strong in home repair. In contrast, the United Kingdom and Ireland, where the culture is similar to U.S. markets, master franchise candidates who already have success or experience in franchising might be better suited because the operational model does not need as much adaptation to the culture. Both international markets would still be operated as master franchises.
Most good franchisors are careful in checking and qualifying their domestic franchisee partners in the United States and it is no different internationally with master franchisors. Mr. Handyman International will continue to observe and guide Mr. Handyman China to develop its first four corporate operations and then watch how they develop other franchisees before granting and expanding into all the provinces of China over the next 10 years.
While most of the focus at our franchise system remains on building the domestic business, it would be short-sighted to stay out of the best-matched international markets where there are amazing opportunities for expansion. I must admit I had mixed emotions about going international and going into the Chinese market in particular. It became apparent that the Chinese franchise operation could ultimately be bigger than the United States one. After the Chinese master franchisor trained in the United States, word had gotten out in China about the developing business and the demand was very high for sub-franchises. Wuhan Tian Cheng had 170 franchise candidates waiting for the master franchisor to review after returning from the United States.
Todd Recknagel is president & CEO of Mr. Handyman International, LLC. He can be reached at 734-822-6790 or firstname.lastname@example.org.