Next Global Stop: Ranking Franchise-Friendly Countries
Experienced international operators will also know that there are many other things to consider such as local taxes and business practices, currency transfer regulations, specific local laws and the local culture. In amongst all that comes how “franchise friendly” the local regulatory regime may be.
By Brian Duckett
One of the most important aspects of developing an interna tional marketing plan, for any business whether or not it is in franchising, is deciding which countries to target once the offer package has been properly prepared. Many business owners have come to me saying “We’ve decided to go international. How can you help?” When I ask which markets they would like to be in, the answer often comes back “anywhere and everywhere.” To me that suggests the project has not been properly thought through, and is perhaps being considered for the wrong reasons. Apart from anything else, the costs of marketing the opportunity, other than via the Internet, to “anywhere and everywhere” are prohibitive—as would be the time cost of processing all the enquiries, often from completely unqualified prospects.
Good practice starts with selecting those markets which have the most potential for the product or service to offer; after which we move on to those which will be the easiest to service and support—so geographical location and common language come into play. Experienced international operators will also know that there are many other things to consider such as local taxes and business practices, currency transfer regulations, specific local laws, and the local culture. In amongst all that comes how “franchise friendly” the local regulatory regime may be.
With franchising now said to be operating as a method of doing business in more than 140 countries, one may think that just about anywhere could be considered “franchise friendly”, but franchising itself is developing in many of the “developing markets” and as governments start trying to understand it, laws and regulations get drafted, often out of ignorance rather than malice, which adversely affect the operation of franchising. I’ve known franchisors to say “That’s the master franchisee’s problem, not mine,” but that’s hardly the right attitude, particularly if those regulations mean the continuing fees will not be flowing back to the home country. Tracking the passing of laws and the current situation in 140 countries would be an impossible task, other than for a law firm with offices or associates around the world, so we and our clients often look to experts like DLA Piper and Field Fisher Waterhouse who are able to keep their fingers on the pulse of global developments.
Another good system for ranking markets is that used by Edwards Global Services, whose GlobalVue process uses more than 10 parameters against which to rank markets for specific franchise concepts. Among the questions considered are: the history of successful inbound franchising; the size of the market for the product or service, and its likely acceptability; fairness of local laws to overseas companies; difficult local practices, such as bribery and corruption; the ease and freedom of generally doing business in the market; and, how much the government tends to get involved in regulating business, and enforcing those regulations. Once again the importance of network of associates with their feet on the ground in the local markets, providing up-to-date information on market conditions, comes into play.
The upshot of all of the preceding is that the less experience your company has of international franchising, the more likely it is that you should start with countries that have well-established franchising communities, and which are relatively easy to access and service, with a legal regime that is indeed “franchise friendly,” and where the indigenous population speaks your language. For our novice “outbound” clients from the United Kingdom, that often means Ireland, the Netherlands and Scandinavia are the first ports of call. For those from the United States, one of the best choices is “inbound” to the United Kingdom and Ireland. You can worry about the more exotic locations once you have cut your teeth somewhere relatively benign and you are ready to take the lessons learned there elsewhere.
Peter Harwood of The International Franchising Centre in London once presided over the international expansion of some of America’s best-loved brands. As president of international operations, Harwood oversaw the Dunkin’ Donuts, Baskin-Robbins and Au Bon Pain businesses in more than 30 countries. He now works for selected clients to develop their international strategy, find prospective United Kingdom master franchisees and investment partners, and facilitate the successful negotiation of their franchise agreements. His colleague, Farrah Rose, worked in a similar capacity, originally with Burger King then for several retail fashion brands within Arcadia Group, finding overseas partners throughout Europe and the Middle East. As the market-leading franchise advisors in the United Kingdom, IFC has a particular expertise in supporting non-U.K. businesses entering the market for the first time, and clearly understands the needs of U.S. companies who wish to do so.
“Whatever the state of the world’s financial markets,” says Harwood, “the realities of international expansion for U.S. brands remain harsh. Companies which take up the challenge can enhance their prospects by observing a few simple guidelines.” In his view, these can be summed up as follows:
• Be sure that you understand your own motives. Corporate ego, and the desire to describe your business as ‘international’ are not enough.
• Make sure you understand your concept. Despite success in your domestic markets, is it flexible enough to cope with the inevitable demands made on it by international partners? Someone somewhere, indeed everyone everywhere, will want to change it.
• Get to know your target market. Tempting as it is to rely on desk-based research, which is, of course, valid for preparing your shortlist, there is no substitute for spending time there, talking to potential customers, walking the streets and soaking up the culture.
• Recognize the likely cost. International expansion will place unprecedented demands on your time and resources. It’s worth it in the long run, but your financial expectations may have to be adjusted accordingly.
• If you are expanding into Europe, recognize the differences that exist between European markets, many of which have distinct languages, laws, culture and history. Plan to expand in stages and work with Europeans.
• Invest time in beating the bushes and finding the right partner. Your brand is probably your most precious asset, and you’ve lavished energy and resources in building it, so don’t jettison it by granting rights to someone who lacks the skills or commitment for a long term relationship, or who is the first to agree to your fees.
Establish a Foothold
Farrah Rose describes the process for developing throughout the European Union like this: “The United Kingdom is a logical point of entry for most U.S. businesses embarking on their expansion programs. Like any new market it can be challenging, but for the determined franchisor it can prove very rewarding. Franchising is wellestablished here and the British Franchise Association is the largest and most successful in Europe. There is no franchisespecific legislation in the United Kingdom, although it is expected that all franchisors will abide by a Code of Ethics developed by the European Franchise Federation. Once a foothold has been established with a proven operation in the United Kingdom, it is easier to find partners in other key markets such as France, Spain, Italy and Germany.
“Franchise friendly” covers a whole range of criteria and it’s difficult to check out all of them, for all the markets in which you are interested, from a distance. Eventually you’ll need to visit the market yourself, but in the meantime tapping into the expertise of the associate networks of the specialists mentioned in this article will give you a great start. That way you will certainly have a local “franchise friendly” person to help you, who may eventually become a franchising friend.
Brian Duckett is chairman of Howarth Franchising Group. He can be reached at
email@example.com . The International Franchising Centre will be exhibiting in Booth 2012 during the IFA Convention.