Will This Concept Work Internationally in a New Country...Again?
Franchising WorldMarch 2007
Entering new markets requires a dedicated approach to understanding all there is to know.
By John Dring, CFE
For many leaders of international franchise systems choosing the next international opportunity can be exciting, challenging and potentially rewarding depending on the vision for the future. Committing to a new country requires an extraordinary amount of effort, resources and commitment from the franchise company.
While expanding globally requires a lot more time and effort internally in the organization, it also provides the opportunity to review the brand and the expectations of the system in the global market.
Researching, rethinking and looking at it from one country or continent to another creates another view of the amount of new initiatives that may have to be addressed to help support the changes needed to be a successful brand in a new country or even to survive. It may mean re-inventing some of the working requirements of the business model. So then the question is why would a franchise system want to enter these countries in the first place?
What works at home does not always work for the international market. Reviewing every aspect of the business from drafting the franchise agreements, to evaluating fees, reviewing the business requirements, the amount of advertising and marketing that will be needed to properly launch the system and how the brand will be effected are the competitive challenges that will make one re-think will this work internationally. Then the complex question comes from the heart of the business, supporting the operations through purchasing, warehousing, training, IT and finance. In addition, the question must be asked: Is this a franchiseable country? Then looking for methods to create a good flow of leads to generate franchise sales are all conditions that have to be investigated prior to making the commitment to this new country.
The initial question to be answered begins with how to review and determine whether this international country will support the business model and does the franchise system have the infrastructure in its current organization to support this new endeavor? Does the company have the resources of trained individuals to help work and support the concept and start it or does it have to recruit the internal and, potentially, the external staff? If so, then it may be ready to engage another country, but without these resources, a franchise firm may be starting something that will create more complex problems than the system may be prepared for.
Evaluate the country down to the individual markets
Whenever possible, choose a country that has some of the same similarities and characteristics of the current international requirements and locations. Look for commonalties such as language or customs that the franchise company is currently working with in other countries. Replicating a success from one country to another may help with the accuracy of the research and execution of the next franchise system in a new country. There are a lot of international market opportunities and choosing the next country to start is very critical to the ability to grow to other countries in the same regional area and can help affect future opportunities. Failure in a foreign country is hard on the brand and the potential re-entry into the country at a later date, so choose wisely.
Research the Competitive Landscape
Getting information about any country can be a challenge. Initial information can be found by doing preliminary research on the Internet. This is the easiest and fastest way of starting the research work. Some popular books are also a great tool in helping to identify some of the characteristics of the country, such as the landscape and its people. The research will take time but it is a critical piece to getting a good base of information for business planning purposes.
From the information gathered, the next step is creating a market strategy for development. This will help validate and provide strategic targets for initial development. Look for such basic data as demographic information and use it as a guide to help in determining the pricing of the potential markets. This will help with the number of unit opportunities that are available in the country. It will also identify the competition and the number or types of other competitive services or businesses that already exist in the country.
Be cautious in reviewing the data, the franchise system might find that the demographic information is limited in some countries. Some of the data may be estimates and there may be several conflicting reports from different Web sites. There are also some Web sites that charge for the data and the prices will vary. Data collection can be very poor in some countries since many do not have a census reporting capability making the data questionable. Be sure to screen and review it as much as possible.
The more time invested in the research the better understanding the system will have before making a decision or a commitment to a particular country. The conclusion from the data collection should help a franchise organization to determine the market potential and chances of success.
This information will also be used to create the financial planning that will be crucial to the decision of whether this opportunity can justify the investment needed to support its short-term and long-term financial goals.
If it’s difficult to obtain the necessary information, contact the International Franchise Association for help in locating experts who are familiar with the particular country and to help with the evaluation of the business plan. Using such experts will save a lot of time, and help validate or update the research. It also would help to identify in the research other franchise systems already operating in the country and start some of the investigation with them. They will provide a good overview of the trials and errors that they experienced in their development.
Finally, schedule a visit to the largest market in that country, if the franchise company can afford the time, it’s worth validating the information gathered to date.
Take the time and find the best business partners
Many times choosing the right country and its potential for success has a lot to do with the partners chosen, whether they are franchisees, area developers or masters.
The best partners should be well educated, know their country, customs and culture, and should live in the market that they serve. They speak the native language of the country they are in and this should include your native language. Interviewing the candidate is critical. Do they have the same passion and commitment to being successful as the franchise company does? Do they have a track record of operating within a management system and were they successful with it? If the franchise company expects to win in the world of the international market, this is not the time or place to be selling, but qualifying a partner. It should not be any different than what the franchise system is doing in domestic markets. The failure of an international opportunity starts at the very beginning. Is this the right partner for the business? Rejecting a potential partner, by the way, should be a part of the decision criteria and don’t be afraid to say “no.”
Building an effective business plan. Is it realistic?
Spending the time working with a potential partner on the business plan can also help provide a totally new prospective of capabilities and of helping one focus on the practical areas of the business. Too many times the franchise firm reviews the business plan and is not willing to contribute to its effectiveness. In most international countries, one can be a lot more liberal in helping a partner through the planning and decision process. Selecting the right partner can make a huge difference in the development of the new country. Will the partner accept the franchise without trying to change it initially to meet their needs and not destroy the franchise brand?
After the launch, will the partner be willing to work closely with the franchise system to continue to review the business plan and provide feedback and assistance with the management team and communication. This feedback is critical and provides direction as to the effectiveness of the original plan. Was the franchise company realistic in its planning, and if not what is it willing to do about it?
It’s all in the execution
The most successful operations in foreign countries follow and execute the plan and adjust it accordingly as they move forward with the execution.
Mistakes happen and changes are hard
What works for the present franchise business model may not work as planned or expected, so be prepared to make changes to the business. Sometimes vendors can’t deliver the product or service previously received and it requires looking deeper into this country or neighboring countries to find the right fit for the business. It’s not always about the cost or price, but the quality and consistency required to support the franchise system. Some international customers are just focused on the price and don’t understand the value of a good service or the quality of the product. This is particularly true in countries where the income levels are lower than in other countries where a system is currently operating. The challenge is whether the company built or prepared some variance in the business to support the changes needed to win customers and succeed with the franchise system. Pricing issues are always important to partners and they affect profitability, so be sure to understand market conditions and have planned alternatives to assist partners.
How adaptable or flexible is the franchise?
Some franchise brands aren’t flexible enough when it comes to making changes if the brand is to reach the total market capability of the product or service in an international market. If it cannot be flexible and is unwilling to look to ways to facilitate changes in its model, then some of the countries in which it has interest in establishing a presence will never develop or the business’ models will struggle to succeed. Protecting the brand and consistency from one international market to another is important and challenging, but these changes may be important enough to make the difference to a partner’s success and profitability.
Be prepared financially
Be creative and be prepared to provide some financial support. The franchise company needs to show a commitment to the initial launch and beyond. The bottom line is that a partner has to be successful to continue to expand market opportunities.
Once the investigation has been completed and the decision has been made to move forward with a commitment and the investigation is ready to launch into this new country, be prepared to immediately invest time and money to provide the results that the franchise system and its new partners are expecting. Investing means spending time in the country and working alongside the partner to ensure that the franchise firm and partner are working together and understanding the complex challenges it will be facing as the business expands. The rewards of these investments will include improved relationships, a complete understanding of what works and what doesn’t and the required costs and expenses to achieve success in the country. All this is being counted as a commitment to this new country.
Selling the concept is the easy part, now what?
Selling a franchise should be the least of a franchise system’s initial concerns. Being able to sell a franchise establishment is somewhat more difficult in some countries, but generally speaking, one will find many people interested in owning a business. Many people come from a background or culture that supports this fact while those in other countries may have challenges finding work or working for others. Pricing the fees and knowing the financial market is the real challenge, so the franchise company may have the best performing system in this country, but pricing the overall initial costs, and under- or over-pricing the products or services may be the reason it will struggle in getting it developed. Be sure to know the household average dollars earned in the country along with the potential buyer qualifications the franchise company has established before awarding the franchise.
What happen to Cartridge World on the way to international growth?
Cartridge World was developed in Australia, which defined the model and its planning and execution; then the results were carried into Europe with a master franchise format. Adjusting to each market, the brand has been able to support the development with store-front operations in 46 countries and it is growing. One of the advantages is related to the efforts of Australia to review and acknowledge the differences with each country and partner.
Recently the company relocated its headquarters to the United States and has an informal structure of adding a new management team to support all stores. It will continue to support the structure with more field management through master partners. The brand has built a management team around the support and growth of its business, though the system does have some challenges keeping the uniformity and branding consistent to the business model. With the changes currently underway, it is a short- and long-term strategy that will help ensure growth and uniformity in the brand worldwide.
John Dring, CFE , is CEO and executive vice president of Cartridge World. He can be reached at