For U.S. franchisors, the domestic market can be highly competitive. From small businesses to large corporations, U.S. companies are turning their attention to markets abroad and the opportunity for growth overseas. International expansion is a natural next step for any growing business, but it is a move that must be carefully considered and expertly planned. The first thing any company must do when planning for international expansion is to determine what that growth will require and decipher which overseas market is the best initial target for their brand.
International expansion is a very smart business move for most companies: there often is less competition abroad; it provides an opportunity to develop in major markets internationally instead of looking at secondary markets in the U.S.; and it gives franchisors the ability to hedge against an unpredictable domestic economy.
According to the Office of the United States Trade Representative, roughly three quarters of world purchasing power and almost 95 percent of consumers are located outside America's borders. Since many international economies are expanding more quickly than the U.S. economy, a global brand has more value than a domestic-only brand.
Brands wishing to expand abroad must make a firm commitment to an international program, think globally, research and understand international target markets, and begin trademark searches. Understanding these international target markets is perhaps the most important aspect of the initial process.
International markets range from those already mature to those still emerging. Markets at different maturity levels are prepared to accept different kinds of brands at different stages. Demand for concepts in international markets depends on that market's maturity, the infrastructure in place, and the cultural acceptability of the product or service offered. Generally speaking, retail and food franchises will be the first into any emerging market, with education and B2B and B2C service concepts close behind. Service brands need to plan their international expansion differently than a restaurant franchise.
Franchises looking to begin overseas expansion should look for market opportunity, demand for their product or service, support costs, supply costs, and potential ROI. Assessing their competitors' performance abroad can provide clues as to what the local consumers are actually demanding of foreign brands, as well as insights into marketing that does or does not work in that market.
When you begin your overseas expansion, it is more important to have a strong brand and innovative business model than a large presence in the U.S. market. International investors look for fully developed systems with robust training and support programs already in place, and a financial model that offers attractive potential for ROI. Don't worry about changing your core concept too much; remember, potential buyers are looking for a successful concept that will translate to their local market. However, some adaptation is to be expected, typically up to 20 percent for a new market overseas. Menus often must be tweaked to conform to local tastes and customs, materials may have to be translated, and your marketing approach may have to be adapted to the local culture.
Once your strategy is in place, you cannot just book business meetings and hop on a plane. There are numerous other complexities to navigate as you begin your overseas expansion. First of all, many U.S. brands are unaware that most international markets have different franchise disclosure laws than the U.S. Also, the relationship with a master franchisee or area or regional developer in the destination country will be different - and even more critical than in the domestic market since the franchisor will be relying on that person or company for advice about the overseas market. Supply chain logistics are also a key consideration when expanding overseas.
The most delicate factor, however, at least as far as we have seen, is cultural differences. Business is conducted differently in every region and across every culture. What may be the height of professionalism in Europe can be an insult in the Middle East, and a custom common in Asia may be confounding in Africa. At the very least, extensive research into best business and cultural practices must be conducted before international expansion begins. Better yet, employ a facilitator or professional experienced in international business and franchising. Having an experienced expert at your side for all of your transactions, someone well-versed in cultural differences, international franchise disclosure laws, and the complexities of beginning to build your business overseas will greatly enhance your chances of success.
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