International Franchising: Targeting Expansion to the Optimal Countries
An international presence can add prestige to a brand, instill pride in employees and franchisees, and add to a company’s bottom line. For franchisors going international, selecting the right markets and franchisees will greatly improve their chances of success. If not carried out correctly, however, this can also be a costly drain on a company’s time, energy, and money.
There are 195 countries in the world today, 193 of them members of the United Nations. With so many countries to choose from, developing a list of viable target markets begins with some serious introspection in a few key areas.
- Articulating a clear vision is the first step. There are two divergent philosophies regarding international expansion. One is that customers in every market should be able to experience the brand exactly as customers do in the home market, and therefore nothing should change when going international. The second is that the overall brand experience must always be maintained, but non-core elements can be modified to meet local market demand and to conform to local business and cultural customs. The second approach defines the brand more broadly and provides greater flexibility that, if properly supported, expands the list of target markets and increases the probability of success.
- Analyze the reasons for the success you have enjoyed in your home market. Understanding the characteristics of high-performing markets, the demographics and psychographics of consumers in these markets, and the appeal of your product or service with these consumers will help you to select markets with similar characteristics.
- Analyze your ability to provide support to international franchisees. Among the many critical questions to ask are: How will you provide training and business coaching? How will you enforce operating and brand standards? Can you adapt your product or service if needed? Will your current supply chain be able to accommodate international franchisees? If needed, can you establish a new supply chain?
Will the economics of the business be the same or will your economic model need to be modified? Are modifications needed to your IT network? Does your brand translate into other languages? Will your marketing message work, and how will marketing and advertising programs be developed for new markets? Does your staff have the bandwidth to take on a new project?
It is important also to note that modifications to a product or service require changes to the support programs, from operations manuals to training to supply chain to economics. Knowing what support you can and cannot provide will help you to create the profile of your ideal franchisee and select someone who can fill any gaps.
Make a matrix
Use this information to target markets with attributes similar to those that have made you a success at home and that you can support effectively. These are generally the markets that provide the greatest chance of success. With so many potential countries to review, it pays to create a matrix that will enable a quick, top-line evaluation of potential markets.
Begin the matrix with issues that will quickly eliminate a country from your list. These might include protection of intellectual property, ability to repatriate money, recognition of contract law, acceptability of franchising, infrastructure, and governmental, political, and economic stability, to name a few. Much of the information for this portion of the matrix is readily available online on sites such as the CIA World Fact Book, the Heritage Foundation/Wall Street Journal Index of Economic Freedom, and The Economist Intelligence Unit’s Global Forecasting Service.
Move on to market conditions that would specifically affect your concept or business model, such as presence of a population with the desire and ability to buy your product or service on a repeat basis, level of disposable income, ability of qualified labor force, laws and regulations with a direct impact on your business model/concept, language and cultural barriers, access to capital, and others.
Once a market clears the matrix hurdle it may be worth a deeper dive. Assess competition in the market—for both consumers and franchisees. Estimate the potential the market offers and the effort it will take to achieve that potential. Determine the amount of marketing that will be required to establish the brand in the new market. In addition to information available online, speak with your suppliers and vendors, industry trade associations, the U.S. Department of Commerce, and others who may have insights into the market you’re considering. Finally, visit the prospective market and spend some time to get to know the market conditions, consumers, the competition, and business practices firsthand.
As many franchisors begin to recruit franchisees in their target markets, they experience both the push and pull of international franchising. There are countries that the franchisor has targeted, and there are prospective franchisees who want to bring the concept into their country. Using the matrix to quickly evaluate a requested market and taking the time to determine the qualifications of the potential franchisee can enable a franchisor to seize a great opportunity—and avoid the opposite.
The right market provides a powerful head start, and the right franchisee can fill gaps in the franchisor’s ability to provide support, help the franchisor overcome obstacles in the marketplace, and have a positive effect on the brand’s growth. When you get them right the stars are in alignment for great success.
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