6 Tips to Consider Before Deciding To Proceed with Franchising Internationally
Expanding a business through franchising is a major decision requiring substantial commitment. It therefore should not be undertaken without a great deal of thought, preparation and development of both the concept itself and the infrastructure necessary to support multiple units of that concept. Similar thinking and planning is necessary for any chance of success in launching a franchise outside the boundaries of the United States. In this Guide I will touch upon some of the considerations that should be included in any decision to enter international franchising, as well as some of the costs and unique obstacles to franchising on this level.
Much homework needs to be done before taking the plunge into offering franchises in other countries. Some of the more critical evaluations that should be made are addressed below.
The Marketplace - Demand and Competition for the Franchise's Product
Consideration #1: Is there significant demand in the target nation for the type of product or service the franchise offers? This factor requires consideration of the unique cultural attributes of the country the Franchisor seeks to enter. And if the culture may be open to the concept, what kind of local (or other international) competition would be faced, and is it surmountable?
Culture: Is the Nature of the Franchise System Conducive to the Unique Culture of the Target Nation?
Consideration #2: Is the nature of the franchise system conducive to the unique culture of the target country? If not, are there any feasible modifications that can be made to overcome the disconnect, and at what cost? The franchisor also needs to consider whether the country in question will require professional interpreters and translation of legal documents to be done by competent professionals familiar with the vocabulary of franchising and legal documents.
Economics: Is Attempting to Expand the Franchise Overseas Economically Feasible and Cost Effective?
Consideration #3: Is attempting to expand overseas feasible from a cost standpoint? For example, how do the costs of construction, property leases, international shipping, local permits and the like compare to the costs of operating the business domestically?
Local Government: Can the Franchise System Get a Fair Shake in the Target Country?
Consideration #4: Is the targeted nation a developed one, or more like a third-world country with corruption even more extensive than what is often found in larger, developed countries? The franchisor needs to consider the target country's laws with respect to taxes, labor and employment, immigration and work visas, and the like.
Training and Ongoing Support: Can Trainers and Support Personnel Cost Effectively Reach Out from Home?
Consideration #5: The franchisor needs to consider the cost of training franchisees in a foreign country. If the cost is prohibitive, or sending existing training staff to do training in foreign countries would spread the labor resources of the franchise too thin, the franchisor needs to consider the feasibility of using trainers located in the target nation, and whether such trainers can effectively convey the training modules so as to properly preserve the system in that country.
Intellectual Property: Can the Intellectual Property Belonging to the Franchise be Protected Overseas?
Consideration #6: The hallmark of a franchise is its portfolio of trademarks. There may be other intellectual property essential to the system, as well as trade secrets. The franchisor needs to explore the extent to which all such intellectual property can be protected under the law of the target nation.
It is understandably tempting to grab the money and run when a potential business owner from a foreign country expresses interest in your franchise concept and offers a handful of cash to pay for it. However, entering into a franchise arrangement is like entering a marriage: It is a long-term obligation and commitment, as well as a long-term investment of capital. Therefore, the expanding franchisor needs to select its spouses carefully.
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