Making the Decision to Franchise Internationally

By Michael H. Seid, Joyce Mazero

The answer to the question of whether a U.S. franchisor should expand internationally really depends on timing. Clearly, a saturated domestic market is a strong incentive to go looking outside the U.S., but that incentive alone doesn’t necessarily mean that the franchise system is ready for international expansion. International franchising isn’t going to solve any of your problems in the U.S. and may actually create additional problems for you.

Smart franchisors expand internationally only after intensively planning for their expansion and only after assessing whether they have the resources and capabilities to properly support franchisees in foreign markets. Check out these key points for determining when international expansion is right for you.

Before entertaining international proposals, a franchisor should have a strong and profitable base at home. To do otherwise is like serving dessert before the main course. You can’t pinpoint an exact number of units a franchisor should have operating, but your domestic operations should have a significant number of franchisees operating successfully in various regions throughout the U.S.

You should have a proven capability of being able to fully support your domestic operations, and your U.S. operations should be fully supported from domestic royalties before going international.

Internally, a franchisor’s executive management team should be committed to the brand for the long haul. Too many international franchise programs are disrupted when franchisors pull back or substantially reduce resources for the international expansion program because early results fall short of (often unrealistic) expectations.

Long-term commitment to international franchising includes shifting or adding staff that solely focus on the international franchise expansion program. Having field staff, marketing support, product sourcing, operations, and training staff all dedicated to international expansion with the support of the rest of the organization isn’t unusual.

As international operations grow, you may need to establish an international organization that mirrors your domestic organization. Franchisors also need to have a surplus of capital resources for providing support services, modifying operations, and making on-site visits.

Having a successful launch of your international expansion program requires you to recognize the necessary differences between international operations and your domestic operations.

For example, no training is universal. You will need to weave adaptations into your standard training for operational variations and cultural differences, as well as address the training that your franchisee will provide to its staff. Even if you don’t use cloud-based training programs at home, consider developing them for your international markets to ensure that your franchisee has the tools necessary to train their own personnel.

If you offer franchises to master franchisees that will select and provide support to franchisees in their markets, you need to train the master franchisees on how to be “franchisors.” Your master franchisee will be performing many of the same tasks you do as a franchisor, such as franchisee selection, training, consulting, and support. The master franchisees will need training in the following key areas:

  • Recruiting, vetting, and selecting franchisees
  • Administrative functions
  • Site selection
  • Marketing and advertising
  • Training for personnel who will be trained locally
  • Local product sourcing and vendor management
  • Standards enforcement and discipline procedures
  • Managing franchise relations, including when and how to default or terminate errant franchisees

It will be important for you to appoint one key person or group to be in charge of international franchise expansion. It is a full-time job — and it can’t be achieved successfully on the fly or in your spare time when you are not focused on your domestic operations. So many times, franchisors let their focus stray from their domestic business — the very thing that got them where they are in the first place. They mistakenly get caught up in the excitement, which can sometimes border on fantasy, of going global. Make sure you have the organization to manage both domestic and international commitments adequately — or wait until you do.

Look at the flip side for a moment. Don’t pursue international franchising if

  • You are looking for a quick fix to cash-flow problems.
  • Executive management isn’t committed to long-term development.
  • You are not prepared to invest time, effort, and resources.
  • Your product or service doesn’t meet the foreign market’s needs.
  • You are unwilling to or can’t modify your product or service to the foreign market.
  • You can’t secure trademark protection.
  • Your operating procedures are so rigid that you can’t or don’t want to accommodate cultural or legal differences or requirements.
  • Political or economic instability will create problems.
  • You can’t get your money out of the country.