The franchise industry in the western world is expanding, and now many franchisors are looking to export their franchises to emerging markets. While this is generally a good idea for franchisors, it pays to do the homework and examine why, where, and how to export.
There are, however, many other reasons why franchisors are expanding into emerging markets.
Why Export: There are significant benefits to exporting franchises internationally:
- It allows the franchisor access to a larger market, increased business opportunities, greater capital, improved brand recognition, and higher value. This, in turn, brings larger financial returns to the franchisor
- Franchises within EU may reach a point where it is difficult for them to develop further without significant expansion, so exporting allows for ongoing development of the business and franchise system
- Increasing the scale and scope of the franchise system can lead to more efficient use of goods and resources
- Exporting a franchise is often a logical step after it has reached a certain level of development, as the franchise concept is based on allowing businesses to expand into new territories
Where to export: The issue of where to export a franchise needs to be carefully considered
Neighboring countries usually offers the best opportunities, as it is geographically close and typically has market conditions and laws similar to those in home markets.
Some franchisors may look to the EU or United States; others may head towards Singapore, Hong Kong or the Middle East. There are significant franchising opportunities in each of those areas.
Factors to consider when choosing an export location are:
- the extent of knowledge the franchisor has of that market
- the contacts which may be used to assist the expansion
- the amount of capital available to facilitate the move
- the confidence a franchisor has with the location they are choosing as the right one for them
Doing the homework: To build their confidence, a franchisor must do some homework
Establishing a franchise in a foreign country brings a host of new challenges and criteria to consider in establishing a new territory. For example, there will often be different legal requirements, distinct methods of business, and special taxation issues that must be taken into account. The culture of the country will certainly be different, so it pays to carefully examine the market to determine whether the franchise is viable. Failing to conduct a proper market evaluation may result in struggle or, worse, franchise failure.
Additionally, it is vital for the franchisor to visit the country in to which expansion is planned. The franchisor should investigate similar franchises and learn from their experiences. (Franchise associations and franchise conferences are useful sources of information.) It is also important to discuss the expansion with various advisors, including accountants, lawyers, and business consultants.
Avoiding the risks: There are substantial risks in exporting a franchise
Key things the franchisor should keep in mind are:
- The franchise system must be already well developed and understood. Exporting the system to countries such as emerging markets may require a more developed system to suit a more developing market. The cost of not having a well developed system can be significant.
- Intellectual property issues should be considered. It is crucially important that IP is protected both locally and in the market you want to expand into. All trademarks will need to be registered in the new market, and if this is not possible, a re-branding may need to occur. Protection of confidential information is also necessary.
- Part of the success of a franchise relates to the franchisor’s specialized knowledge of the home markets. Franchisors should be aware that a shift overseas will present problems that have not been encountered before.
Examining all the considerations and doing the necessary research and preparation can ultimately ensure success in one’s overseas franchising efforts.
Looking to expand a franchise? What should you consider?
Our team has extensive experience in assisting franchisors with their expansion efforts. We are well aware of the current trends, issues, and legislation involved in this process. To find out how we can help, please contact us.