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Expanding your franchise concept internationally is a challenging decision. It can offer huge growth opportunities outside of your current home market. Doing so prematurely can put undue stress on your system as you try to replicate your US operations for a culturally different demographic while managing domestic expansion and support.
Before expanding into new international markets, make sure your business concept is thoroughly developed, all intellectual property is registered and trademarked, marketing materials and manuals are translated, and you have a local team in your target markets to help with launch and resolution problems.
Inexperienced franchisors should avoid rushing into international expansion without doing thorough research and laying the proper foundations. International units can be more challenging than domestic units due to travel distances, language barriers and cultural differences. It is essential to ensure that your products or services are needed or desired in your target international market.
So if it’s so challenging, why not stick with growing domestic units and skip the international headaches? First, being able to introduce your products or services to new, untapped markets can be a significant revenue boost, especially if you’re running out of land to develop domestically. Another plus is that many foreign consumer markets crave American concepts. Best of all, US franchises are usually considered sound investments because of the proven systems and training they offer.
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Successful franchising always depends on the use of expert advice and assistance, but nowhere is this more important than when expanding into international markets. You need to connect with franchising and legal experts who specialize in international franchising and have knowledge of the countries you are targeting. They will have a network of peers with intimate knowledge of the laws, regulations and policies and business climate of the markets you are researching. Before investing in an international program, these experts can help you narrow down the countries or regions where your concept will work.
Some other key considerations for international franchise expansion include:
- Political and economic stability of the target region is absolutely important.
- Regulations or laws of the country relating to the franchise. Most countries have some form of business regulations to protect their citizens, but only a handful have specific franchise registration requirements that must be followed.
- Assess the relative ease or complexity of importing products into the country. You will need to set up appropriate logistics for certain proprietary items to get them there. Or, if you plan to source products locally, you will need local connections to help you create a reliable local supply chain.
- How royalties and ad pool fees will be effectively transferred back to the US. Don’t forget you’ll also deal with exchange rates, transfer fees and local banking regulations.
- Being able to find the right partners who are financially equipped to expand your concept beyond a single unit. Several different legal structures can be used, from direct franchising to an individual or group, to establishing a separate entity through a master franchise agreement for each country, where your master franchisee grants the rights to individual franchises and supports those local franchise units.
Here again, your trusted advisors can advise you on the best structure for your concept and the country in which it is located. Knowing your partners is essential. You need to feel comfortable with them as people and be well informed about their other partners and the businesses they may own. Both parties must comply with transparency laws that require disclosure of all entities with which they are associated, their owners and the people who make decisions about it. You need to know from where the money is invested in your concept.
Side note: It also goes without saying that if a concept is coming from another country or region to the US, the same due diligence and professional support is needed as for US-based concepts going abroad. International franchisors will also need to find trusted local franchise consultants and lawyers to help them transition from a national or regional concept to an international one once they enter the US market.
Where to expand first?
Canada has long been the first choice for international expansion for many US franchisors because of its proximity and because English is the first language for most of the country. But don’t be fooled by the fact that Canada’s culture and business environment are not that different from the US, Mexico is often the first port of call for US franchises looking to expand into Latin America due to its geographic proximity, but language and cultural differences are also rife. .
For example, let’s say you’re expanding your concept to Latin America; not only does Spanish in this region vary from country to country, but it is also important to note that Spanish is not the only language spoken in the region. In fact, in South America alone, Spanish speakers outnumber Portuguese speakers by only a few million people.
Another example is that a franchisor who wants to expand in the European Union cannot assume that a uniform approach suits all 27 member countries. In fact, the region has 24 official languages and each country has its own culture and rules.
So don’t rely on your high school foreign language skills or Google Translate to prepare your documents and training materials as part of your international expansion planning. Even the latest in AI is unlikely to be fully reliable in this case. In this case, the use of real human resources in each market you expand into is crucial. They will know the regional vocabulary and idioms used so that you don’t include embarrassing mistakes in your materials. Going the extra mile is also a sign of respect; it shows that you are culturally sensitive and professional.
Related: Tips and strategies for navigating cultural differences in international business
It’s a small world
With advances in technology, including video conferencing, messaging apps, AI communication tools, and more, the world is getting smaller and the ability to bring services to people across borders is easier than ever in many ways. Bringing your business to another culture is both financially and personally rewarding, but it comes with an overall investment of time and resources to get it right. International development is not something you can jump into; it’s a serious commitment.
Of course, as we’ve always been told, nothing worthwhile comes without hard work. This hard work must be supported by a team of experts both internal and external to the franchise organization who can effectively implement a well-thought-out international game plan.