Cross-border issues for both franchisors and franchiees
What do Clarks, Mothercare, Marks & Spencer and The Entertainer have in common? The answer is that all these retailers have successfully capitalised on franchising their stores abroad.
Mothercare, for example, has recently reported a significant pre-tax profit increase. Much of this success is down to its international expansion through its franchised stores overseas.
This franchise model works on a smaller scale too; for SMEs, franchising can often temper the risk of investing in expansion overseas when compared to opening own-run stores. Investing in a foreign franchise can also be a great way for UK-based franchise owners to capitalise on a new, innovative overseas market with a model tried and tested in other countries.
However, franchising can involve a number of complex legal and practical considerations at the best of times and adding a cross-border element could dissuade some franchisors and franchise owners from operating abroad. The following tips should help in ensuring both sides of the franchising relationship run smoothly across jurisdictions.
Advice for Franchisors
All businesses looking to franchise abroad should do the necessary ‘due diligence’, however it is worth noting a few areas which require special attention.
Firstly – it is essential you know the country’s market inside out. To use a very basic example, there’s no use opening a sunscreen store when the country’s weather rarely climbs above 10 degrees. Spend time in the country and assess the market’s appetite for your offering – desk research often won’t cut it.
Talking to local businesses and establishing workable local partnerships can also be a good way to mitigate risk and give your new overseas franchise a helping hand.
Quality control is also a big issue for franchisors, no matter the market. Carefully cultivating a business model and then handing over the reins can be a challenge and this element has to be managed even more carefully if your franchise model is going overseas. Putting in place clear regulations and processes for your franchisees will help, as will implementing a series of regular quality checks to ensure your standards are being adhered to.
Being aware of local laws and getting the right legal advice is key in setting up a franchise abroad – everything from product safety regulations to employment law could be different and it is important to be aware of all these aspects and how they could affect your business day-to-day.
Advice for Overseas-based Franchisees
Opening up a franchise in the UK when your business is based elsewhere can also be overwhelming – perhaps there are no other retailers selling these products in the UK already and you’re essentially in unchartered territory or you’re unsure if you will receive the right training.
When choosing a franchise, it’s essential you consider your business model and whether it is likely to work well in the UK. Talk to the franchisor and don’t be afraid to ask tough questions. Again, visiting the country and spending a few days observing is also a great way to assess risk. Franchising abroad can offer fantastic opportunities for both franchise owners and franchisors – and engaging in hands-on research and face-to-face contact can ensure risk is mitigated.
Julian Harvey is a partner and co-head of the franchising team at law firm Mundays