Master the art of global expansion
Are you one of the more ambitious franchisors wanting to expand into new international markets? If so, then you should seriously think about Master Franchising or one of the alternatives to take your brand into new territory
Today many successful national franchise brands are thinking that the best way to continue to grow their business, is to go global.
For more than 30 years FDS has had considerable experience in helping brands such as Domino’s Pizza, Subway, Rainbow International, Drain Doctor, and CeX – to name a few, expand their franchise internationally.
The key to success is frequently in careful planning and identifying the most appropriate target markets, where financial and management resources can best get a reasonably fast return on investment.
The first practical steps are to commission what is called a ‘pre-entry study’ and seek the services of your country’s embassies, since they normally have a commercial department that will carry out some basic research at low cost together with an experienced international franchise consultancy. In the UK this is offered through UK Trade & Investment and its overseas market research and intelligence reporting.
In the United States, the US Commercial Service helps companies to research internationally. For American franchisors, their first experience of international franchising is usually to cross the border into Canada. Some brands offer direct franchises into this neighbouring market, while others offer the Master Franchise or divide the country into East and West regions. In the UK, many British companies enter the Irish market first due to the similarity of the markets and language.
Of all the various methods available to export by franchising, Master Franchising is probably the most straightforward and sensible option for many brands.
Provided that the originating franchisor carefully thinks through the content and value of everything that they will be delivering in their Master Franchise package, the investment requirement can be quite substantial.
The franchisor will benefit from a number of sources of revenue including the initial payment for the Master Franchise Rights, the supply of products and services relevant to establishing and developing the franchise brand in their country and a Management Services Fee based on the total turnover of the Master or Area Developer’s Franchise business.
There is, however, a growing interest, particularly from US brands, to offer Area Development Rights into countries where they believe that a faster expansion of their franchise operation can be achieved by such investors who will not normally sub-franchise, but have the responsibility for opening a predetermined number of outlets under the franchisor’s brand name.
Internationally, it is very important that a franchise brand successfully develops its own business in its home market before considering worldwide development.
When a company embarks on exporting its business by franchising, it is far more than just products and services that are on the menu. It is the total method of sales, marketing and strategy that has been successfully adopted by the franchisor and here is where the real value comes, since the investors are going to be taught everything they need to know to replicate the success achieved in the home market.
So how does Master Franchising work? The simplicity of the fundamental principles involved is an extension of the basic franchise business format model, whereby a franchisor can expand by finding local organisations or individuals that wish to own, operate and invest in the brand in their territory. They can achieve levels of turnover and profitability that they could never expect to achieve on their own by setting up a similar business in the same sector.
One of the keys to success is that the franchisor grants Master Franchise Rights to organisations or established franchisors, since they have first-hand knowledge how franchising can best be developed in their target country rather than individuals. Such an international partner will have more substantial management and financial resources than a group of newly formed individuals can ever hope to have to lean on.
These business partners, as Master Franchise Owners, are far better equipped both culturally and logistically to develop their own markets than a company say from the UK planning to enter the Spanish market and establish their own company-owned facilities.
Likewise it is not really recommended that a Spanish company comes into London and sets up company-owned locations. It is far better for them to invest their money in a well thought out pre-entry study and international franchise development work programme so that the correct organisation can be found and feel very willing and excited owning and operating the Spanish Master Franchise. The same philosophy can be adopted for any market.
Know the market
The strategy for the originating franchisors offering the Master is to work on a sensible principle that the Master Franchise Owner knows their market best. The task for the franchisor is to ensure they understand, implement and grow the franchise system in the very best possible way in the market.
This international partnership model makes the market penetration faster and smoother by utilising onsite expertise, contacts, and local knowledge, all provided by the Master Franchise Owner or the Area Developer, who is in an excellent position to help guide and consolidate the Master licensor’s move into the target country.
The prime responsibility of the Master Franchise operator is to ensure the system, product and services are appropriate to their market.
The Master Franchise model is probably the most practical and profitable way for any company that has a product or service to sell into international markets, where there is value in cloning the whole of the business operations due to similarity of opportunity.
Methods of appointing agents or distributors do not encapsulate everything that is needed to know in order to make a success of not only achieving sales, but establishing valuable client and customer relationships.
In some instances it is necessary for the Master Franchise Owner to make alterations and modifications adding any specific elements that are needed by the target country and then the adapted package is approved by the originating franchisor.
Some brands such as Subway adopt different strategies to suit different markets. In the UK, Subway has adopted an expansion strategy that has allowed it to grow over 1,400 locations in a relatively short period of time, while internationally, Subway has grown to more than 36,000 locations in 98 countries.
Consult the specialists
Franchise Development Services has identified 21 specific areas that need to be fully understood and implemented by any company planning international franchise development. These include the obvious, such as the protection of the brand, initial and ongoing training, operating manuals and methods of reporting back daily sales to the franchisor’s international head office. Deciding which of the various options available, such as Master Franchising or Area Development Franchising, to choose is an essential first step and covered in detail with the pre-entry study.
Written by Professor Roy Seaman, CFE, QFP