Franchising World April 2012
By: Steve Devine
International development—U.S. franchisors at some point during the recent economic downturn most likely considered this development path. Certainly, with a lack of available financing for U.S. franchisees and the reasonable strength of some foreign economies, the thought of bringing your successful franchise model to an international audience may seem attractive. However, the mere fact that the economy may be stronger overseas is not reason enough to jump aboard the international expansion bandwagon. There are definitely opportunities for branding success outside the borders of the United States, but be warned, there are pitfalls aplenty for those who cross borders without their eyes open wide.
In 2008, when Johnny Rockets decided to embark on a program of “Global Hamburger Domination,” the company naturally looked to Asia. Johnny Rockets already proved to be a success in the Middle Eastern and Latin American markets and recognized that Asia also offered reasonably stable economic conditions, as well as an ever-expanding middle-class consumer base. The most attractive market, ripe with growth opportunity seemed to be China, but as the brand researched the region, it became apparent that the best places to launch into Asia would be in the Philippines and South Korea. Both markets have a tremendous affinity not only for American brands, but also for the overall American experience that the company delivers on so well. By focusing its development efforts on these two markets, Johnny Rockets now maintains a significant presence in the region (five restaurants operating in South Korea and four in the Philippines), as well as a platform from which to launch expansion into neighboring Asian markets, such as Indonesia, where the company recently announced plans to develop five restaurants over the next five years.
So how can franchises maximize their success while minimizing risk?
Do Your Research Before You Start
There are plenty of international development strategies out there—BRIC or Brazil, Russia, India and China; N-11 or the “Next Eleven Countries” that include Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam; Concentric Circles (developing in markets close to existing markets), to a Shotgun approach (an opportunistic strategy of growing where there is a consumer demand regardless of geography). The key to establishing a successful international development strategy is in doing your homework. Knowing that you want to increase your presence outside of the United States is one thing. Knowing the international markets where you can be successful is something entirely different.
The best international development strategy will identify areas where there is not only a demand for your product or service, but also the opportunity to replicate your product or service and remain as true to your brand as possible. It will answer questions such as:
• Is there an existing supply chain that can be built upon?
• Is there available and affordable commercial real estate?
• Is your brand adaptable to the local culture?
• Is it possible to repatriate funds from markets into which you wish to expand?
• Are there legal hurdles to overcome to make market entry feasible?
• Is your company staffed well
enough to support international
Use Resources: U.S. Commercial Service and IFA
There are a tremendous amount of resources available to U.S. companies with a desire to expand internationally. Some of the best are even available for free. The U.S. Commercial Service, an arm of the United States Department of Commerce, offers an entire library of Country Commercial Guides which provides detailed information regarding the economic and political environment, as well as specific market analysis. Country Commercial Guides are available for free on the Internet at http://export.gov/mrktresearch/index.asp . After using these resources to formulate an international development strategy, the U.S. Commercial Service offers additional in-country matchmaking services on a pay-per-use basis. The International Franchise Association is another excellent resource for developing an international development strategy. Through networking events, roundtable discussions and educational seminars, IFA provides a wealth of experience and education to its members.
Network With Other Brands That Have an International Presence
Through industry contacts, social media activity on sites such as LinkedIn and participation at industry and IFA events, your brand can build quite an extensive network of business professionals. Maximize these connections, learning from the successes and failures of other brands as they expand into international markets.
Franchising professionals tend to be willing to pass on their “tribal knowledge” and war stories of international expansion in general. Through my internal and external networks, I have had the opportunity to meet on the ground in India, Australia, China, Singapore and Korea with representatives of such respected international companies as Coca-Cola, Goldman Sac’s, KPMG, CBRE, McDonald’s and YUM! Brands, Inc. It is said that the benefit of a franchising model is that you are “in business for yourself, but not by yourself,” and the same holds true when networking within the franchising industry as a whole. Most professionals inside and outside of your industry will be very happy to share their experiences with you if you just ask.
Network With Your Suppliers
When it comes to building your network, don’t forget to include your suppliers and vendors. Not only will franchises find that many suppliers and vendors have global contacts, franchise systems will also find that they have a vested interest in your success. The more hamburgers that Johnny Rockets sells around the world, the more Heinz Tomato Ketchup and Coca-Cola are sold as well. Unless your company develops these lines of communications, it will miss valuable connections, not only to potential local suppliers, but also to potential franchisees. Leverage those relationships.
Engage a Credible Law Firm
Believe it or not, this can be one of the most crucial decisions your company can make when developing an international expansion strategy. Your franchise does not need to retain the most expensive or the largest law firm to assist it in its international development, but your company does need a firm to boast experience and relationships over seas. Before your organization begins thinking about a franchising agreement, it must protect its trademarks. This is the immediate step after determining the markets to enter. Without having your trademarks protected, your company will not have a brand to bring to market. Early protection of your marks with a reputable law firm will ensure your franchise the opportunity to do business in the future. Franchising internationally is not the same as franchising in the United States. Every country enforces differing laws and franchising regulations. Some of them are similar to U.S. laws and some are far more stringent. Franchise brands will find that some countries do not even have franchise-specific regulations, but every agreement that is executed will need to conform to the local laws of the country that the franchise is entering. This is one area where your company does not want to cut corners or try to skirt issues. Protect yourself before market entry by registering your trademarks, and protect your business as it grows by ensuring that it has the right legal standing through your contracts.
Be Patient and Pick the Right Partner
The final, and perhaps the most important, strategy to employ is patience. Remember that your franchise company is seeking to create an entire life cycle of business in your expansion markets; the most important element of that success will be the franchise partner that is brought aboard. There is plenty of due diligence to conduct when it comes to selecting the best international franchise partner. From background checks to financial verifications, each step is important. Meet with your prospects in their prospective markets, as well as in some of your current markets. Interact with them in their business environment, as well as in yours, and really get to know them as people, not just as prospective franchisees. Remember that, ultimately, they will be the face of your brand in your overseas markets.
Steve Devine is senior vice president of international development for The Johnny Rockets Group, Inc., which has restaurants operating in 15 countries where customers can escape from today’s complicated world and experience the uncomplicated goodness of classic Americana. He can be reached at 949-643-6131 or firstname.lastname@example.org .