International Development: How to Get From Here to There
International development is an exciting opportunity, which has to be approached with the philosophy of a Boy Scout: “Be Prepared.”
By: Roberto Litwak
October 2010 Franchising World
Having lived in the Los Angeles area for the past 15 years, it is sometimes hard to escape the glitz and glamour of Hollywood. It is not uncommon to be out with the family enjoying a quiet dinner at the neighborhood deli, when all of a sudden, noises and rumblings, flashes of light and activity which may not be necessarily associated or expected in a family restaurant setting, begin to make their way into the after-dinner conversation.
After a few minutes, it is possible to figure out that the “tween” heart-throb from the most recent blockbuster movie or the newest Disney Channel’s “pop-tart” is enjoying a cheeseburger just a few tables away. This is deduced, not because of a keen awareness of Tinsel Town, but because young daughters all over the restaurant start screaming uncontrollably.
Even though one tries to resist, a few minutes later there is a line of about 300 parents, trying to take a picture and get an autograph from the star, even if no one in the line or over the age of 14 has the slightest idea who that person is or what she does.
Curiously, international franchise development can be a somewhat similar experience. A franchise’s development team is comfortably dedicating their energy, time and resources to growing the brand domestically, when out of the blue, an e-mail is received from a lead in an exotic country in South America, or an executive in the company travels overseas and decides that it is time to take the concept to other latitudes.
And why not? Others are doing it, right? Then, without much thought or without really knowing what international development entails, it is declared that the franchise is now seeking candidates beyond the U.S. borders.
Five Key Concepts of International Development
Franchisors who are thinking about international development, may want to consider the following five concepts to help get from here-to-there with a greater understanding of the task at hand:
1 The Process
It is true that to start it all, someone along the line had to make the decision to “go international.” However, it is very important to understand that the decision will trigger a series of events that will probably cascade, in one way or another, throughout the entire organization. International development and each of the steps it encompasses just take time.
For example, trademark registrations can take close to a year to be completed and (in some cases even longer). There are legal documents which will undergo several drafts, reviews and edits before they can be finalized. It is probable that the operation manuals will need to be adapted in one way or another or translated into one or several languages. One should not expect to start the brand’s international development on Monday and be ready to exhibit in the Franchise Expo Paris on Friday–unless a long, unpaid vacation in France is desired.
2 Look Within
Although it may sound like a cliché, there is probably not a single statement related to international development more important than this. In order to succeed abroad, the franchise must have a very good understanding of how the system is run and operated in its own back yard, in short, every aspect of the franchise’s domestic operations needs to be under relative control.
Why? For starters, valuable resources
will have to be committed to the effort if the company is truly serious about it. Sometimes, franchisors are already spread thin trying to keep up with their domestic development and operations, and international expansion will require time, money and human power which, at times, may be difficult to divert to this new undertaking. Imagine that there are problems supporting a franchisee in Topeka, then imagine having to do the same in Tokyo, using the same resources, procedures and systems?
Being able to fully commit the appropriate resources to the effort will surely increase the chances of a pay-off in the long-run. In addition, it is always a better bet if the brand is well established, recognized and strongly associated with the products or services offered in the domestic market. Ultimately franchising is all about promoting the brand to strengthen the network to the benefit of all involved, therefore a misstep even in a country several thousand miles away may have repercussions at home.
On the other hand, a well planned and executed international expansion will solidify the concept everywhere. International development can be a wonderful and a very rewarding experience, but as the saying goes “honesty is the best policy.” Franchises need to be honest with themselves about their readiness to embark in this exciting adventure.
3 It’s Not a Small World After All
It would be naïve to think that starting operations in Mexico is similar to selling a franchise in Mozambique. To put it in perspective, the CIA World Fact Book lists 266 countries (world entities) and Ethnologue, an encyclopedic reference work cataloging the entire world’s known living languages, lists 6,909 of them. As many world entities and languages there are, one can find markets and consumption patterns which are not only vastly different between countries, but could also be different between regions or areas within a country.
International development has to be a consciously targeted effort, one dart aimed straight at the bull’s-eye. As processes are in place for selecting qualified franchisees for domestic markets, it is vital for franchises to establish the appropriate criteria a country must meet in order to be considered for its expansion efforts. Keep in mind that it is not only the market or economic conditions that must be considered, there are other factors which are often overlooked and can greatly affect the effort such as political stability, legal framework for franchising and for the franchise’s particular offering, availability of materials and the possibility to establish proper supply chains, import-export laws and other key items.
4 There’s a Method to the Madness
There are several mechanisms by which franchisors approach international expansion. Two of them are most popular because they are most likely to produce positive results: the master franchise agreement and the master development agreement. Both, in essence, work the same way, with one major difference: In both structures a business relationship is established with a local investor, who will then become the master franchisee (local to the international market) and who will be responsible for growing the brand in that particular country or region. To use proper terminology, they will develop the brand in the granted territory.
The difference between these two structures is how the brand itself is grown. With the master franchise agreement, the master franchisee has the ability to sub-franchise, basically becoming a franchisor of the concept in that particular country, having all the rights and responsibilities that the franchisor has at home, but limited to that territory, while in the master development agreement is the master franchisee himself who has to grow and penetrate the market entirely with his own resources.
These are common practices in international development; however it may be necessary to explore other options as they may be better suited for each particular brand and concept. Regardless of which structure is selected, and probably most important above all, is to have the confidence and conviction to select the right international counterpart. In a way, which method is used or how the deal is structured will ultimately depend on specific circumstances at the time of the offering; however, having the patience to select a master franchisee who can adopt the franchise’s vision and business philosophy will be a sure way to succeed, regardless of which method or structure is used.
5 You’ve got a Friend
In a perfect world, it would be fantastic to able to visit and get familiarized with all of the characteristics and circumstances, and learn all the nuances of all the different markets and countries a franchise may want to expand or grow into. But this is an imperfect world and that is an unlikely possibility. International franchise consultants can often be the eyes and ears of the franchise abroad, as they possess the skills and knowledge to help the company navigate through the entire international development process.
They are truly experts in each of their particular regions of the world and can help the franchise understand where it stands and where it could be going to in terms of its international development. For example, a market research study or a strategic plan, both which are invaluable tools and can be produced by consultants, will give sound information and help in the decision if a specific country is right for the concept, as well as provide an overview of how franchising the concept in the foreign country may look like.
International development is an exciting opportunity, which has to be approached with the philosophy of a Boy Scout: “Be Prepared.” With the proper preparation and the willingness to fully commit to the process, the international development team will become quite the star among its colleagues and they will now have to worry about one more thing: the franchise paparazzi.
Roberto Litwak, CFE, is director of international operations for Feher & Feher, a franchise and business consulting firm with more than 20 years of experience. He can be reached at firstname.lastname@example.org .