Picking the Best European Countries for Franchising
Franchising World, January 2009
Franchising will continue to expand to additional world markets, so the only question that remains is where next?
By Tony Foley, CFE
While franchising is generally accepted as a U.S. enterprise, it has grown globally by about 10 percent annually over the last five years. England, Australia and Canada have had great success in spreading their franchise concepts around the globe, while some new players like France, Spain, India and South Africa are getting into the franchising game, exporting new food concepts to the United States and other parts of Europe.
Many would credit McDonald’s, Burger King and other food concepts in the 1950s as the “parents” of franchising, but franchising can trace its roots back to several concepts, including the I. M. Singer Sewing Machine Co. which in the 1850s charged licensing fees to people who then owned the rights to sell machines in certain geographical areas and they were also responsible for teaching consumers how to use the machines.
Although food concepts still dominate the franchising landscape, the fastest-growing service sectors are maintenance, business-to-business and health and fitness concepts.
Getting a Toe-hold in Europe
Where do most successful franchise companies begin when they decide to expand globally? After establishing a concept in the United States, many brands are ready to “cross the pond” and introduce their products and services to Europe.
The typical way to penetrate the European market is for U.S. franchises to establish a toe-hold with a sprinkling of local locations to attract other prospective franchisees. Flying to the United States for a Discovery Day is a steep investment for Europeans who have never experienced the brand first-hand.
The United Kingdom may seem like the likely first step because of the commonality in language, but it is actually not the best entry point to the rest of Europe. From the Europeans’ perspective, the U.K.’s decision not to join the European Union has branded the country a bit isolationist.
A better first step for U.S. franchise companies is the Republic of Ireland, an English-speaking country and member of the European Union. Even though the Republic is relatively small, with 4.4 million residents, it is still a good test market. Prospects throughout Europe find it accessible and after visiting a “local” store in Dublin may gain the confidence necessary to take the next step in their research of the brand.
That’s not to say that the Republic of Ireland is the only entry point. Spain is also a great option for U.S. brands. The country’s mixed capitalism is open and receptive to the concept of franchising and specifically embraces business-to-business franchises in addition to food concepts. France on the other hand, has onerous laws for franchising. It’s easy to become bogged down in laws and procedures there and difficult to get a franchise up and running. Add to that the fact that it’s legally-difficult to fire someone in France. Employees who are let go must receive extended severance packages, making this a less than ideal location for franchise productivity and success.
It’s not enough to simply examine the laws of a country to determine if it’s ripe for franchising. Although the United Kingdom’s laws and businesses seem similar to America’s, a prevailing attitude of skepticism prohibits growth. As a case in point, SIGNARAMA, retail sign franchise, opened simultaneous flagship locations in Birmingham, England, and Melbourne, Australia, in 1997. While the Australian franchise has since grown to 85 locations, the British franchise has grown to about 45.
Several basic cultural issues may account for the rather dramatic difference. Like Americans, the Australians are aggressive and marketing-savvy, approaching business with a level of optimism for why a concept will succeed. The Brits, on the other hand, prefer to mull things over and perhaps over-analyze–characteristics that may have made growth a bit more conservative in that particular market. The lesson is that Internet demographic and economic research can only take franchisors so far; it’s these cultural nuances that can only be learned through years of personal interaction and actual visits to prospective countries to gain a first-hand view of the landscape.
New Emerging Markets
Western Europe is by no means the only entrée to global expansion. Former Soviet bloc countries like Lithuania, Estonia, Kazakhstan and Eastern European nations like Croatia, Bulgaria and Hungary are eager to welcome U.S. franchise concepts. With few franchise laws on the books, it is easy to establish business in these countries. And although they are becoming more financially-sound and developing a solid middle class, these countries have still not been tapped by most American franchisors. As a result, the budding entrepreneurs there are eager to listen, learn and get on board with American franchising methods and procedures.
As for the type of concepts currently in demand, these countries are particularly interested in business-service franchise concepts, which are basically non-existent in emerging markets. The mindset of “time is money” is taking grip as the economy stabilizes. Maid services, car washing and even senior care concepts are now in great demand.
These countries don’t offer the same population base as their Western European counterparts, so franchisors may expect to sell only about 10 to 20 locations in a particular country. However, keeping in mind the goal of getting some successful locations on the ground in mainland Europe for other prospects to visit, these countries should rank high for consideration.
How and When to Go Global
While the global landscape has rolled out the welcome mat, U.S. franchisors must consider several key factors before jumping into the world’s economy.
• Is the entire senior management team on board? Global expansion takes a big commitment from support and resources.
• If Europe is on the table, has the brand been trademarked yet? Trademark laws are just one advantage of the E.U. For a single fee, the brand can be trademarked across 27 countries.
• Is the brand well-enough established in the United States first? A franchisor should have at least 50 successful locations paying royalties domestically before considering international expansion.
• Has the expansion strategy been defined? Franchisors sometimes mistakenly let leads dictate their expansion plans. Just because a /// prospect about purchasing from Chile a franchise may , inquire doesn’t mean the franchisor could (or should) support expansion there.
• Does the franchisor have an adequate understanding of the culture and customs of the expansion targets? If not, does the franchisor know how to gain this knowledge?
The bottom line is that franchising is the No. 1 business model in the world today. No other model can demonstrate such a proven plan for extending its brand of goods and services to other markets. Undoubtedly franchising will continue to expand to additional world markets, so the only question that remains is where next?
Tony Foley, CFE, is president of World Franchisors. He can be reached at 561-868-1358 or .