What Darwin Can Teach Us About Running an International Franchise

Build systems that can evolve and respond to new challenges and needs.

By James Walker

The franchise restaurant business has always been challenging. Reliance on both a skilled and unskilled transient workforce, changing tastes and trends, and of course, ever-increasing pressure from competitors is a difficult balancing act. Retail and service-based franchisors face many of the same challenges, as well as their own industry-specific ones. Taking your franchise global presents a new layer of concerns, and many of these global challenges are much more concerning today than ever before. 

The pace at which these challenges present themselves has increased significantly, and stable markets can become unstable almost overnight. Specifically, some of the global challenges franchisors face, and should be aware of, include foreign exchange concerns; political, governmental and health complications; and macro-economic issues.

Foreign Exchange (Forex) Challenges

The continued strengthening of the U.S. dollar has made competing globally more difficult for some U.S. brands. This is particularly the case for franchisors that utilize products built within the U.S. and exported abroad. Our products can become increasingly more expensive in many foreign markets, creating opportunities for local competitors to capitalize on price advantages.

Forex has impacted business in the U.S. in many ways. The weak Canadian dollar has affected many businesses in U.S./Canadian border areas, where businesses used to see robust cross border purchases. Some countries have seen volatile shifts in their exchange rates with the U.S. when the strengthening dollar is also coupled with in-country macro-economic issues. Brazil, the world’s ninth largest economy, is one such market, where the past three years have seen strong shifts in the value of the U.S. dollar versus the Brazilian real — due in part to issues within both the government and economy of Brazil. 

Volatility makes forecasting future investment difficult and risky, and typically reduces a franchisees willingness to grow during uncertain times.   

Political, Governmental, Health Challenges

2016 saw unprecedented political turmoil in the United States, in some ways educating us on how tumultuous elections happen routinely in some other countries. Leadership changes can bring new regulations, taxes, duties and other factors, all of which can generate rapid negative economic pressure on our international franchises. Many of these influential factors would be difficult to plan for in advance. Health concerns, such as the Zika virus, had a negative impact on business which the World Bank estimates at U.S. $3.5 billion in 2016 alone. 

Health concerns can keep tourists from visiting impacted countries ultimately impacting our franchisees whose businesses are at least partially driven by tourist traffic. 

Increased acts of terrorism impact our businesses by decreasing traffic to our franchisees’ business as tourists stay away, and locals stay home. In addition, security-related costs tend to skyrocket, and it may become more difficult to attract quality employees.

Macro-Economic Challenges

Macro-economic issues such as the economic slowdown seen in China, the world’s second largest economy, have far reaching ramifications well beyond the Chinese borders. The International Monetary Fund expects China’s economic growth to slow towards 5.8 percent by 2021, a large decrease when compared to the 14.2 percent growth rate China experienced in 2007. While Eastern Europe, the Middle East, and Africa will mostly likely feel the greatest impact from the Chinese slowdown, even Latin America, where 10 percent of its export business is focused on China, won’t be exempt from the impact.

Decreases in oil prices create both positive and negative global consequences. The impact of a lower cost of crude oil is complex to say the least. The effects spread far beyond a myopic view that lower crude prices hurt oil exporting countries, and provide a benefit to those countries who largely import crude for their energy needs. Oil prices, like interest rates, are another factor to look at on a country-by-country basis to understand how your in-country franchisees’ business might be impacted. 

Respond to Change

What can we learn from British naturalist Charles Darwin about running an international franchise in challenging times? My favorite quote of his is: “It's not the largest or strongest that survive... but the ones most responsive to change." While I am certain he wasn’t speaking about international franchises, I think his words are directly applicable. 

Our ability as global franchisors to work with our in-country franchisees to quickly, and mindfully, respond to changes in the market — including those already mentioned, but also competitive intrusion, changes in local tastes and trends, and many more — is critical to our brands’ global success. 

The Greek philosopher Heraclitus said: “…change is the only constant in life.” The challenges we as international franchisors face, many brought about by change, are challenges we can both react to, and prepare for.

Some Advice

Listen to your stakeholders. Your franchisees, employees, guests, and vendors are all good sources of information on what current challenges are being faced, as well as how franchisors and franchisees might work to address them. My experience is that gaining feedback from those closest to the problem is very important in determining a course of action. 

Get help. If you’re a new international franchisor and stakeholders aren’t a resource that you can tap in to currently, don’t go it alone. Other franchisors who are direct competitors can offer insights that can be invaluable. There are also numerous, talented consultants available to help you navigate many of the challenges you’ll face, in some cases their “expert on the outside” view can provide courses of action that we wouldn’t have thought of.

Be prepared. Don’t ignore or abandon your systems, or brand standards, rather be prepared to evolve them to address the challenges within the individual markets. It’s important to determine what really is core to your brands global success. There are those elements that you will not change, and then those that can be tweaked, or modified to address market needs. These brand “guide rails” should be determined when you first enter an international market.

Monitor your brand. Build systems to monitor the adaptations to your brand, or business model that you put in place to respond to changes or challenges within the individual markets. And be prepared to make course corrections based on the data your monitoring systems provide. 

Watch the metrics. Monitor the metrics by market that have the most potential to impact your business within that specific trade area and be prepared to react quickly. 

Be a change agent. And lastly, create a culture where change is accepted, and seen as a normal part of your business model. Build systems that can evolve and respond to new challenges and needs by market. You can be a “brand champion,” and still be the change agent within
your company.

James Walker is President of Global Operations and Development for Johnny Rockets. He oversees operations, development and support functions for more than 350 restaurants in 28 countries. Walker’s previous experience includes positions at Beef ‘O’ Brady’s, The Brass Tap and Fresh Brands, which includes Baja Fresh, La Salsa and Canyons Burger Company.