International Franchising: It’s a Brave New World Out There
International trade is not for the faint of heart, but it can be a rewarding aspect of your business.
Taking your company overseas may open your franchise business up to a glamorous and exciting world, and there are many benefits to bringing your brand to new countries. These benefits include increased revenue, new exposure, and of course, personal satisfaction in creating and marketing your brand in far off places and getting to travel there too. Then there are the potential pitfalls and problems which may develop – and if caught unaware – may place your brand at risk.
First and foremost your company needs money. Although international trade may prove profitable to your company in the long term, there may be a period of time that your franchise system will be spending more money than it will be earning. Your company needs to be financially and operationally sound domestically before making the big leap. Don’t look to international markets to save your company, as going international will tap into all of your resources.
Also of critical importance is managing your time. It can take far longer to identify an appropriate partner, and once you have identified that potential partner, you will still need to negotiate the deal. It also takes longer to work with your new partners because of time differences or the distance it takes to ship product to that new location.
Understanding the markets is also extremely important. The culture of your new potential partner country will impact your brand which in turn affects the viability of your brand in that market. Each country has its own value system and manner in conducting business. Your brand needs to be aware and adaptable to those variables.
For example, if the standard of living is such that going to a fast food restaurant is a once-a-year highly anticipated event, your approach to the market is going to be very different than in the United States where it is often a convenience. If a rising standard of living is creating a new booming middle class, there is a cultural shift within a country to new ideas. The “new” culture potentially will value differently education, health, beauty or even owning cars, which can present wonderful opportunities.
Building a Franchise Relationship
In franchise relationships, the right partners make the whole difference. Because of the nature of franchising, in some ways this may not be as much of a hurdle for U.S. brands. But like traditional domestic franchise systems, the right partner can make any regulatory issues, tax issues, or local labor laws easier to navigate and understand.
Don’t undervalue the impact language will have on your relationship and your penetration into the market. When entering a new country, all of your operational manuals, training manuals, marketing materials, and so on, will also be translated into the language of the new market. Is your business going to have local headquarters staff to assist in any potential support services that will be needed for the new franchisors? Is the brand willing to have a regional support office?
Remember that international trade is itself another language. Much like Spanish, French or Chinese, there are a whole set of specific terms, and to some degree, ideas that follow international trade and what it encompasses. This will become more important if you are sending products to the foreign market for your franchisees versus sourcing locally. INCOTERMS, or international commercial terms, can be your friends or your enemies.
There are a host of service providers (attorneys, accountants, logistics companies and the U.S. government) that you currently access as a business owner. However, are these professionals versed in the language of international trade? Your logistics company needs to understand the customs duties and other requirements that your products (if you have physical products) need to have to enter a market. It’s also important that your attorney understands the laws of that foreign market, including labor laws, and has the knowledge to structure your master franchise agreement accordingly.
Let’s hope that this never happens, but how is the agreement structured if your business needs to terminate the agreement as the result of a dispute? Where will your company settle the dispute? The franchise company may not want to settle the dispute in the United States since your new partner probably does not have any assets there. By placing any dispute under the state of your incorporation, you also bind it to U.S. law, which will also include any trade agreements between the two countries.
As a last item, register your trademark as soon as your organization is contemplating a market. It would be unpleasant to learn that once you’ve decided to enter a market, someone else has already registered your product and is requesting a “fee” to turn it over to you.
International trade is not for the faint of heart, but it can be a rewarding aspect of your business. How exciting will it be to see your brand in some far-off locale and people flocking to it? There’s only one way to find out. ⎯
Jennifer Loffredo is a global franchise team leader with the U.S. Commercial Service. She can be reached at 248-452-2254 or Jennifer.Loffredo@trade.gov.