Taking Your Brand to International Markets
Transitioning your brand from a domestic success to a truly global company has numerous advantages beyond just increasing the size and profitability of your organization.
In today’s business environment where competitors are multiplying faster than the domestic population and customer base, more franchises are looking to international development to help grow their earnings, as well as their global brand awareness and unit counts. International expansion is no longer an area exclusively developed by the largest brands. Instead, small, hot, emerging franchisors are making the decision to target international growth sooner in their life cycle than ever before.
Transitioning your brand from a domestic success to a truly global company has numerous advantages beyond just increasing the size and profitability of your organization. Typically international partners are sophisticated and well-resourced and don’t face the difficulties in securing financing that some companies face in the current domestic banking environment. While there will be additional costs associated with the move to international, generally the growth will help leverage your overhead costs.
Is Your Brand Ready?
First on the list of steps to make the global move is to determine if your brand is really ready for international expansion. Ask yourself three questions.
First, is your brand scalable? Does your unique selling proposal and business model make sense in the markets you determine to ultimately target?
Second, does your organization have both the bandwidth and infrastructure to support the growth in another country or are you willing to commit new resources?
Third, which markets make sense to target? When selecting your target markets, you’ll need to consider not only how successful your brand is likely to be given the competitive landscape, economy and population, but also how difficult entry into any specific market might be. Markets such as the Gulf Cooperation Council, which include the United Arab Emirates, Kuwait, the Kingdom of Saudi Arabia and Qatar, offer a good mix of resources and strong economies, but also have a more competitive marketplace than other areas of the world. Other markets, such as Mongolia, are seeing strong double digit GDP growth and have demand for Western retail and restaurant brands. They also have more barriers to entry, including supply chain and access to viable real estate.
Once you have selected your international target markets it is vital to thoroughly review your trademarks, URL registrations, logos and all other intellectual property to ensure you will have full and undisputed control of these assets.
Determine Your Model
After careful consideration on your brand’s readiness for entry into the international marketplace, you should next determine how you will grow in the markets you have determined as most viable targets.
Determine your model. Will you grow through master agreements which allow your master franchisee to sub-franchise within the given territory or will you grow through single-unit agreements? Will your territories be determined by the borders of a single country such as Qatar, or a region, such as the GCC? Some countries, such as India and China, are so large, populous and varied, that within their borders it might make sense to divide the country into several territories.
While your domestic franchise disclosure document will most likely be the framework for your international agreement, it is just that, a framework or starting place. Each country and its agreement will have specific areas that will require modifications. Early in the process of drafting your international agreements you should consider areas such as revenue recognition, tax implications, how disputes and defaults will be handled, the agreed upon territory and growth commitments. It is a wise investment to have your domestic counsel work closely with an in-country attorney to ensure the agreement is compliant with local laws and regulations.
Selecting a Potential Partner
Once you have your agreements drafted, you are ready to begin the selection process of finding the right partner. This is a critical area and will require as much time with the potential partner as you can afford. Personally, I have found the relationship piece to be a critical one, especially in the early stages of a brand’s globalization.
Clearly, access to real estate, funding and human capital are all important areas to consider. I have found that the ability for the franchisor and international partner to work hand-in-hand to expand a brand in the partner’s home country to be one of the most critical factors of success. Not only will you rely heavily on your international partners’ knowledge of their marketplace, they will also provide valuable feedback in how to best position your brand’s products and services to be successful within their territory, as well as determining your unique selling proposal. My personal experience has been that the less a brand changes its offerings from country to country, the more successful it has been internationally. That said, there will always be considerations and changes that must be made to accommodate dietary or religious concerns or in-country customs and practices. Your partner is vital in helping determine which changes need to be made.
Most of us have followed the international success of brands like McDonald’s and Starbucks, and while there are some tremendous success stories, there are a number of risks associated with the move to international. Some of the fastest growing economies in the world are also the most volatile, and what initially appears to be a great opportunity can change quickly with an election, political unrest or even war in the geographic area.
The most developed markets, such as those in the Middle East, not only have well-established competition from U.S. brands, but also have seen recent growth in strong, well-positioned and locally-developed franchise concepts.
While you should clearly address how fluctuating exchange rates will be handled in your agreement, a strong change in the value of the dollar or local currency could impact local consumer bases’ ability to purchase your goods and services.
The supply chain itself has a wide range of risks if you are selling food or hard goods. Changes in import laws, tariffs or duties, along with oil prices, can affect your profitability and subsequently your unit-level economics and overall growth.
In the initial phases of growth, your international expansion is likely to take more resources than it returns to your organization’s bottom line. You need to be prepared for this investment in both time and resources.
While this is a summation of the major steps involved in the process of expanding within the exciting international market, I recommend you spend time working with all resources that might be available, including the U.S. Commercial Service and the International Franchise Association, as well as many of your vendors, all which may have market-specific information to assist you.
James Walker is a board member of Boneheads Grilled Fish and Chicken. Find him at fransocial.franchise.org.