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The U.S. Commercial Service—Franchise Development’s Best Kept Secret

McDonald’s Corporation released its financial performance for the quarter ending Oct. 31, 2012. The report not only highlighted that its international revenue accounts for nearly 70 percent of total sales, but also that its average sales growth outside the United States is over 9 percent, with a mere 5 percent in the United States. If McDonald’s had decided against opening its outlet in “Avenida Central” in San Jose, Costa Rica back in 1970, we would have a very different McDonald’s story today. That outlet is its very first franchise located outside of North America, where this author actually had the opportunity to enjoy a Big Mac.

So, how are other world-class franchisors doing in international locations? The story is not that different: at 7-Eleven, 80 percent of stores are outside the United States and Canada; KFC, owned by Yum! Brands, now has more than 3,700 restaurants in more than 700 cities just in China, and the list goes on.

Don’t have the resources McDonald’s has? The truth is that organizations don’t need to.

World-Class Development

At the end of August 2012, the U.S. Commercial Service, along with Franchise Times and the International Franchise Association, co-hosted a Latin America Franchise Trade Mission. Seventeen top-class franchisors visited Chile, Panama and Colombia.  Staff members of the U.S. Embassies in each of the visited countries arranged a series of meetings with well-qualified potential investors for each of the franchise concepts that participated in the event. They not only arranged for media campaigns advertising the franchise event, but also qualified and filtered franchise candidates based on the profiles provided by each franchisor. The result: a world-class franchise development event.

Meetings were conducted at either luxurious hotels or chambers of commerce.  Each of the events began early in the morning with an insightful briefing on the country’s economics, legal franchise framework and overall franchise landscape. There were also introductions made to several local banks, which appeared eager to participate in the economic development and financing of potential new franchise outlets in their countries.

One-to-one meetings with investors were conducted back to back, arranged from early in the morning to the end of the day. Some candidates were representing large investment groups, like the one that owns Domino’s Pizza and the Blockbuster Master Franchise in Chile, while others were individual investors, like the ex-Consul of Colombia, who worked earlier in Atlanta. They were all highly motivated to find their next business opportunity.

One of the participants of the franchise mission was Tutor Doctor, an emerging franchise leader in the education sector. Currently, we have about 50 percent of our nearly 300 franchisees located within the United States, with the rest spread throughout other countries. We have participated in all types of international franchise development initiatives, including international franchise shows, franchise websites, franchise broker networks, meetings at hotel lobbies and so on.  Up to this point, we had achieved some success in our international expansion, but nothing came close to what we experienced at this event.  As a direct result of this event, Tutor Doctor now has one new franchisee in Panama City, Panama, one in Bogota, Colombia, and a multi-unit franchisee in Santiago, Chile, totaling three new countries within one month of the mission.  The total cost for Tutor Doctor, including the U.S. Commercial Service’s participation fee and travel expenses, came to less than $8,000.

Getting the Best From a U.S. Commercial Service Trade Mission 

The U.S. Commercial Service has proven to be potentially the most cost-effective and quickest way to help a franchisor expand abroad.  They reduce your go-to-market time by about six months to 12 months of preparation.  Regarding costs, it is impossible to beat the low-investment fees to participate, as some franchisors invest tens of thousands of dollars trying to get into a new country without any guarantee.

Here are some tips to help ensure your company gets the best from a U.S. Commercial Service Trade Mission.

Have a clear purpose in mind. Are you looking for a master franchise or single-unit franchisee? How many units do you forecast to develop in the country in the next three years to five years?  What type of investor are you looking for?

Learn about the country beforehand. Do you know your competition in the country?  What about salaries or purchasing power? Are there enough shopping malls or will your franchise pursue stand-alone locations?

Speak the language. Speaking the local language can make a huge difference. At the very least, make sure there is a translator that really understands your brand before the meeting; otherwise, your business may run into issues like the investors in the following story. A group of Japanese investors decided not to move forward with a senior care concept. Some months after, one of the investors met with the franchisor and said, “I love your concept, too bad your royalties are 60 percent.” The franchisor replied, “What do you mean?  We only charge 6 percent.”

Follow up. The worst thing a franchise development representative can do is prepare all this hard work, hold the meeting, return home, and follow up with the prospect two or three weeks later. Tutor Doctor scheduled a follow-up conference call with all candidates who were met the same day of the event, which was the key to getting a signed agreement with all three candidates within four weeks of the trip.

If your franchise business is not considering applying for the next U.S. Commercial Service Franchise Trade Mission, it would be as if McDonald’s Corporation had never decided to go out of North America and establish that very first international outlet in Costa Rica. The international revenue accounting for nearly 70 percent of their total sales would be nonexistent.  ⎯

Rogelio Martinez is vice president of international franchise development at Tutor Doctor.  During his career, he has developed over 400 franchise units in over 25 countries on six continents. He can be reached at 302-482-8020 or rmartinez@tutordoctor.com.

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