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Advisory 2009-11-30

Capitalising on international prospects for franchising

You are a successful franchisor at the domestic front and now you are considering expanding at the international front. Not a bad idea at all, but before you zero down on expanding internationally let us check out some hurdles or challenges to it.

Globalization has brought a drastic change in the world economy. Business opportunity in the international markets is rising high. Under such circumstances, venturing into international market is just another natural phenomenon for businesses proven popular in their domestic markets.  A lot has been spoken about the phenomenal opportunities of overseas expansion of franchise. But let us have a look at the challenges of expanding a business abroad. Overseas expansion needs potential credibility to market the brand successfully. No doubt, international franchising has proven to be highly lucrative and effective but expansion of franchise internationally has its share of challenges. For instances, international franchising often requires domestic-based franchisors and franchisees to function beyond their normal network zone. Since old assumptions and tested methods may no longer be valid as international business owners are forced to muck their ways through unfamiliar markets and regulations. Thus, franchisor has to work on developing strategic skills in order to gain success internationally. Also, there is a risk of relying on the assistance of local partners to make your franchise a success.

No doubt, there are ample opportunities in different areas when expanding into a foreign location through franchising.  But still there exist host of hurdles. For instance, in the area of education franchising, with different geographic location one has to give lot of emphasis on legal issues. Such as , foreign exchange controls, government approval and protection of intellectual property rights and so forth. Let’s take another instance from beauty and service area. Here with the change in country one has to take care of the weather condition and suitability of the product in that particular location, In adverse situation one may also require to change the product according to the needs of the consumers. Also, besides such challenges, there are some major challenges of overseas franchising. These are as follows:

Cultural differences

Differences and incompatibility between cultures create major business risks. One needs to have great sense of cultural awareness. But such risk can be mitigated with careful planning and increasing likelihood. Also, reworking with texts and graphics in advertising material reflecting the cultural trend of that country could lead to huge popularity of a franchise.

Adaptability

Most often it has been found that in order to gain adaptability in the international market the business owners are required to make necessary changes in there products or services to cater to the needs of the customers. For example, Dominos Pizzas in India and Dominos Pizzas in America will offer slightly differ menu options based on the demands of the local customers. Thus, be prepared to make the necessary changes in order to make a ‘good fit’ in that particular market.

To abide by franchise laws of a particular country

There are some countries that follow strict franchise laws. Here are examples of laws in different countries. For example, the discloser acknowledgement and cooling off periods are longer in Australia than in US. Brazil requires the franchise agreement to be translated in Portuguese and registered with the Brazilian patent and trade office. There exists certain speculation about terminating a franchise agreement in Mexico. Franchisor has to look into the legal issues before finalising to venture into that specific market.   So, one has to be very cautious in dealing with legal issues.

Finding potential franchisee

It has been found that many a times a franchisor having decided to spread internationally often finds lack of potential franchisees in that specific domain. This is because change in language, culture and legal issues brings in lot of risks and added responsibility to work with. Also, before marketing the concept to potential franchisees, the groundwork must be laid with solid plans for the product or the services to run successfully in that particular country.

Selection of location

Selecting the right location and making your franchise stand out from the competition is essential for success. Thus gather sufficient information about the location, economic standards of the population in order to gain profits.

Counting on tested model

It is critical to consider operating on a tried and tested business model. This is because replication of tried and tested models could be relatively easy to gain its roots in market.

Taking expert opinion:  There are many consultancy firms that specialize in helping prospective franchisees to find the appropriate international market. Such business consultant can help the franchise understand and navigate through the legal issues and customs.

To conclude, there are plenty of sustainable and innovative opportunities that ambitious entrepreneurs can successfully import to the new international markets. As a franchisor, be aware of such opportunities and adapt to make the necessary changes in the product or service line.  Also, at the same time franchisee must communicate the need for the perceived changes to the franchisor.

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