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Nov, 01 2008

Routes to international franchising

International franchising requires significantly more planning, time and money than domestic franchising. To make it cost-effective, international franchising is usually carried out on a large scale through different modes working, with a partner in that

Master franchising

Right from the start, both sides must agree on the contributions and responsibilities, viz., training, support, operation of new project. There is a tendency for the system to collapse if the master franchisee becomes too eager to regain his initial investment and starts to concentrate more on selling franchisees than on providing good service and quality product. Master franchising requires huge amount of initial fees, at times crores. Therefore, it generally takes much longer to find the right individual or company that can afford the fees.

Area Developers

Regional franchisees or area developers are appointed in overseas markets to develop a large geographical region. Multiple or single unit sub-franchising is used for expansion purposes. There is a total need for coordination of outlets and to achieve preset targets. It comes as an advantage where the area developer is a company having a similar field as the franchisor. The outlet can be re-branded and the franchisor`s system applied. The fees too will be comparatively lesser, meaning a greater potential choice of partners for a franchisor, and a market overseas which can be penetrated in manageable stages.

Direct franchising

Franchisors directly recruit and support franchisees in an overseas market country through long distance control from home base. A subsidiary office may be set up or an agent may be appointed to organise, recruit, train and support the outlet. Though it is possible to develop such a market from a distant, overseas headquarters, however, training, supply and support resources may not be able to react as quickly as a franchisee needs. Direct franchising can involve large areas and on-location corporate support which reduces the risk.

Joint venture

In joint venture arrangements you associate with an entrepreneur, corporation or government body to engage in joint financing and development of the country or in part under an agreed trading system. Mainly, it is the franchisor who will be the risk-opting partner investing know-how and his system, while the overseas partner will be investing the capital. There could be formation of a new company on a half-sharing basis or there could be operational control by the franchisor. Expansion can be through sub-franchising or development of a managed chain of outlets.

A compatible partner

Master franchising and area development emerge as the best options. Like single unit franchising, all such arrangements depend upon the selection of the right partner. Rushing into a deal with a wrong company just because you were over-keen to sell an overseas licence, can spell trouble and thus, affect the credibility of your company name.

Whichever route you decide on, it is imperative that you first check your overseas partners. Some overseas partners are corporate bodies that may be larger than the parent franchisors. Here, you need to explore to what extent the partner will respect the original format and also that it does not have plans to become your competitor once the system has been mastered.

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