In our previous blog post, we have discussed the 6 key drawbacks of international franchising. While each one of these consequences can be a reality check for an aspiring business owner to take its unique concept, beloved brand or lucrative business model beyond borders, there is always a way to hit the bull's eye no matter how overaching they might seems to you.
Well, if others can, why can't you, right?
Let us look at what we believe to be the most effective, most profitable way for two parties - franchisor and franchisee in different countries, to structure a deal that will work to everyone’s satisfaction.
Here are the eight-step international checklist to increase your chances of franchising success internationally:
1. Are you ready?
Do you have the operational organization to establish and support foreign operations?
2. Know your market
You will need to do some homework to determine if your concept is adaptable in the licensee’s country and find out what adjustments you and they will need to make. Learn about their culture, geography, demographics, monetary system, and business practices.
3. Pick the right partner
Because your licensee will be a multi-unit buyer, it’s even more critical than in selling individual franchises to choose correctly.
Don’t sell to anyone unless they are financially and operationally capable of developing the region you are selling. This almost certainly means someone already doing business in that country.
4. Price it fairly
Over-price and you may lose a buyer. Under- price and you will lose money. Structure the deal so that you receive enough up front to cover commissions, referral fees (if any), market studies, extensive and intensive training, travel expenses for the first two years, and the necessary support costs. Three components are involved: 1) the initial fee, 2) royalties, and 3) out of pocket expenses.
5. Require performance
Be sure to set specific numbers of units and target dates. A requisite number of units should be opened in each major city each year, or the license rights subject to termination.
6. Provide support
The higher the quality-control sensitivity your business, the more support, monitoring and visibility you will need to commit. Time and distance further complicate this issue. Before you finalize the pricing of your fees and royal- ties, be sure you have adequately evaluated the level of support, costs and involvement you will need to commit to the success of international licenses.
7. Develop product sources
If your international franchisees will need merchandise, equipment or products in the operation of their businesses, be sure that those products are available in their country at prices that are affordable and do not adversely affect unit economics. If they have to import your products or others’, you need to evaluate and factor in the tariffs or barriers to entry of these products and often help locate them and negotiate with suppliers.
8. Make your program win-win-win
Your main objective in foreign markets is to create a fair and equitable, long-lasting business relationship in which everyone benefits – the consumer, the international licensee, and your company. It must work at all levels.
If your business is successful and has franchising potential, it’s quite possible that a foreign company will contact you about obtaining a license. If you are relatively small and new to franchising, beware. Don’t let the prospect of a big fee allow you to take a step you are not prepared for. Even large companies have blundered into foreign markets with disastrous results. KFC floundered on its initial entry into Japan and Hong Kong; Jack-in-the-Box had problems in Asia; Radio Shack lost $35 million in Japan; and many other US companies collected large up-front fees only to watch some of these foreign operations fail. If you are approached, make an objective appraisal of your readiness by using the check- list given above.