Game Planning for International Expansion

Are you thinking about taking your franchise system international? Are you already franchising internationally? If you answered "yes" to either of these questions, the following strategy considerations can help make your international venture a success.

Where's your Playbook? Developing your Global Strategy

New geographies have untapped potential for increased market penetration and revenue growth. For franchisors just beginning to think about going international, as well as for those who have been franchising globally for decades, a key to successful international operations is an up-to-date, clearly defined global business strategy.

Many franchisors start international expansion almost by accident in response to an e-mail from somewhere across the globe. There are better ways to begin. The optimal approach involves establishing a business strategy and plan for international expansion, specifically addressing the opportunities and challenges your company will face, identifying the resources needed to respond, and periodically reevaluating your business strategy.

Scouting the Competition: Market Research and Due Diligence

Before launching your new international strategy or expanding into a new geographic area, check your plans with targeted local due diligence. Even the most experienced companies can run into difficulties if their system is not properly adapted to the local market.

Recently, Wal-Mart pulled out of Germany and sold its stores to a competitor. Despite its well-documented and peerless success in the United States, Wal-Mart's business model did not translate to the local market. It's not that German consumers don't appreciate a good deal. But Wal-Mart was not able to leverage its business model to differentiate its stores from the established local brands. Its corporate culture also met resistance from German employees.

Companies like Edwards Global Services (www.edwardsglobal.com) work with franchisors to assess international expansion opportunities and then implement the resulting global strategies. Company president Bill Edwards identifies the key piece of this process as market research that assesses the competitive landscape and helps identify his franchisor client's differentiation—the factors that may allow a franchise system to provide products or services more efficiently than the local competition. With that intelligence in hand, a franchisor can go forward deliberately—knowing both what will differentiate it in that market and what, if any, internal system modifications will be necessary to bring about that differentiation.

Create a Winning Team: Choosing the Right Partner

Your local business partner will make or break your entry into the new market. Whether you are offering direct franchises, area development, or master franchises, your local partner is the face of the brand in the market. Particularly in the international arena—where identifying the adaptations to the system necessary to appeal to local tastes and customs is so crucial—a good local business partner is an indispensable resource.

From a business perspective, in filling this important spot on your team, it makes sense to create a profile for the ideal local business partner, identify candidates, and research their backgrounds. Doing it right makes sense—you have expended an enormous amount of time and energy to build your brand and your local business partner will affect the perception of the brand in the local market like no one else. Good candidates will have the financial ability, business experience and character to promote your brand.

Additionally, from a legal perspective, in today's investment climate, knowing your local partner is critical. Compliance with U.S. anti-terrorism laws, sanction programs, and the Foreign Corrupt Practices Act requires detailed due diligence into your partners.

Follow the Rules: Legal Considerations

Franchisors operating internationally face a variety of local laws and regulations that may affect how effectively and profitably the system can be franchised in a given geography. We are talking about local franchise laws, intellectual property protection, tax implications, as well as U.S. laws that may have a global effect on you.

Local Franchise Laws: An increasing number of countries have adopted franchise specific legislation that may affect your disclosure requirements and relationship issues.

Intellectual Property: Your trademarks, trade secrets and other intellectual property are the cornerstone of your franchise. Protect your brand. When operating internationally, you face the challenge of protecting that intellectual property under various local rules that may not provide the same level of protection as in the United States. Before jumping into a foreign market, register your trademarks and domain names and assess whether the local laws will adequately protect your system.

Tax Implications: Your global operations will create different tax consequences depending on the structure you choose. Give careful consideration to the U.S. and foreign tax consequences from revenue from international operations. Additionally, keep an eye on how any particular tax structure affects your local partner's bottom line.

U.S. Laws: Compliance with anti-terrorism laws, sanction programs, the Foreign Corrupt Practices Act, and export control laws can all create cost issues—for both you as franchisor and those on the ground—that will need to be taken into account.

The Playoffs: Making it to the Final Round

In many cases, you spend a year in the planning and preparations stage before truly launching a new international program. That is far from the end of the story: once launched, the program will need continued support. According to Bill Edwards, one of the biggest challenges to franchisors in a master franchise model a year after entering a foreign market is "the move from learning to operate the business to franchise development." To help the master franchisee make the transition, Bill encourages all of his franchisor clients to create a Manual of Franchise Development that guides the development of local subfranchisees.

Much like building a strong solid franchise system domestically, building an international system takes time (lots of time), resources, and commitment. A successful international expansion plan can provide an expanding revenue source to fuel growth and strengthen your system at home and abroad.