Specialist advice
International franchising
John Pratt advises on expanding your business abroad
Relatively few UK franchisors, with the exception of expanding into the Republic of Ireland, expand internationally. There are a number of reasons for this.
Most UK franchisors are relatively small businesses and don't feel "equipped" to expand overseas. And the UK model - which is one of the best in the world - of self regulation through the bfa, very high standards and zero tolerance of high franchise failure rates does breed a conservative approach, and international franchising is inherently riskier than national franchising.
There are also fears concerning lack of language skills.
All of the above are, of course, relevant considerations and setting high standards for your franchise network can never be wrong. English is now firmly the international language of business and international franchising is increasingly accepted as a way of expanding overseas.
Undoubtedly international expansion is risky - one of the US's most successful international franchisors had numerous failures before it was successful but this has not prevented it from expanding internationally.
Clearly no franchisor should look to international expansion without having a well- established home grown network and having the management resources that can be devoted to international expansion, but if you reach that stage in your national development the advantages of a successful international expansion programme is potentially substantial.
Normally franchisors receive a substantial initial payment from master franchisees or area developers - these are the most common methods of international franchise expansion - they appoint overseas to cover the franchisor's substantial costs in expanding internationally. In addition, franchisors usually receive approximately 20 per cent of the income received from franchisees. In the early days these sums will be small but after the initial training franchisors will have relatively little involvement in the overseas territories - they will rely on their overseas partners. Eventually, if successful, the fees will increase. Successful expansion in one country will encourage approaches from other potential partners. This will mean that the value of the ‘home' business will increase very substantially because the possibility of expanding into a large number of overseas countries and thereby receiving a substantial and increasing revenue stream makes the home franchise business extremely attractive to investors.
Generally speaking if a UK franchisor has a high quality producte, there is no reason why international expansion could not be undertaken successfully. What franchisors should do is:
- Decide which territories are of interest to them - there really isn't any point in simply responding to the large number of internet enquiries that any franchisor receives.
- Take a long hard look at what territories you can support. Whilst Australia and New Zealand speak the same language the time difference and the travelling time do make them ‘challenging' territories in which to expand.
- Do not be over ambitious with your expansion. For instance, it really doesn't make sense to grant a master franchise agreement for the whole of the US - you would want to see how your partner performed in a small part of the US first.
- Devote substantial resources to getting it right from day one - this will save you a great deal of time trouble in the future.
- Establish successful international franchise operations before expanding into too many territories. Your offer will be considerably more attractive to overseas partners if you have successes under your belt.
Author: John Pratt is a partner in Hamilton Pratt, a specialist franchise law firm.
