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International franchising

When the domestic market becomes mature then, a natural progression for the franchising industry is to take the successful package and apply it internationally. If the domestic market is saturated, or if competition limits makes further expansion difficult, then the perceived benefits of international expansion will appear greater. There is little to argue against the idea that a traditional franchise marketing system of locating qualified franchisees, negotiating a relatively standard contract and providing on-going support cannot be implemented in other countries (Stor-holm and Kavil, 1992).

Markets exhibiting the characteristics of the US market during the expansion of franchising there in the 1950s are particularly attractive. Thus, markets with increasing disposable income, a high level of car ownership, increased leisure time, considerable urbanization and consumer mobility are of interest. Like any market entry decision (see Chapter 4) it is imperative that the international franchising decision is approached with care and thoroughness in researching the territory, the market and the people you will be dealing with.

There are a number of different approaches to international development which the aspiring international franchisor can adopt. These include:

■ Company-owned only operations

■ Direct franchising

■ The establishment of a branch operation

■ The establishment of a subsidiary

■ The establishment of an area developer

■ The granting of master franchise rights

■ The entry into a joint venture.

While international franchising involves less risk than some other methods of international expansion, it nevertheless requires extensive resources and effort beyond that required for expansion in the domestic market. See Box 11.3 for some advice on how to be successful internationally.


• a Establish a strong home base which can adequately support the additional burdens of international expansion

• Do not overvalue and thus overprice the franchise opportunity

© Establish c P'lol .mil mo\e t1 n ■ 'Wei" \>oiks in liu Iennoi-

• Recognize and come to terms with the differences in social attitudes, culture, taste t- t. ho. i-.i- caji'iulh Iho-i' till u horn \im u ¡11 t—l.d>!i-n a u oi k.n ; ..-hi11<nv-f i-i* Be patient. Do not underestimate the time it will take to achieve internatioual

<* Do not underestimate the drain on your financial and manpower resources v\ hich goiAg international will involve.

Overall the benefits of franchising as an international development strategy include:

■ The financial resources required for penetrating international markets are fewer than those needed to expand through foreign direct investment or exporting. International franchisers do not have to expand domestic capacity in order to serve international markets, as would be the case when an exporter tries to penetrate these markets

■ International franchising avoids most of the negative factors associated with the exportation of goods to international markets, for example, the logistical problems, payments, insurance and finance

■ Internationalization by franchising is less prone to economic and political risks and requires fewer financial resources since the franchisees bear most of these risks

■ Small franchise systems can succeed internationally when significant managerial and marketing expertise is contributed by local franchisees

■ Expansion of franchising into international markets has fewer negative impacts on both the source country and the recipient country, and therefore meets with a more receptive environment.

However, international franchising is not without its problems, and Mendelsohn (1985) identifies some of the problems that franchisors can face. These are:

■ Poor choice of local partner, licensee or staff

■ A failure to recognize the need to commit sufficient financial and manpower resources to the venture, whatever method is chosen

■ A failure to recognize differences in social and cultural attitudes and in lifestyle

■ An underestimation of the time which it takes to become established in the target territory.

The problems associated with failure or setbacks in international franchising are the same as with any other mode of internationalization (Chapter 4) namely that at best retrenchment, or at worst withdrawal to the domestic market, will result. Each situation has to be approached as a unique business situation, but common issues can be used to plan the process. A checklist of critical legal and business issues typical of international franchise transactions is presented in Box 11.4.

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