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Preparing Your Company toGo International

Going international can be lucrative, but it comes with acommitment and a price.

BY WILLIAM ED\ITARDS, CFE, MICHELLE MCCLURG, WILLIAM GABBARD AND LESLEY HAUTKS

lT'S A GOLD RUSH! Many franchisors are now looking atinternational markets to develop. lt used to be only the fewlargest U.S. brands that attempted global expansion. These daysmany brands approaching only a hundred or so locations feelthey are "ready." So how do you prepare yourfranchise to "GoGlobal?"

Let's start by looking at why franchises go global:

. More revenue from franchise fees and royalties,. Less competition and regulation in other countries,. Less dependent on your home market for success,. Chance to leverage your intellectual property andtechnology,. Follow the growth o{ the middle class consumer.

The London-based Financial Times, in the April 12 article"Population trends and real estate investment," indicated thatover the next 10 to 15 years the middle class consumer popu lationin the Asia Pacific region will grow from 565 million in 2009 toover 3.2 billion. ln the April 10 Wall Street Journal article "Whoare Facebook's biggest friends?" it was noted that only eightpercent of the world's Facebook users are in the United Statesand Canada. And a McKinsey report dated Aug. 2012, estimatedthat by 2025, more than half of the world's population will havejoined the consuming classes, driving annual consumption inemerging markets to $30 trillion.

What challenges will you face when you decide to Go Global?

. Choosing the countries that will give you the best returnon your investment: This can be a different list of targetcountries than just where your leads come from. Doesthe country have sufficient potential for your franchise togenerate fees and royalties that give you a good returnon investment?o Choosing the right licensee: What are the requirementsfor your franchisee and will these be the sameinternationa lly?

. A high level of required due diligence on licenseecandidates: You must find out more detail on whothe candidate is, who owns their country, where theircapital comes from and what their reputation is thanyou do for a U.S. franchisee.. Supply chain management: lf your franchise is in thefood and beverage or the retail sector, how will yousource products at the quality level that they require inyour home country?o Diluting your U.S. development focus: Do you havethe internal resources to research countries, findcandidates in other parts of the world, evaluate supplychain issues and conduct due diligence in anothercountry? Do you have the funding for country research,finding, qualifying and signing international licensees?Marketing investment? ln-country due diligence?

Which countries are right for your franchise? The easyanswer is not all. The chart shows how some countries rankas places to franchise into. But this is not necessarily the list ofcountries you should target. Read further to understand someof the aspects of a country that need research before youspend money to register trademarks and market for licensees.

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INTERNATIONATTOCLKIT

WHAT ARE THE CHARACTERISTICS OF SUCCESSFUTINTERNATIONAT FRANCHISORS?

Based on working with more than 40 U.S. franchise brandsin over 30 countries and over 3Oplus years, we believe thefollowing characteristics of a franchise will give the best chance ofinternational success:

. Committed to finding the right licensees ahd building aroyalty stream, rather than quick deal closing,o Executives with strong brand knowledge and experience,o Excellent unit franchise economics and consistent unit

(Cantinuetl from page 20)

To be successful, there are specific tasks you should dobefore you actually sign an international license agreement:

o Develop a pro-active plan versus reacting to leads:Determine what are the requirements for an internationallicensee for your franchise and what attributes a countrymust have to be viable for your brand. Build a budgetfor one and five years to show all expected r."r"nr" *dexpense for Going Global.. Type of license you will grant: Will it be an area licensethat requires the licensee to build, own and operate allunits in their country? Will it be a master franchise thatrequires they build, own and operate some units andthen have the ability to sub-franchise?r Trademarks: File for trademarks in priority countriesbefore you start marketing your franchise there. Or elsesomeone will do this for you and you will have buy yourmark back.e Differentiation: The competition for the attention ofoverseas investors can be intense, so be preparedto differentiate your brand and present it properly.Existing domestic development marketing materialsmay not be sufficient and English is usually not the firstlanguage in many countries. you may need a thoroughreview and retrofit of websites, ads, public relations andeven consider if existing video assets can be reframedto an international audience. Remember, a picture tellsa thousand words.o Training and support: Although as a franchisor youhave departments in place to handle development,site selection, construction, training, marketing, pubicrelations, manuals, supply chain, intranet for franchiseesregarding on going issues, continuing education as wellas pre-training, training, post training and continualassistance throughout the contractual obligations fromthe franchisor. The same applies in the internationalmarketplace. What training will you provide at homeand in the new country when the new licensee startsup? What will this cost be and who will pay?

growth,o Solid ltem 19 in the U.S. Franchise(FDD),

. Little or no litigation,. Clear brand differentiation,. Strong training, support, intranetand marketing resources,o Business management software,preferably web-based.Use the best available externalresources to decide whichcountries to target, to determinewhether the franchise will workin a country and to find, qualifyand sign international licensees.Demographics, culture, laws,regulations, real estate andlanguage are just a few of thethings to know before you GoGlobal.Financial models that demonstratethe potential for a good return oninvestment by the licensee for yourunits and licenses.

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22 FRANCHISING WORLD JUNE 2015

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o Manuals: One of the main assets aninternational licensee acquires is theprocess for making the franchise workand has the potential to yield a goodreturn on their investment. Are yourmanuals up to date? Are they easy tounderstand? At all levels of operation?. lntranet: lf your franchise has acomprehensive intranet for yourfranchisees at home, you have a majorasset for international licensees whowill be able to access training, support,manuals and marketing materials 24/7.o Marketing for licensees: How will you findand qualify leads in other countries? Whowill do this for you? lf you're receivinginternational leads how are you, as afranchise system, responding to theseleads? Do you have an internationaltab on your website? Are you readyfor an international discovery duyprocess, which is very different from aU.S. discovery day? Are internationalfranchise expos good places to investto find country licensees, which typicallymust have a large amount of capital andinfrastructure in place to acquire anddevelop your franchise in their country?The lnternational Franchise Expo eachJune in New York City is good place toshow your brand to people from manycountries and to get feedback on culturalissues.. Fees and royalties: How will youdetermine the fees and royalties fora country in comparison to what youcharge at home? Are you ready tonegotiate fees, terms and conditions aswell as a development schedule for thenext five to 10 years to come? Franchisesystems based in the United States arenot usually equipped or understand thenegotiation process.o Country-specific issues: Do you knowthe country in question, competition,government and legal issues? Thelanguage issues? Does your brand andfranchise product fit into the culture ofother countries?

SOCIAT MEDIAMuch of the rest of the world has discovered

social media in a big way. ln some emergingmarkets a very large percentage of thepopulation is on Facebook. Local franchises useFacebook to market to middle- and upper-classconsumers. Fifty-five percent of the populationof Australia, 43 percent of the population ofBrazil, 59 percent of the population of Singaporeand 57 percent of the population of the UnitedKingdom is on Facebook. The number is 56percent of the U.S. population, according toFranchise Update, "Going Global - Socially," byWilliam Edwards and Heather Edwards, lssue ll,2014. Updated data supplied by EGS.

WHAT YOU SHOUID LOOK FOR INYOUR INTERNATIONAT IICENSEES?

. A passion for and understandingof your business,r A successful business withknowledge in your sector,. Good reputation in the country,. Experienced food and beverageoperations management,. Access to suitable real estate,o Marketing oriented company,. Capital to start and grow yourfranchise in their country.

WHAT WItt THE INTERNATIONATI.ICENSEE CANDIDATE IOOK FOR INYOUR FRANCHISE?

. They will look at your internationalresults to date, if any.. They will look closely at your uniteconomics.. They will evaluate your ability totrain and support them.. They will look at the businessexperience of the senior team atyour franchise.. They will evaluate the differencebetween your specific brand andothers in the sectol especially intheir country.. They will probably ask to see yourU.S. FDD.. They will look at the systems andresources that lets your businesssucceed on a unit and franchisorlevel.. And will determine if yourfranchisecan produce an acceptable ROl.

Going international can a very lucrativeoption in franchising; however, it comeswith a commitment and a price. Thefinancial reward comes afterthe agreementand the local franchise locations are inplace and established so the royalties arecoming back to the franchisor. This takestime and investment to succeed. I

HffiHHCOO ond Williom Gobbord is seniordirect'or. Find them ot {ronsociol.{ronchise.org.

WilliomEdwords,CFE, is CEOof EdwordsGlobalServices lnc.where LesleyHowks isseniordirector,MichelleMcClurg is

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