The Key to Overseas Franchising Success
Scour the stories of winners and losers in overseas franchising and you’ll find two key differences. The winners were adaptable and had great local franchisees. The losers didn’t.
Franchising abroad is a whole different ballgame than in the United States, with many different cultures and rules of the game. Move beyond Canada and the need to adapt expands exponentially. The winter collection selected for retail shops in Chicago may need only minor tweaks for Toronto, but cities like Manila, Dubai, and Ho Chi Minh would require major style and sizing adjustments.
Franchising restaurants can pose similar challenges. Adapting menus and recipes to local tastes and customs requires hard work and careful attention – and sometimes that still isn’t enough. KFC had a tremendous run in China, opening thousands of restaurants and adapting menus to add fish, beef, and also congee for breakfast. But then local tastes shifted faster than KFC could adapt. It’s a non-stop process.
Despite usual challenges, there is a defined path for success. Below are three keys to consider before embarking on an overseas franchising opportunity.
Relationships are king. The classic profile for a local franchisee partner applies in nearly all countries: adequate financial resources to achieve the market development plan; relevant industry experience; a strong management team; a culture that matches the franchisor’s; and a commitment to and passion for the brand. After that, different markets call for different strengths. Developed markets are easier to navigate, with well-established supply chains and familiar legal, banking, and real estate systems. Many emerging and developing markets have a more volatile political environment that requires more government and business relationship expertise than, say, a European market like Germany or France.
Americans are used to relying on the legal system to support them. That’s not enough in places like China, Brazil, Indonesia, and many of the former Soviet Republics. There you need the resources of a strong local partner to resolve problems and hurdle the seemingly endless barriers to entry and growth.
It’s not just defense but also offense where relationships matter. Meeting the development plan needs special skill sets markets to execute on the essentials. Getting the best sites and navigating approval processes are two examples that will make or break the plan and meet or gut the royalty budget. Management expertise is another that is critical and demands a very deep look into your franchisee’s team.
Burger King’s experience with two co-master-franchisees in Russia illustrates the differences a smart choice makes. One opened over 250 restaurants in only a few years and was able to scale the systems and training necessary to meet international brand standards. The second franchisee struggled to open in the low double digits. Meanwhile Carl’s Jr., though it entered the Russian market before Burger King and has had franchise success in nearly 40 countries worldwide, struggled to gain real traction and has closed most of its restaurants in the market.
Getting it wrong can set back or kill your market entry and be a distraction for years. Century 21 Real Estate got it right in China and France but stumbled in Australia. In China, the company smartly understood that the country was too big for one partner and divided it up into regions at the beginning, with two large and effective masters in Beijing and Shanghai. In France, it chose a seasoned real estate professional who went on to develop hundreds of sub-franchisees and become Century 21’s largest European master franchisee. In Australia, the franchise failed after 10 years and the company had to take back the franchise, then restructure and re-launch several years later.
Ensure your brand is a cultural fit for the market. Fit versus not goes a long way to explaining why TGIFridays succeeded in Russia while its barely distinguishable casual dining competitor Chili’s did not. Market research to test the brand’s suitability is money well spent.
Brand passion and commitment will sometimes trump experience. Le Pan Quotidien took a gamble in Russia and selected an entrepreneurial group with limited restaurant experience over two seemingly better candidates, the company’s proven Middle East partner with Russian retail experience, and the dominant player in fine dining in the market. It paid off. When it entered the market, it was a breakfast- and lunch-only concept. Creative local innovation introduced a dinner menu and made it work within the tiny food-prep kitchens that were a key to profit margins. Since then, LPQ has introduced dinner menus across the US and Europe.
Find quality partners. There’s no cookie-cutter approach but the good news is there are ample resources. Good old-fashioned networking is going to be important. Nearly all major countries have an American Chamber of Commerce and its members are a valuable resource, as is their market knowledge – many are affiliated with and accessible through the US Chamber of Commerce. As well, there are many US-based, country-specific chambers, business councils, and associations whose mission is to facilitate business between theirs and our countries. Our government’s US Commercial Service has local offices in 75 countries that specialize in local partner search, market intelligence, and usually have current industry-specific research reports.
International real estate companies can often be helpful as well (e.g., JLL, CBRE, Cushman & Wakefield, Knight Frank). International law firms and the Big Four consultancies are essential parts of market and franchisee due diligence and oftentimes will be valuable at the franchisee search stage. International banks with a good local presence can sometimes be helpful for existing clients. The UK, France, Canada, and Germany have good commercial arms within their embassies and also have local chambers of commerce or business associations. Lastly, supplement these with your company’s internal resources. Leverage your internal team members’ personal and alumni networks to fine-tune market knowledge and reputation research into franchisee candidates.
Investment of time and resources pays off. There’s no substitute for on-ground due diligence – trying to do it from home or on the cheap will get you what it cost you. Follow these simple keys and you’ll find success.
Robert W. Courtney is an American lawyer and business executive with over 25 years’ international business and legal experience including franchising, cross-border joint ventures, retail, real estate, healthcare services, travel, and information technology.