The internationalization of franchising companies is really booming. We are witnessing a new revolution driven mainly by globalization and new technologies. More and more franchisors are studying the different options in order to develop the business through International Master Franchise Licences. Franchise world link’s mission is to help these franchisers precisely. Olivier Guerrero, CEO of the company, agrees to deliver the 3 keys steps before going international.
©Franchise World Link, all rights reserved, May 2019.
Strong willingness to develop your business as an international master franchise.
Don’t start anywhere, no matter how!
In fact, the adaptation of a franchise concept in another part of the world is not really easy. After the indispensable market research or a market analysis alongside with a country visit, and once the countries are targeted, the company must agree on an international development strategy. Some franchisors will simply seize a few opportunities in various foreign countries. And this is fine for the beginning and for the short term; it is what we call internally “Managing Opportunities” many Franchisors at the beginning have been growing internationally that way in the past decades.
But, in truth, an international expansion plan is a necessary strategy for the success of the project! Franchise World Link’s finding is overwhelming: many franchisors are trying to establish themselves everywhere without any prior strategic thinking… Going everywhere and too fast, can create a multitude of problems of internal management at the franchisor headquarters: this type of approach can, in no way be a strategy for the long term.
The International development of your franchise: 2 schools.
The setting up of an international franchise network should be organized step by step. A real strategic pan and reflection on the quality of the partners you identify or that will be presented to you at an early stage is necessary. If you are already a regional franchisor and you are already located in some neighboring countries, then it will be easier to define the next region / continent you want to target.
It is noted that 2 schools of thought in international franchise development coexist:
The first school favours expansion in geographically and culturally closes countries.
The second view is that speaking the same language is the decisive criteria for the choice of countries. French companies entering French Speaking Africa or Spanish companies entering Latin America is a common example.
First of all, it is essential to analyze whether your business concept is free of duty. You need to identify in which country you could quickly be successful and what adaptations would be necessary to attract master franchisees from that country. For the company, the imperative need to rethink its strategy is a major challenge. This strategy must also be shared with shareholders and be non-restrictive. It also requires to be entrusted exclusively to the Director of international expansion or to its CEO. Ideally, at startup a small, culturally open team with international experience is needed. You must also plan a development budget and prepare a coherent “master” financial model.
Having a good Franchise legal adviser
Having a good legal adviser is very important. In your home country, your legal department must be familiar with foreign countries. In the targeted country, you need a good specialist to check the master franchise contract. Each country is very different and the master franchise contract needs to be examined at the local level, in accordance with local laws and regulations. Then, the pilot test process, as well as pre-contractual information documents may vary from one country to another. In order for the chosen investor to operate, some countries require government authorization to be recognized as master franchisee. In addition, a pilot will be required before the master is allowed to market unit franchises. In some countries the Disclosure Document is required (Mainly USA and Europe) in some other countries it is not necessary (Africa and some Asian Countries), as the franchise laws are not applying and all contracts relies on commercial laws.
Nevertheless having a good Franchise lawyer is important, but is not everything. As a Franchisor you should be able to guide the franchise lawyer in what you want to achieve abroad in line with your strategy.
Too many franchisors that have been successful in their home countries tend to consider the world as a Global market. There are many various options that could be adapted, such as considering Licensing agreements in some countries or other hybrid systems that could adapt to the new country or the new continent.
Financial Modeling, accounting, reporting and controlling.
Reporting and controlling is essential.
The Financial model should be carefully prepared and monitor in line with the Legal targets reflected in the Master Franchise Agreement. (MFA).
The financial model should include all incomes such as Entry Fees, Royalties, and Marketing Fees.
Accounting would be done by the Master Franchisee and reviewed by an extralegal Auditor; this should be clearly specified in the MFA.
In fact the reporting and the control methodology should be clearly mentioned in the MFA, including targets in terms of sales and Key Performance Indicators.
The franchisor headquarters should have a dedicated manager following and monitoring carefully, each country or each area, with regular contacts and regular visits on the field.
Throughout the duration of any Franchise Agreement, the Master Franchisee should allow the Franchisor to electronically control sales and/or, to enter the premises used by the Master Franchisee during the trading hours, to carry out any inspections or audits of the Master Franchise as the Franchisor reasonably requires.
The Master Franchisee could conduct inspections of all the sub-franchisees in the Territory, and of its operations, in accordance with the standards from time to time established by the Franchisor in the MFA. The Master Franchisee shall provide all reports to the Franchisor with respect to the findings of such inspections, in such form and at such times as Franchisor shall require.
Another way to control the Master or the Unit Franchisees in through an integrated CRM and a cash control IT software tool (There are many available in the market), where the franchisor could have access to all the daily data.
Increase the value of the franchisor.
As for the financial aspect, an international expansion has its own costs, but will positively affect the valuation of the franchisor’s comapny. Being part of an international franchise network will greatly stimulate people internally and franchisees globally.
Olivier Guerrero – CEO franchise world link.