Caution: International Franchising May Be Trickier than You Thought

By Joyce Mazero and Michael Seid | Franchising.com

Success as a franchisor in the U.S. does not guarantee success abroad. Unfortunately, stories abound about franchisors drawn to the allure of “going international” by prospective international franchisees who, in contacting the franchisor about a franchise opportunity in their country, have flattered the franchisor into thinking it is ready to franchise internationally.

However, in reality, the franchisor has not even skated on the surface of the planning it takes to effectively and successfully export the brand internationally. Many franchisors succeed internationally, and you hear about them. Many don’t succeed, some go back to the drawing board, and some fail — and those are not as frequently reported on.

Falling prey to flattery from prospective international franchisees, or believing in an opportunity that is “too good to be true” has caused many a U.S. franchisor to lose substantial amounts of money and harmed their brand in both their domestic and foreign markets — making it difficult for them to find qualified franchisees and expand in the future. Unfortunately, many franchisors have entirely pulled out of some foreign markets, or ended up reselling the franchise rights to a second (or even third) franchisee in certain markets because mistakes made early on in the expansion process made a healthy international lift-off almost impossible. Once harmed, the franchise brand becomes further damaged by the churning of franchisee leadership in those markets. And with each leadership churn, the level of leadership and commitment to the brand in the market exhibited by prospective international franchisees diminishes, while the franchisees’ goal of getting the franchise rights “on the cheap” increases.

It’s not always necessary to experience something to know it’s not a good idea. But failing internationally has caused many franchisors to rethink their approach. They go back to their original vision and develop an international expansion strategy that better aligns with their readiness, both financially and operationally, to expand outside the U.S. These franchisors had to absorb the losses caused by not dedicating the appropriate capital, resources, and personnel, misjudging the foreign market, and in many cases, just picking the wrong franchisee — or worse, picking the franchisee for the wrong reasons. This is something you want to avoid, and with proper guidance you can.

To successfully take on the challenges of international franchising, at a minimum you must have a stable and profitable domestic business. You need a business organization that can leverage its resources to support your international franchisees, who will be the face of the brand in their local markets.

Selecting the right franchisees is as essential internationally as it is domestically, and making the right choice takes just as much dedication and time. Just as with your domestic franchisees, selection requires planning and an objective investigation into who the prospective franchisees are and whether they can be successful.

Supporting international franchisees requires having dedicated and talented people and systems both in the U.S. and on the ground in the local market in order to provide your franchisees with the services they will need. Thinking that you can fly a field consultant over to occasionally provide support to an international franchisee is a recipe for failure.

You will also need to consider how to sufficiently internationalize your products and services to meet the demands of new markets. You not only have to make sure you have a supply chain sufficient to provide your franchisees with the products and services they need when they need them, but those requirements, including those applicable to compliance with local law, will differ from market to market.

Next time: MSA Worldwide’s Kay Ainsley dives into a point-by-point discussion of the critical issues franchise brands must resolve before expanding overseas.

Joyce Mazero, a shareholder with Polsinelli PC, a law firm with more than 825 attorneys in 21 offices, is co-chair of its Global Franchise and Supply Network practice. Contact her at 214-661-5521 or jmazero@polsinelli.com. Michael Seid is managing director at MSA Worldwide. Contact him at 860-523-4257 or mseid@msaworldwide.com.