More and more small businesses are realising the potential of franchising their brand, with the number of active franchised units in the UK growing year-on-year. For many UK businesses who’ve successfully expanded using the franchising model, a next step for unlocking growth will be to enter international markets. Those able to take advantage of international franchising opportunities can build their global brand, drive additional sales and tap into new and emerging markets.
Weighing up risk vs. reward
The rewards available to businesses launching an international franchise are clear – entering a new market but doing so in a way that allows the brand owner to fully exploit the local knowledge and entrepreneurial flair of the master franchisee.
If you’re currently operating in a saturated or competitive domestic market or have a brand that is operating in a global marketplace – such as the logistics market - entering international waters could be a positive step forward for your brand. Overseeing your brand’s move into another market brings potential to not only grow at an accelerated rate, but also to take advantage of growing overseas markets.
A move overseas will require you to consider the different regulations and laws within the markets you are considering moving into. This will undoubtedly require changes to your operating procedures and possibly your brand offering. It's therefore crucial to draw upon the skills, experience and local knowledge of a master franchisee to achieve success.
An example of a UK business which has successfully expanded its brand through franchising overseas is hairdressers Toni & Guy, now operating nearly 500 stores across 48 countries. After launching its first salon in Clapham in 1963, Toni & Guy made the move into franchising in the late 80’s and saw extreme growth through the 90’s, with salons opening at a rapid pace both in the UK and overseas. Today, it’s a much-loved and trusted brand name the world over.
Those who play their cards right in terms of market choice and hiring a proven, knowledgeable master franchisee could be in line for a big win, but there is of course an element of risk as with any large business decisions.
While the upfront costs of expanding a franchise portfolio are relatively low, particularly if you plan to run advertising and support services from the UK, there are logistical barriers to entry which businesses need to research and understand before going ahead.
Franchise regulations include anti-trust regulations, foreign trade and investment regulations and pure franchise agreements, which consider things like pre-contract agreements to prevent abuse of franchising. Specific regulations in global markets make it difficult to simply roll out stores or locations across new markets.
Other common stumbling blocks to international franchising include language barriers, lack of suitable franchisee candidates and lack of financing available. Language barriers obviously provide problems in marketing and advertising and generating sales, and the common solution is hiring a native speaker as the franchisee.
Launching a franchise in international markets can present a risk as UK business owners are often not experts in each given market and need assurances of the possibility to trade successfully. This means those looking to take their brand international via franchising often delay until finding a suitable and proven franchisee who knows the market and has a track record of delivering.
Many business owners can achieve peace of mind from visiting the potential countries and seeking advice from experts on how to adjust products and marketing efforts to meet the cultural norms of the country. It’s also good practice to attend networking events and expos focusing on franchising to get a sense of the opportunities available and learn from others’ mistakes.
The biggest decision for business owners looking to launch a franchise abroad is how to manage the project.
Businesses can decide to appoint a master franchisee – a designated franchisee for a certain geographical area like a country or city, who then has the authority to manage unit franchises within their area. It’s a simple way to expand the brand in a new market and access additional cash flow.
However, the model can pose problems with complex contract issues coming into play with multiple parties. Increased costs will also occur from the master franchisee acting as the agent.
Business owners will also need to build relationships with master franchisees and detail explicit brand guidelines, as it’ll be impossible to manage all franchises in detail as their portfolio expands.
There are plenty of administrative considerations to contend with when launching a brand in international markets. Even once you’ve identified a suitable market, there are considerations like which currency to adopt and where any disputes will be resolved, between the business’ native country or the individual master franchisees’ countries.
UK business owners have additional franchising concerns to contend with, in the form of the Brexit. Businesses anticipating taking their brand to European markets will have to research how possible outcomes of the UK’s impending exit of the European Union (EU) will affect their plans.
It’s likely in the future the EU parliament will review and update its franchise regulations. If this occurs after the UK has exited the EU, the regulations will not be automatically rolled out across the UK, leaving those looking to launch a franchise in European countries facing even more complex regulations to negotiate before entering the market.
Another issue facing UK businesses looking to expand their franchise in EU markets is registering trademarks. It’s expected post-Brexit that EU rights laws won’t take effect in the UK and it could well mean businesses looking to start a franchise in EU countries will be expected to register new trademarks for products and brands for new markets.
About the Author
Mike Ryan is CEO of PACK & SEND, a global brand offering a complete range of postal, freight, courier, and packing and removal services. Mike has 25 years of experience within the retail and leisure markets, gained in marketing, buying, and general management.