How do franchise businesses expand internationally?
How does international expansion take place within franchising?
Nowadays a clear trend can be seen towards the internationalisation of franchise systems. Within the framework of a targeted strategy for a system to become more international there are more chances for it to develop. As a result franchise systems have a greater chance to assert themselves on their home markets despite growing international competition and to exploit the potential of other markets. Should they be successful then there are financial advantages and also a greater security should there be economic problems in the country of origin. For each franchisee international franchising offers the benefit of an internationally known name, which is supported by extensive marketing and often more favourable purchasing conditions. However, there are factors to be considered such as:
A precondition for a successful strategy towards internationalisation is a secure financial and personnel basis in the country of origin. As a result of the differences between the European markets it is difficult for the systems here to achieve a sufficient economic basis, which can then be used as a springboard towards globalisation and expansion into markets in far-off countries.
Sufficient Information Basis
Every step, which is rushed into when internationalising a system is harmful for the business. Instead of reacting spontaneously to statements concerning interests or to newly recognised market chances, it is important that a polished strategy be developed. In order to decide on which countries are to be involved and in what order of priority this should take place, the different laws and interior politics of each country must be studied in detail. Adverse laws concerning social, competitive, tax, work or contractual matters play a major role in the success of a company. Discrimination against foreign companies or capital owners by the government of a prospective country can also have a negative effect on the building-up of a business. Restrictions on imports and exports or strict controls on foreign currencies have already caused many companies trying to become more international great problems.
Companies must not only find the necessary capital but also have qualified personnel available to carry out the international plans. Managers must be found who have the necessary international knowledge of the branches, languages and the mentality of the people in the countries and who then only concentrate on the foreign business. The large number of failed attempts can be put down to mistakes in these fundamental requirements.
Ideas, which have been developed in one country, can generally be transferred to other countries and economic areas when the system has been modified to a certain extent. It is just as important to found a pilot business in foreign countries as it is in the country of origin. The performance package of a company must correspond to the special requirements of a country as well as to its culture in order to ensure that the business can survive on the market. With this in mind the content of systems manuals, advertising material and training instructions must be checked and translated into the language of the country.
Difficult Search for Partners
As a result of unfamiliar environments and different mentalities it is generally more difficult for companies to find foreign partners than in their own country. The majority of franchisors do not feel they are capable of founding foreign branches and granting separate licences. Founding joint ventures with established foreign firms is an alternative but then franchisors must bear a part of the start-up costs and the business risks. Besides this it has been shown often enough that at the end of the period of work together it is often difficult and expensive to dissolve the joint company. The majority of franchisors who decide to internationalise their businesses use the system of master franchises. Irrespective of the extent of the system’s expansion, short lines of decisions are ensured as a result of the close communications network.
Consequences of Making a Wrong Decision
It is by no means easy to expand into a neighbouring country let alone far-off countries and so some companies, which were successful in their own country have paid dearly. Even if the financial losses are limited, franchisors must reckon with a loss of image, which could have an effect within the country of origin.