Global Franchising Taking your brand across borders

Discussion Points –Attractions of international franchising –List of Challenges –Risks –Getting started –Structural considerations –Lessons from the trenches –Testing the waters

Attraction of international franchising Allure of new markets Create global brand recognition Prestige factor Potential for incremental franchise revenues –Note: Not a fix for lack of revenue at home. –Most likely will be less NET revenue on a per unit basis then your home base Potential to find untapped markets Could benefit your offer to consumers –Hotels –Membership type businesses

Challenges Summary of challenges 1.Local economic issues 2.Stability of government 3.Supply issues 4.Local affiliates 5.Structure 6.Culture 7.Language 8.Time zones 9.Local laws 10.Legal & ethical environment 11.Understanding local laws 12.Realizing your brand or concept may be unknown 13.Collecting your fees

Local economic issues Currency The right demographics for the concept –Purchasing power + proper degree of income Taxes Local expenses which would impact the operation of one of your franchises –Labor? Supply? Rent/land? Other etc

Stability of government Economic stability Safety and security An economy that can support growth A government which is business friendly

Supply issues Are there suppliers you can use in your target country? Is your concept dependant on a particular supply chain? Can you source what your franchise needs in the target country? Are there potential producers who could make your products you need, making them a local supplier? If you cannot source your products needs, are the country’s trade rules/laws so restrictive making it an economic bust to import in what is needed?

Local affiliate Culture, distance, local customs and perhaps even language make a partner in some form a good idea.

The right affiliate Things to look for: 1.Well capitalized 2.Committed to being attentive 3.Able to develop a business plan & stick to it 4.In for the long haul 5.High standard of ethics 6.References 7.Accomplishments 8.Good chemistry 9.Franchisor material –Leader, visionary, planner, someone who can step in for you

The right affiliate What to avoid? –Go back to slide 9 –Anything else which may signal a poor fit

Right Structure How should you structure this partnership? –Master Franchise –Area Development –Joint Venture –Area Representative

Right Structure Master Franchise –Virtual mirror image of franchisor Adjustments as applicable Usually will sub franchise –Follows a development schedule Units/Years –Manages franchise, receives fees from franchisees, pays a portion to franchisor –This model could minimize franchisor involvement

Right Structure Area Developer –Develops an area –More reliant on franchisor Could work well for: –Smaller countries close by –For a part of a large market –For those who prefer a more direct approach

Right Structure Joint Venture –May have more control than a master franchise –You may have greater responsibilities –May appear you are more committed –More costly (people, travel) –Depending on your size and objective this could be a good way to enter certain countries.

Right Structure Area Representative Markets the offer Could train & service the franchisees An agency or broker arrangement Still could require high franchisor involvement

Considerations –Rules on taking cash out of the country –Your legal rights and protection –Trademark –Have good local legal representation

Culture Is your concept a good fit for culture X? Will your product/service need alteration? Does your operating model need adjustment? How well have other franchise concepts done?

Language Basic communication Contracts Correspondence Franchise recruitment materials Marketing materials Training manuals

Time Zones What time is it? –Another logistic to plan for

Legal Environment 1.Local laws 2.Legal & ethical environment 3.Understanding local laws 4.Tax laws 5.Trademark 6.Franchise laws 7.Contract enforceability 8.Culture & law Advise: Seek expert legal advise, this is not a place to cut corners.

Marketing your concept Is your brand known? Is your concept known? Consider above when choosing targets Build your base with countries where your concept fits, then consider going to the next level where it is less known.

Marketing your concept Ways to market 1.Your web page 2.Attending tradeshows 3.Through your embassy 4.Suppliers 5.Advertising (direct & tags)

Fees Upfront fees What is reasonable? How do you measure? What is your goal? The right price should reflect –Your expected expenses –Any on site support –Discounts on initial inventory –Translation of materials –Legal expenses On going fees Percent? Flat fee? How much? The right amount should reflect –Provide ample incentive for the operator –a portion back to the franchisor to cover expenses –allow franchisor a return for the use of the marks and systems.

Risks Distraction from your base of operations Your brand’s reputation The degree of legal protection and recourse in case anything goes wrong Currency fluctuation Stability of the country & government Security & safety Doing nothing and missing out

Structural considerations JV? Direct franchising? Master franchise? Area development?

Lessons from the trenches Get good legal counsel –Enforcement –Payment –Growth expectations –Brand guidelines Be relationship oriented Only sell what a buyer can manage. Sometimes a country, other times a city. Be realistic when setting fees Have a plan –Support –Training –Communication Expectations should be for the long term If you do all the right things with the right partners you could do well. If you do all the right things with the wrong partners you will fail.

Getting started Evaluate your business at home first Develop a lens –Economy –Culture –Language –Fit for what you sell –State of the industry you would franchise –Potential (population, standard of living) –Government (ease of moving cash, taxes, protections) –Competition from others

Test the waters vs. taking a plunge Use a lens to identify potential countries for expansion and consider: –Distance –Culture –Competition –Be opportunistic –Your ability to take on more –Type of structure you will implement –Talk to others who have franchised there

Moving ahead Have a plan Select your next country carefully Expand at a pace you can manage Leave room for opportunity