International Franchising Benefits and Challenges
More questions on running a franchise? Find out here
More questions on running a franchise? Find out here
International franchising follows the same principles of traditional franchising but refers to the right to franchise in a foreign market. The process to set up a successful international franchise is much more extensive and requires significantly more research. Even though it requires more work to make this route feasible, the rewards can be significantly higher if completed effectively.
What are the Benefits of International Franchising?
The benefits of international franchising do depend on your franchise opportunity, but we shall cover the potential benefits possible to enable you to research if these fit your opportunity.
The first and most obvious benefit is that you are entering a new market and will have a new target market you couldn’t reach before. This increases the franchises reach in terms of customer base and brand awareness. If your domestic market is saturated with either your products/services or a competitor’s products/services, then entering a foreign market that isn’t saturated will offer a greater opportunity to attract customers. It is even possible to identify a country that doesn’t have any competitors for your service, which enables the potential of becoming the market leader before any competitors arrive.
For a franchisee, the rewards of international franchising aren’t all directly related to the performance of the franchise unit itself. If for example, you live in the UK, opening an international franchise unit in the likes of Spain provides the franchisee the opportunity to run a business whilst enjoying the weather and culture of living in Spain.
When you complete your research for international franchising, you will learn that a common issue is that foreign markets operate under different rules and regulations. Whilst this might present negative issues, it may also provide positive aspects. It is possible to enter a foreign market where you pay much lower taxes and fees to operate a business in that location and this will directly impact your franchise unit’s bottom line.
If a franchisor starts to see a slowdown in performance coming from their current franchisees, it may be an indicator that the UK’s market is a stagnant economy for your services. If this is the case, international franchising could present an opportunity to identify a market which is growing, where you can participate in the countries growth for your own benefit.
What are the Challenges of International Franchising?
The challenges that you might face when you are considering international franchising will depend on the country you are looking to enter and the product or service you sell.
The first challenge you must understand is that just because the UK population wants your products/services, doesn’t mean a foreign country will. You must look at the cultural barriers and conduct thorough market research to identify the potential of the country for your franchise offering. If you have identified a potential market, you must then analyse if your current franchises name, brand, and method of service would appeal to the new target market. This might involve significant investment in new branding & marketing collateral to achieve a high customer base in a new country.
A large challenge for international franchising comes from the legal aspect of operating in another country, as you must adapt your franchise’s rules to comply with their laws. Whilst this may not be an issue in certain countries, areas that might present an issue could be:
- Human Resource Policies
- Employee Rights & Benefits
- Trademarks & Intellectual Property
- Product Ingredients or Method of Service
International franchising will provide a higher profit for some opportunities, whereas others might be a significant financial risk. Exchange rates and tariffs for products/services might significantly increase the operating cost for an international franchise. This might be a problem for a franchise that wants to expand into a European country after Brexit. The other financial aspect comes from where your source your supplies. If your suppliers only operate in the UK, you might need to either pay significantly more for supplies to be transported or find a suitable alternative supplier.
One of the largest issues that a franchisee will face is the culture & language differences in another country. If your chosen country has a low number of English speakers and you don’t speak their native language, you will create language barriers. These will lead to misunderstanding and ineffective management issues. The cultural difference could create employee discontent or potentially require you to change your operational procedure significantly.
Should I Consider International Franchising?
Unfortunately, there is no simple answer to this question as it depends on your franchise, products/services and the country of choice. If your market is saturated then international franchising should definitely be considered, but it still might not be the answer. You need to look at all the potential benefits & challenges, then analyse which ones will impact your franchise opportunity. Only then will you be able to say with high certainty whether you should consider international franchising.
Whilst we don’t actively promote international franchise opportunities, if you are interested in a particular franchise opportunity, they may consider international franchising if you present them with a strong business case. If you are still looking for the perfect franchise opportunity, then take a look at what we have on offer currently – Franchise Opportunities
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