A franchise is a business opportunity that allows the franchisee (that is you) to start a business legally using franchisor’s expertise, idea, and processes. The franchise business is a business in which the franchisor sells the right to use their business name, logo and model to third-party retail outlets. These are independent third party operators called franchisee.
There are three types of franchise, business format franchise, product or single operator franchise, and manufacturing franchise. Franchising is a common way of doing business.
Franchising model has grown its popularity over the last several decades. The structure of the franchise model can help the business grow in foreign markets more efficiently. It is more cost effective than other expansion models and opening corporate chain outlets.
From the franchisor’s point of view, franchising allows the franchisor team up with local businesses who very well understand the local culture, marketplace and know their territories very well. The new brand has a tremendous advantage as it does not take much time and does not require huge capital to speed up their businesses.
The franchisee (local operator) also provides valuable feedback to the franchisor which in turn can be used to customize the business for a particular market.
There are some challenges if one is expanding internationally. Some are significant and some are trivial. Let us discuss a few challenges one by one.
In many cases, the company training material, operations manual, marketing literature, and website has to be translated. This needs the cost and creates challenges in relation to certain content that cannot be directly translated.
The varying currencies rates and different currency can make the collection of royalties and other fees challenging. This, in turn, can affect the unit’s financial model and the franchisor’s profitability.
3. Supply chain
In many franchise models, the franchisee has to depend on the supply of raw material to operate and maintain the quality of product/services. If there are problems in the supply chain then it can limit the successes of the franchise unit.
4. Some trivial issues
Some less important problems can be the cost and logistics issues that can arise while supporting franchise operators from long distance. Many a time franchisor enters the foreign market even before they are ready for it. It is because the potential franchisee has a strong interest in the regional market. Premature launching in a distant and new market can cause disruption in the whole system which can even fail.
Brands going for international franchisee should perform a complete analysis before going ahead for a foreign franchisee.
Those investing in foreign franchisee opportunity and are new to the market should look into the foregoing challenges if they are addressed or not. The brand should be ready, willing and have sufficient resources for expansion in the region.
Having some structural options, the franchise model can make international expansion more efficiently and appealing for both the franchisor and the franchise in the region. The popular structural options can be area developer and regional developer agreements.
Most countries have regulations which govern the franchise industry. For this, the franchise companies should check with the local government agencies to see that the franchisor complies with it or not.