6 Strategies for Successful International Franchise Expansion

Making the move from local concept to global brand is an exciting prospect that can open up a world of opportunities. However, international franchise expansion comes with its own unique set of challenges — cultural differences, regulatory hurdles and supply chain logistics, to name a few —  that can only be overcome through meticulous planning and execution.

If you’re a franchisor who’s looking into the prospect of taking your business to a new global market, here are six international franchise expansion strategies to consider:

Adapting to the Local Culture

Your products or services need to resonate with consumers, and this may entail making tweaks to cater to local preferences. Mark Siebert, who has authored several books on franchising strategy, says that consistent branding is important, but sometimes you need to be willing to make a strategic concession. For example, even though McDonald’s is literally world-famous for its beef burgers, it was willing to add a potato patty and a spicy paneer to its menu when it expanded into India.

“There are times to stick with your brand’s signature items, and times to make smart changes,” Siebert wrote in a column for Entrepreneur. “There’s a long list of franchises that have made accommodations to local tastes and traditions.”

Choosing the Right Partners

Making sure the franchisee fits the brand (and vice versa) is always a vital step when expanding, but it’s even more essential when you’re looking to move into an international market. Not only should your franchisees have local market expertise, but they need to be your brand ambassadors in this unfamiliar territory.

According to global franchise attorney Joyce Mazero and international franchise consultant Michael Seid, trustworthiness is the most essential quality to look for in an international partner. In an article for Franchising.com, they wrote, “You are entrusting this person to build a network, protect and grow your brand name, and uphold your standards. You want some assurance that this person (or group) will put their heart and soul into the deal … Your brand deserves capital and staff to support a development schedule, and your brand deserves their focus.”

Getting Your Supply Chain Sorted

Managing a supply chain across national boundaries brings a whole new set of challenges to the table. In addition to dealing with high shipping costs and the management of your storage facilities, you have to build relationships with reliable suppliers.

Wonil Gregg of DCPerform (a supply chain services firm) believes that establishing a solid supply chain should take priority over anything else, including the signing of contracts. “Most franchises that expand overseas sign contracts with a foreign partner, and should you choose that route, make sure that every component of the supply chain is in place and not prone to failures that can impact your business,” he wrote in an article for FranchiseWire. “This is something that should be confirmed before you sign any contracts. Afterward, you can have peace of mind that you have trustworthy hand-picked suppliers and effective trade routes.”

Establishing a Local Presence

When it comes to establishing a local presence in your target market, you have several options available to you. The key is to find the avenue that best suits your brand’s international goals. In their blog post on the topic of international expansion, iBanFirst (a cross-border payment platform) discusses five local presence options and even breaks down the pros and cons of each.

Online Marketplaces. Selling through an online marketplace is a quick and cost-effective way of establishing an international presence, especially for businesses who are looking to expand rapidly. Much like the franchise system itself, an online marketplace has the advantages of an existing infrastructure and a ready-built customer base. However, these marketplaces are also highly competitive and many charge fees that could impact your profit margins.

Local Sales Representatives. Local sales reps act as independent agents; their relationship with your business is purely contractual. They often bring with them a knowledge of the local market and culture, opening doors to potential customers, partners and opportunities. On the downside, rapid scaling with sales reps can be a challenge.

Local Branch Offices. A local branch is, in essence, an extension of your existing business. Local branches give you greater control over your branding and marketing efforts, but usually require higher initial investments and ongoing overhead costs.

Subsidiaries. From an accounting perspective, setting up a subsidiary is virtually the same — both fiscally and administratively — as launching a new local business. Since they are considered independent taxpaying entities (and their profits are taxable in the country of operation), subsidiaries may be advantageous in tax-favorable regions. However, they can be complex and expensive to set up and maintain. In addition, their business models may require considerable tweaking to bring them into line with local tax regulations.

Joint Ventures. In some regions, joint ventures are a requirement for foreign investors. For example, China prohibits foreign investors from holding more than 50% of shares in commercial vehicle manufacturing companies. Partnering with a reputable local company can bring credibility to your business and enhance your brand image with your target market. However, shared decision-making can lead to complications, as can cultural differences.

Developing a Currency Hedging Strategy

Expanding into international markets can provide a lot of exciting fiscal opportunities, including the potential of increasing your earnings even when the U.S. market is down. However, as with most things worthwhile, it comes with a number of risks attached. Foreign exchange fluctuations can directly impact your import/export costs and cross-border payroll. In addition, the unpredictable nature of exchange rate movements can disrupt your cash flow projections and planning.

That’s why it’s important to have a strategy in place to safeguard your profit margins while operating in an international market. At its most basic, currency hedging involves making scheduled exchanges of foreign currency with domestic at a predetermined rate.

Bound, a company specializing in managing currency risk in the U.K., writes on its blog, “You can use hedging to protect your international sales in the future. A company that sells in multiple countries, for example, can use a combination of currency hedging to mitigate its risk. By taking out a currency hedge, you’re essentially ensuring your earnings in another currency don’t see a negative impact in the future.”

While the concept is relatively simple, the actual mechanics for currency hedging are complex and well beyond the scope of this article; you should consult a financial expert when the time comes to set up your strategy.

Complying with Legal and Regulatory Requirements

While not all countries have franchise laws as stringent as those in the U.S., many do have franchise relationship regulations that must be met before you can sell (or even offer) franchises in that country. In addition, many countries have local laws, regulations, and tax requirements that could directly impact your operations there.

There are numerous online resources available to provide details on international franchising laws and regulations. This series of articles written by Mark Kirsch, a franchise attorney and contributing editor to the International Franchise Association, does a great job of breaking down the specifics of these laws by country.

From franchise laws and intellectual property rights to labor regulations and taxation policies, adherence to these legal requirements is non-negotiable. You may need to engage the services of legal experts to navigate these complexities and minimize your legal risks.

Overall, international franchising requires careful planning, strategic execution and a willingness to adapt. However, by leveraging these six strategies, you can maximize your chances for success in the global arena. The journey may be challenging, but the rewards of international franchise expansion can be immense, paving the way for long-term growth and profitability.

If you’re interested in reading more about international franchising opportunities and strategies, check out these related articles:

• How Successful Franchises Like McDonald’s Thrive in Foreign Markets
• How Do You Know When You’re Ready for International Expansion?
• Why Franchising Is a Great Way to Achieve International Expansion