Ask Aaron: When should brands expand internationally?

Dear Aaron, We are a franchisor steadily growing our brand throughout the United States for the past few years.  Expanding internationally is an idea we have decided to explore, but we’re not sure where to begin.  Any advice? Signed, Considering a Foreign Expansion Dear CAFE, This is a question you should take great care in considering.  I had to get on the phone with some experts on this topic to get you advice. William LeSante, CEO of LeSante International, has helped dozens of clients expand their franchise brands internationally over the past 25 years.  LeSante said that some hot markets right now include Latin America, the Caribbean and Middle East, and he added that Europe has cooled down because of economic stagnation and the saturation of foreign brands there. Australia is another hot market right now, but it is harder to break in there. The areas where populations are clustered have a lack of space for new brick-and mortar-concepts, and Aussies also tend to favor their local homegrown brands. “The first thing you need to do is register your trademark,” LeSante said.  “I’ve seen cases where the franchisor had to rebuy their trademark or go to court to win it back.” Another point to consider is timing. Many countries require the use of the registry within a certain period of time, or it will be reversed. So if you have the registered trademark but can’t open a location of your brand in the country in the allotted time, you will suffer those consequences. LeSante recommends growing your brand domestically to a few hundred units before expanding internationally. Because of the challenging U.S. domestic market some small brands are fast-tracking growth overseas. In that situation, it is best to find a partner or group that already has established multiple brands in the desired country and wants to add your brand to their portfolio, regardless of how many locations you have in the United States, LeSante said. “For successful international expansion, franchisors need to try all avenues of attracting potential partners, including trade shows, trade missions and advertising,” said LeSante.  “It is also important to look into the assistance of the U.S. Commercial Service Group to present your brand and help match it with a buyer.” There are several trade missions that are sponsored by the International Franchise Association and the U.S. Commercial Service that allow franchisors to learn more about the countries they want to enter and meet key partners. LeSante also recommends the American Chamber of Commerce as a great source for connections and resources. Travel is becoming more and more expensive, so it may be wise to concentrate on a region first. Focus on three to four countries to start and build upon your foundation in each region. Time is of the essence.  You will need to prepare for a minimum of a year to get organized and strategize.  LeSante said that the typical timeline to establish a brand overseas is three to five years. “Do not feel pressure to sign the first guy who comes to the door,” LeSante said.  “This is a rookie mistake that can cause major pain down the road and lead to a terrible launch of the brand overseas.  Take your time and find the right partner.” There are typically four models for international expansion.  The first, and probably the most popular, is the master franchise, where a group or individual buys a territory opens at least one franchised location before selling sub-franchises to others in the region. This model requires critical mass since there is a three tier profit system: franchisor, master franchisee and franchisee. The second format is an area developer model, where the international partner opens all locations in the market. The third, direct franchising, is popular with hotels and car rental agencies where the franchisor can provide exclusive rights to the franchise brand to existing individual locations in the area. The fourth model is distribution licenses. This is most used by the garment industry where products can be licensed by existing locations in the developing country in order to carry the brand name of the franchise in their stores. There is very little training or modification that goes into this model.  Typically, all that is required is a minimum purchase of goods or merchandise. Blake Martin, VP of International Operations for Right at Home* International since 2009, says the in-home health care provider has been investigating international development since 2006.  The founder, Allen Hager, decided upon the United Kingdom for their first overseas location. The United Kingdom was on Right at Home’s short list because of the similar economies and social infrastructure it shares with the United States. Martin shares LeSante’s sentiment that it comes down to finding the right candidate.  Right at Home International uses the master franchise model and hired third-party representation to do public relations and advertising to vet the right master franchisee. “Allen is a believer in ‘all in, or all out,’” Martin said.  “We created a separate department for international development as well as a separate trademark, dedicated support group and website to make it clear that this work wasn’t going to distract from the 150 United States franchises that we had at the time we began international expansion.” Every year Right at Home International holds a convention where all of their international partners from eight countries can convene and share best practices.  The countries Right at Home International have locations include the United Kingdom, Brazil, China, Canada, Ireland, Australia and Japan.  The company plans to open in a ninth country this year in the Netherlands. Martin stresses that franchisors considering international expansion must put the time and energy that is required to understand the social and business culture of the country they are considering.  He also thinks that it is important to make sure that your partner is bilingual. Because Right at Home is in the social-care industry, it was very important that the master franchisee candidates were able to bring a willingness to develop an understanding of the social and health care environments of that nation to the table. Martin’s advice is to “be patient and take your time understanding the social, political and economic environment you are entering.”  He concluded that you must take the time to find a “business partner you trust.” The process can illuminate best practices for the franchisor’s domestic business as well.  For example, during Right at Home International’s discovery they created a new franchisor manual that explains the processes and operations from the franchisor standpoint.  It helped them tighten their own system and model in the United States. “Most franchisors have an operations manual but not a franchisor manual,” Martin said.  “Writing that manual forces you to write down what your model is and answer the where, what and how of your business.” I hope this advice helps you CAFE and prepares you before you pack your bags. Bon Voyage, Aaron