Globalization's Effect on Franchise Expansion

Globalization is becoming more and more prominent, with the trend leading to a significant shift in the way businesses operate and expand around the world. Franchising, in particular, has capitalized on the opportunity for international growth. 

1851 Franchise spoke with Lou Longo, international consulting practice leader at Plante Moran, and Lisa Plonka, CPA, CFE, Consumer Goods Practice Leader at Plante Moran, about the effects of globalization on franchise expansion. 

The Allure of International Franchise Expansion

Market saturation in domestic territories is a key factor in the decision to expand across borders. When franchisors have grown into all the viable markets in their own country, they have to broaden their horizon. This is especially true if the brand is situated in a highly saturated industry and the brand is facing competition from other domestic brands. 

The promise of untapped markets and the chance to diversify portfolios is enticing for many brands who are ambitious to grow on a large scale. 

“In the United States, we have 400 million out of 8 billion consumers worldwide,” said Plonka. “So there's a great opportunity to expand a brand for having increased revenues and having that global reach.”

In addition to the somewhat obvious economic incentives, gaining brand recognition on a global scale is also a huge incentive for franchisors, especially those looking to establish themselves as the brand of choice in a given industry in a company where their competition does not yet exist. 

Expanding a brand into international markets can be rewarding, but it comes with many challenges. 

“There are positives and negatives to global expansion. One benefit is the increased connectivity around the world; the world really has become smaller, and it's easier to reach people through social media and other means,” Plonka said. “But on the flip side of that, if you're thinking about expanding a brand, especially if it's a food-based or retail brand, the supply chain can be one of the biggest issues faced by a franchise. You need to make sure that you're maintaining that quality and consistency of products, which ultimately is the goal of franchising.”

While franchise models are inherently replicable, making a transition into foreign markets easier, these foreign markets come with diverse cultures, new regulatory frameworks and varied consumer behaviors the brand may not have encountered domestically.

Challenges and Strategies in International Franchise Expansion

To access the immense potential of a new, foreign industry, franchisors must complete comprehensive market research. In addition, they also need to understand the legal and regulatory landscape of a new jurisdiction.

“What you're bringing to the franchisees in a foreign market in terms of infrastructure support and the requirements may be different in each market,” said Longo. “You’ll need to understand how you're going to support your local franchisees and what their needs will be, versus your home market. That should be in place ahead of actually entering the market so you don't get a false start, because reputational risk is high when you first enter a market.”

Successful international franchise expansion often relies on finding the right partners. By cultivating relationships with local stakeholders, franchisors can leverage their local knowledge and expertise for long-term success. One strategic approach is the master franchisee model; in this model, the franchisor selects a local partner to spearhead recruitment, training and support for franchisees on behalf of the brand within a given country or region. 

Realizing the Benefits of International Franchising

Globalization has changed the game of franchise expansion, opening doors to new markets and possibilities. By leveraging local expertise and resources, franchises can adapt their business models to resonate with diverse consumer preferences and market dynamics, leading to continued franchise growth for years to come. However, while the prospect of international expansion can be incredibly exciting, Longo advises keeping your emotions in check to allow for logical decision making on what is truly best for your brand.

“What we find in our consultancy practice with organizations that are going international is the enthusiasm can cause them to not do some of the base research that they would do if they were doing something in their home country,” he said, “and the most successful organizations actually temper the enthusiasm and make data driven decisions.”

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