International franchising (also known as Master Franchising or Master Licensing) can be an extremely efficient and profitable way of expanding a business overseas.
What Is International Franchising?
International Franchising, sometimes known as Master Franchising or Master Licensing, is a method of expansion that new or established franchises can use to move into new geographical areas and markets.
Unlike franchising in the franchisor’s home country, where the franchisor grants the franchisee a license to use the marketing, branding and operations of the franchisor, international franchising usually involves actually selling the franchise rights to a third party to operate as the master franchisee in that area, giving them the rights to open company-owned outlets and sub-franchise in the country or region.
International franchising can be an amazing opportunity for an existing company or franchise to expand their operations in a model that poses significantly less risk and offers higher rates of success than company-owned expansion. However, there are many factors that go into creating an international franchise model, and your business will have to consider the feasibility of the business to operate internationally, how adaptable the business is and the benefits and risks of international expansion in a master franchise model. Some businesses require a level of adaptation to reflect the requirements of the local market driven either by cultural variations or legislation.
Furthermore, there are various strategies that can be successfully adopted which vary from business to business and from country to country.
Different Types of International Franchise Models.
Master Franchising is one of the most popular international franchise models, and is considered to be one of the simplest ways to expand a franchise overseas. In a master franchising model, the franchisor chooses a master franchisee for the target country or region, and awards them master franchise rights, which are usually very similar to the rights of a franchisor in a local franchise system, in exchange for a larger investment in the franchise. Master franchise rights are exclusive to the master franchisee, and gives them rights to use and distribute the branding, marketing and other operations of the franchise to open company-owned outlets and appoint franchisees. The master franchisee then grows the franchise by developing a network of units across the region, the number of which is usually specified in the master franchise agreement. Most master franchisees are natives of the targeted country, as they will have a greater and more in-depth understanding of the politics, regulations, market and culture in their country, and potentially have existing networks that they can utilise for the benefit of the brand.
Regional Franchises are a good choice for a franchise model moving into a larger country or area, where it can be difficult for one master franchisee to manage the franchise operations across the whole area. In these franchise areas, regional franchising is an option for franchisors. The target country is usually divided into regions, which are then operated similarly to a master franchise, with each region containing a regional master franchisee, and sub-franchisees below them.
Direct Franchising is a franchise model where the franchisor retains control and licensing of the franchise completely. In a direct franchising model, the franchisor continues their role in a very similar way to during domestic franchising. This kind of franchising requires a lot of resources and time on the part of the franchisor, as they will be providing the same level of training, recruitment and support to franchisees as the franchise expands rapidly and the difficulties of moving into a new market are overcome. Direct franchising is usually carried out remotely due to the centralised nature of the model, and works better in expansion to markets with similar cultures, languages, legal systems and regulations, such as between Canada and the USA, or the Scandinavian countries.
Area Development is used mostly in markets or sectors where sub-franchising isn’t permitted, and involves a development agreement between the original franchisor and a new franchisee, who will take on the role of franchisor in the new region. In development agreements, the territory of a country or region is often split up in a similar fashion to regional franchising.
Master franchising is often considered to be the easiest and quickest way to franchise internationally, and it has many benefits, as most of the up-front capital required is invested by the master franchisee, making it a very affordable method of expansion at the start of the expansion process.
However, in a direct franchise, the franchise fees and royalty payments go directly to the franchisor, while in a master franchising model, these profits must be shared between the franchisor and the master franchisee, so the original franchisor may see less financial return going forward than they would in a direct franchise model.
When expanding in a master franchise model, franchisors also have to understand that a degree of control over the business must be given up to the master franchisee, who will essentially take over the role of franchisor in the area. The standards, processes and systems that are carried out in franchises in the new region are not controlled by the franchisor once both parties sign the master franchise agreement, and this can be difficult for some business owners, or not be compatible with the business model for certain sectors and companies.
What Are The Advantages of International Franchising?
International franchising allows organisations to enter overseas markets and expand their products and reach new customers, in a lower risk model than traditional company-owned expansion. International expansion by franchising also means that the organisation doesn’t have to spend time and money recruiting a full complement of staff in the area, and relocating current staff or offices to the new area.
When using a devolved franchise model, such as master franchising, regional franchising and area development, you also gain the expertise of your master or regional franchisee, who is usually local to your new country or region, and understands the market, customers and opportunities that the business can have in the local area. These local franchisees can also overcome language and cultural barriers to your target market, and are more likely to be familiar with the local area’s regulations, political climate and policies.
Owners of master franchises are often willing to pay large fees for exclusive rights to the franchise operations in their country, as it represents a significant opportunity for growth, as they have the opportunity to recruit franchisees of their own, run franchises themselves and collect royalties from their sub-franchisees.
International franchising can be an extremely efficient and profitable way of expanding a business overseas. But there are a whole range of issues to be considered, which don’t necessarily apply to domestic franchising.
How Does My Business Become An International Franchise?
When you first contact The Franchise Company, one of our consultants will arrange to visit you to carry out an initial review to establish whether international franchising could be the right path for your organisation. This is a mini feasibility study looking at all of the key aspects relating to how your business could potentially operate as an international franchise.
The process of creating an international franchise or expanding a current franchise is not one that can be undertaken lightly, and requires an investment of time and money to be successful in the long-term, but this initial stage is designed to give you a real indication of the potential for your business and its suitability for international franchising before making an informed decision to progress with the development project. If for any reason at this stage we don’t think your business is suitable for master franchising, we will tell you this and discuss the options for any further development.
Once we have established that franchising is a form of expansion that is suitable for your business and that you can create long-term success for both the franchisor and franchisees in an international franchise model, we can start to design your bespoke franchise model.
We spend time with your business and take an in-depth look at what makes your business tick. We’ll look into your marketing, operations, finances and more to understand the way in which your business currently operates, to give us the insight into your business that allows us to create successful franchise models. Throughout this process we will assess all aspects of the organisation to ensure that master franchising as a method of expanding into new markets is a viable and positive course of action for your business. We’ll provide territory analysis, financial models and fee structures for both the franchisor and franchisees to establish the best possible international franchise model for your company.
At the end of this development work we will recommend an international franchising model, based on how your business works, the areas and territories you want to expand into, and the level of control you as the franchisor want to maintain over your franchisees, plus the resources you have to maintain control if this is necessary. We design our models based on how to best create long-term success for both franchisors and franchisees. In international franchise models this means examining your target market and the suitability of your product or service to fit into this market in a way that has value for you, your franchisees and customers.
The documentation of a franchise includes a variety of necessary documents to establish the regulations, standards and operations of the franchise from the very beginning of the franchising process. In an international franchise, the documentation of the franchise is particularly important, as day-to-day control of the business is decentralised to some extent in most international franchise models.
The documentation for international franchises includes:
- The day-to-day operations of the franchise, including adapting current operations manuals to optimise for the target location.
- The financial models for both initial start-up costs and ongoing fee structures for franchisors and franchisees.
- Creating support structures for franchisees, including master franchisees, that set out reporting and control processes.
- Creating franchise agreements that are legally binding across territories.
- Creating a development schedule for the master franchisee or regional franchisees if required.
- Developing training and development programmes for franchisees.
- Creating marketing and branding materials and licenses that can be adapted to fit the regulations and needs of the target country or area.
- Creating recruitment and marketing materials for new franchisees in the area.
The creation of all of these documents is carried out while being mindful of the fact that success in new international markets is often down to the flexibility of an organisation and how well they can adapt to new markets. All of our documentation leaves space and flexibility for franchisors, master franchisees or franchisees to adapt and mould the way the business works in order to achieve success in the new countries or markets.
Piloting and Recruitment
In an international franchise, recruitment of master franchisees is incredibly important, as generally they have a higher level of control than franchisees in domestic models. This is particularly true of master franchise, regional franchise and area development models, when the master franchisees are given a high level of control and responsibility over the operations of the entire country or region.
We can support you through the piloting period and once you have recruited a suitable franchisee you will begin to pilot the franchise. It is during this period of time we often see the greatest need for flexibility as set out in the franchise documentation. This gives us time to understand how the franchise needs to adapt and change to be successful as the franchise starts to grow further. We’ll also help facilitate communication between franchisors and franchisees throughout the pilot period to ensure good relationships are established and operations are running smoothly.
Expansion and Growth
After the pilot period is over, we can continue to offer support to help you grow the organisation as the franchise expands and more franchise units are added. We can offer ongoing support in the form of assistance with franchise recruitment, staff recruitment, staff training, franchisee training, marketing and the development of systems and documentation to ensure the longevity and success of your franchise in its new markets.
Why Choose The Franchise Company?
At The Franchise Company, we advise on international expansion strategies and have been involved in numerous international franchising projects over the last 25 years.
We currently have offices in The Baltic region, Turkey and the Middle East and have consultants in these areas who can help UK clients with expansion into the various countries as required.
Both our UK and internationally based consultants have extensive experience working with internationally expanding franchises, and so have a strong understanding of how to make sure your business is successful as you expand into new territories.
To find out more about how our consultants can help you expand your business internationally, see if international franchising is right for you, or to arrange an initial conversation with one of our experienced consultants, contact The Franchise Company today.