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International Franchise Expansion: Key Factors To Consider

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It is no small feat to become an international franchise business. Not only are you setting your sights on entirely new markets, but you must concentrate on a number of factors that you may not have had to previously. These include structural characteristics such as local laws and any relevant regulatory framework in a different country, social customs, consideration of whether your product or service is likely to appeal in a different culture, supply chain logistics and so on.

Ensuring International Market Success

You need to gather information to help you select the right country in terms of e.g. language, country, typical weather and temperatures (if relevant), economic climate, culture, road and transport networks, and possibly logistics for delivering products. If the right conditions exist, then it’s worth exploring further and assessing the sales potential and your mode of operation.

You need to decide whether you want to sell master franchise licences or sell to individual franchisees (a master franchisor would buy exclusive rights to a large area, region or even country and sell areas to individual franchisees; they might also operate one or more outlets or territories themselves).

You may also want to consider a pilot location and competitor analysis project, especially if you are targeting a very large country such as the USA. It is also important to establish the value of the area, region or country by assessing the market size and sales potential, locating the target market/demographics and calculating how many outlets/territories can be opened and where (to ensure they are profitable). 

Determining Market Size and Sales Potential

Determining the potential size of an international market begins with looking at everyone who has access to what you’ll be selling. Then this number needs to be pared down by removing anyone who doesn’t fit your target market – the make-up of the people or companies who are most likely to buy your product or service. The goal is to slice as many pieces as possible from your initial ‘pie’. This will give you the real size of the potential market to be split between you and your competitors.

Your company may have multiple customer profiles – different types of customers in different locations and/or different types and sizes of outlet. For example, as a restaurant chain you may operate sit down restaurants, “kiosk” type takeaways within a shopping centre, drive thrus, or in-house within offices, hospitals, etc. There may be different menus to suit the different types of outlet or time of day, and you may need to consider changing the menu from your home country to cater for different tastes in a new country.

In order to understand the spread of the target market throughout an area/region/country, you would need to combine customer profile data with the population demographics or business data. You might also need to buy in specialist research data on the buying habits of your target market or work with a partner who is knowledgeable in this field.

Site Location Analysis

For franchises using an outlet based model, you need to evaluate at a more granular level potential locations where to actually site your outlets. If your model is based on selling master franchise territories, this information would be used to determine the total number of potential outlets per territory and, from this, determine the likely revenue potential for both you  and the master franchisor.

As part of this process, you would need to look at other indicators relevant to your business sector. If you were in the restaurant/takeaway sector, for example, you may want to look at footfall at different times/days in relation to different types of outlet, or the potential number of business people at breakfast/lunch times. You could also analyse how long people would spend walking or driving to reach an outlet (e.g. develop 5 min walk zones, 10 minute drive time zones round a site), and review attractors to an area – tourist attractions, cinemas, and road traffic volume (for yout drive thrus). Also consider detractors such as crime level, run down areas, etc.

For more information go to http://www.tech4t.co.uk/franchise-territories/franchise-location-mapping/ or download our free guide: The Franchise Territory Optimisation Guide

Competition Analysis

Consider competitors at a granular level – other companies that would have a similar end customer profile to your own. It can be advantageous to be sited near these and there may be chains common to both the home country and the new country that are relevant.

Marry all this data up and select the best areas to give you an accurate understanding of how many viable locations there are.

Obviously some sites will be better than other so select the best areas to focus on first by ranking the different sites in order of opening importance. You may also want to value sites differently dependent on their ranking.

Doing this exercise will let you assess the value of a master franchise licence more accurately and engender confidence in a potential purchaser who can understand how potential returns on his substantial investment have been calculated. Getting it wrong could have disastrous consequences both for a master franchisor and your company in terms of lost money, time and reputation. 

If your are considering franchising overseas and have a territory based franchise model rather than outlets, then a similar approach to the above would still be prudent, with the exception that you may not be assessing potential locations for outlets.

In either case, to ensure a robust base on which to make decisions, it can be extremely advantageous to work with a partner with the right skills, technology and data.  They can give you a clear idea of the risks and returns involved in international franchising and make sure you have the knowledge infrastructure in place before you start actively promoting your franchise internationally. To find out more go to http://www.tech4t.co.uk/franchise-territories/

Professional Territory Planning Advice

Our Tech4T team has just released a free resource to help you plan and organise your franchise territories. The Franchise Territory Optimisation Guide will show you how to make your territories work harder and reveal their inner workings, so that you and your franchisees can achieve greater profitability. Just click here to claim your copy.

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On November 23, 2016
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