Are you already running a successful franchise, but want to grow the business further? Rebecca Spicer explores the benefits and issues of exporting your franchise, and gets the inside scoop on a franchise that has taken this leap successfully.
Australia is fairly small in terms of world markets, and so growing your franchise may mean going beyond the domestic market.
Cheryl Scott, Austrade’s industry specialist for franchising, tourism and service exports, says the prospects for franchising on a global scale are considerable. “Globally, there are now around 15,000 franchise systems operating across more than 100 different business sectors.”
Franchisors may consider international expansion because they’ve saturated the domestic market, but Scott says a lot of franchises that haven’t reached saturation here still recognise the need to pursue international markets. “They might do this because they want to build
their brand, and sometimes they also recognise that doing business overseas helps the business at home.”
Franchises that haven’t yet started exporting are often approached from overseas businesspeople wanting to take the franchise to their own country. This is a reactive way to start international franchising, which Scott warns isn’t always a good reason to franchise overseas but you can still use it to your advantage. “It might be a good indicator for you to start thinking about pulling a strategy together and doing your homework.”
Ready To Go?
Being ready and prepared to go international is key. “Assess your reasons—they should be sound business reasons, not because of ego or to fix cash flow problems,” says Scott. “You need to do your internal audits to see where your business is at. You need to have a fairly robust system at home before you start thinking about taking it offshore.”
As you assess your capability to go international, Scott also suggests you: ensure your products or services are ready for the international market; know your competitive advantage over what’s already in the marketplace; have all necessary support systems in place, such as operating manuals, training programs and marketing systems; and have the resources to support a move offshore without impacting on the current business.
The world is a big place, so knowing which markets to tackle first is like picking a needle out of a haystack, but Scott says looking at cultural similarity, the language, and whether there’s a gap for what you’re doing in that market is a good place to start.
English-speaking countries are often a good first option because you don’t have to translate manuals and marketing material, although Scott believes English is really the language of business. And, she adds, South East Asia can be a good option because it’s in our own backyard, we’re in the same time zones, and many of these markets have access to western-trained labour pools. China and India are also emerging as strong markets as they introduce new franchising legislation.
Solid research into any market is vital. Once that’s done, Scott says it’s important to develop an international strategy (plan) which will include: what market(s) you’re exporting to; who will be your customer base; what type of business and pricing structure you’ll adopt; available sources/distribution channels; the level of competition; the degree to which you’ll need to customise your product/service for the local market; and what it will cost.
“Whatever you think it’ll cost you, it’ll end up costing a lot more. It depends on the model you’re using,” says Scott.
There are three franchise models to choose from when franchising overseas: direct entry, joint venture and master franchising. It’s worth checking out Austrade’s publication, Expanding Internationally:
A Guide for Australian Franchise Systems, which gives a detailed description, plus the pros
and cons of each structure (see www.austrade.gov.au).
Scott believes deciding on a structure will depend on both the type of franchise and overseas market, and it depends what you’ve got to bring to the table and what you’re wanting to get out of it. “Choose your partners/franchisees carefully—it’s a critical success factor! And seek in-market assistance.”
Once all this assessment and research is done, Scott recommends testing the market. “Conduct a pilot, evaluate, then decide whether to proceed, refine, or try elsewhere.”
Legal Issues
Kerry Ryan, partner at Deacons law firm, warns it’s a complex business relationship when you’re franchising overseas. You need to be aware of the following legal requirements and risks:
• Register your trademark in the relevant jurisdiction even before you talk to a potential master franchisee or joint partner. Develop some sort of intellectual property (IP) compliance program to ensure the renewal of trademarks doesn’t lapse.
• Are there any franchise-specific laws in the target market?
• Have a confidentiality agreement in place. Any prospective partner or master franchisee must enter into this right at
the beginning.• Due diligence is very important. For example, you need to
work out what inquiries need to be undertaken regarding a potential partner.• What are your registration and disclosure obligations?
• What documentation do you need? This will depend on your chosen overseas franchise structure.
• What should be the governing law of the agreement?
• Make sure the agreement you have is compliant with local law in the overseas market, even if it’s an Australian contract.
•What will be the most appropriate form of dispute
resolution—arbitration or litigation?
There are a lot of legal issues to consider, and Ryan suggests seeking professional legal advice.
Salad Days
Sumo Salad is only two-and-a-half years old but the healthy takeaway franchise is already serving up salads to the international market.
Eighteen months into business, with three company-owned stores under their belt, founders James Miller and Luke Baylis responded to demand and started franchising. There are now nine Sumo Salad franchises in Australia and they hope to have 25 running by the end of the year.
Miller says taking the concept overseas was always part of the business plan. “Part of what we wanted to do was take it back to the United States,” he says. It was while living in New York that the pair first came up with the idea. But the US dream has been put on the back-burner for now while Sumo tackles their first international market, albeit by accident. “The Emirates came along out of interest basically. It’s a really thriving economic market at the moment, the mecca of that area in the Middle East, and I guess there’s a lot of ex-pats over there and there’s a huge demand for Australian brands, in Dubai especially.
“So, they’ve always got people over here wanting new ideas to put into their shopping centres, and we were approached by some people who thought ours was a great concept, it was unique and it was something they really wanted to launch over there. I guess they sort of tracked us down. It happened a little earlier than expected, but it made us speed up the process a little bit.”
To start franchising in the UAE, Miller and Baylis forged a master franchise agreement with their Emirates contact. “When you’re trying to set up something overseas and you’re going into partnership with somebody, you need to work together for the same goal. The person we’ve chosen to go with over there has extensive experience in franchising.”
Sumo in the Emirates, however, has had to adapt to the local culture to a certain degree. “For exa
mple, it’s a Muslim country and so bacon’s not eaten over there,” says Miller. “But one of our popular salads is the Caesar. So they can do veal bacon instead of doing pork. It’s little things like that that we do to customise to their climate and different tastes.”
Sumo Salad will have seven franchises in the UAE by the end of the year, and they’re considering other overseas markets. “We’d love to go into Asia. The UK and New Zealand are probably next on the list of areas to tap into. It’s almost easier to do New Zealand than it is to do Western Australia,” says Miller. “Our passion is to take it back to the US and we think they’d embrace what we’ve got, but I think we’ll have to give ourselves a couple of years before that. It really depends on piloting this first market in Dubai. Seeing how it goes, how easy it is to manage, and how well we can manage it before we start jumping into other areas. I think we’ve got one shot of doing it in the US, so we want to make sure we’ve got everything right before we head to that.”
