The decision to expand globally is always one of the biggest challenges a business will face in its lifetime. A business has to commit a great amount of time and money to be an international player. It has to be patient enough to manage the new setup, as it waits to record profit and relevance in the international stage. One way to do this is to franchise internationally via a sub-franchise agreement.
Franchising in a Global Setting
A sub-franchise allows any domestic franchise to expand its reach in the global market by simply using the terms of the franchise agreement. But of course, this comes on a different scale and purpose.
A franchisor can appoint a country master franchisee to cover a new market, ensuring a wider foothold for the brand. The country master franchisee will invest in an upfront franchise fee for the right to bring the brand to a chosen country. It will then get a franchise agreement for an exclusive territory for at least 5 years (on average, a maximum of 10 years, although some more successful brands offer longer exclusive rights).
This comes with the usual perks: ongoing training, equipment and stock provision, supply chain access, marketing support, and use of operational and process systems. With the exclusive rights on hand, the master franchisee will develop the brand in the territory while improving its own unique managed operations.
Key Initial Conditions for a Successful Entry
To ensure an effective foray to the global market, first, it is important that the franchise has a strong foundation domestically. Its operational capabilities should have reached a mature stage, sound enough to adjust to international pressures. Scaling up to a bigger competitive landscape comes with many uncertainties.
Second, it is essential that the franchise choose trustworthy international partners. They must be experienced with a great track record in developing brands internationally. They must also be armed with the capacity to understand the market where a new franchise is set to operate.
Lastly, researching the target market is hugely vital. Determining that there is demand for the brand in the new location is done with a well-studied research approach. Being successful in the home market is not tantamount to a successful decision to internationalize.
Impacts of the Franchise Model to an International Franchise
When choosing a sub-franchise, you gain more as opposed to concessions or license partnerships. First, the franchise model would not require a bigger investment compared to a company setting up new outlets or units in a new country.
Second, partners are equipped with local knowledge, experience and networks. Third, the sub-franchise has tighter control over the brand and its standards for quality. Lastly, owners will be more committed, reducing the load from managers.
Expanding internationally is not a pushover. What clicked domestically may not click internationally. The sub-franchise model has a long track record of being utilized as a strategy to expand internationally. But failures are common, and costs are huge. To avoid failure, a thorough understanding of the capabilities of the franchise and the ins and outs of the international market is compulsory.
