Selecting your overseas licensee
BY WILLIAM EDWARDS
Going Global?
I
Better read this first!
n previous articles we looked at
the basics of taking your franchise
global, how technology helps you
succeed globally, and how U.S.
franchises are growing around the world.
So if you have decided to “Go Global”
with your franchise, the next question
is, “Now what?”
Recent reports by both McKinsey
and the Economist indicate that global
executives in many regions of the world
are more bullish about new investments
than in recent years. More countries are
expected to see more investment in new
projects in 2014. This is good news for
U.S. franchisors seeking international
licensees.
What qualities does your franchise
need to succeed globally? Experience
across more than 50 franchisors shows
the following to be critical to success:
• A proactive business plan to identify
countries where your franchise is most
likely to get a good return on investment;
do not just grant licenses in countries
where you get the most Internet leads.
• A good record of success at home;
having good unit economics is critical
to attracting the best international licensee candidates.
• Strong and clearly documented
training, support, and marketing programs; this is what international licensees are buying.
• Clear differentiation to succeed in
countries where there will be competitors;
to attract both licensees and consumers
for your product or service.
• An international financial model
at the unit and area or master franchise
level that offers the licensee the potential for a good rate of return.
• A strong and robust intranet. This
is the best tool for communicating your
brand standards across time zones and
cultures.
What steps to take
Your proactive Going Global business plan should include an analysis of
countries where franchising is common. Before starting to seek licensees,
spend time researching countries for
suitability. Many sources of information on countries and franchising are
online (see list on next page).
For each country under consideration,
is the rule of law in place to protect your
intellectual property and control your
brand if problems arise? Will you need to
make major changes to your brand? Are
there cultural aspects of your franchise
that will not fit into certain countries?
Once you have identified the top 5
to 10 countries for your brand, it’s time
to register at least your basic trademark
in those countries. Do not start marketing
your franchise in a country without having
filed a trademark application. If you do not
file, you stand a good chance of having
to buy back the mark from someone
who registers it for you!
It is also critical to conduct due diligence on each licensee candidate you are
considering. You are required by U.S.
law to know who you are doing business
with. Who owns the company? Where is
the capital coming from? Consider using
international credit and reputation risk
management companies to complete
your candidate due diligence. You also
want to be sure the candidate creates a
business plan that shows they know your
brand and have a development plan in
place that matches your desires.
Be sure to ask for detailed company
financial information. Sometimes you
will want personal financial information for senior executives. In some
countries, such as Singapore, you can
access annual company reports online
that show owners, financial results, and
capitalization.
What is the profile of the licensee candidates who will be the best for your
franchise? Do they need experience in
your sector? What amount of capital do
you want the international licensee to
have to acquire the rights to your franchise, build units, and grow your brand
in their country? Again, experience says
the following elements are important:
• Someone who truly understands
your brand and who has a passion for
your business. This helps when things
do not go exactly right!
• A group or company that has had
successful business experience in their
sector or a related one. This is most important for restaurant brands that want
their licensees to know the food and
beverage sector and have documented
experience before being granted another license.
• A good reputation in their country.
They will be your brand in their country.
• Marketing and sales-oriented candidates are best as they must establish
and grow your brand in their country.
• Experienced management, often
difficult to find in emerging markets and
a major challenge for U.S. franchisors.
• If appropriate, access to good real
estate. Can they find and acquire the
best sites?
• And, of course, capital to acquire
and grow your brand in their country.
Capital availability is excellent these days.
Since there is little franchise-related bank
borrowing outside the U.S. (with the exception of Australia, New Zealand, and
the U.K.), capital to acquire and grow
your franchise will come from internal
sources or equity investments.
Grow Market Lead
International
What they want from you
• A well-defined franchise operating
system they can duplicate in their country. This system is what you are selling.
If they follow your system, they should
make a good return on their investment.
• Training, operating, and marketing
manuals and programs that can be used
locally. The systems and standards you
have developed at home are what you
want the international licensee to follow (with necessary local modifications).
• More and more we are seeing in-
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