Franchise Update Magazine Issue III, 2013 | Page 62

Grow Market Lead

International
Challenges remain

By BILL Edwards

Coming to America?
Overseas brands face opportunities and challenges

W

hile many U.S. franchisors are now expanding
into other countries,
seeking new growth
and less competition, international
franchisors are finding the world’s
largest economy a target too good to
pass up. But are the streets of the USA
still paved with gold?
“Many international franchisors salivate at the prospect of entering the
United States, the world’s largest consumer market,” says Ray Hays, senior
director of EGS in a recent Entrepreneur magazine article. “Perceived barriers to entry for non-U.S. franchisors
include a litigious and highly regulated legal environment, complicated
multi-cultural demographics, fierce
competition, and high investment
requirements. In short, the U.S. mar-

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ket is often viewed as too expensive,
risky, and complex, but many of these
perceptions are overblown myths. In
reality, the franchising opportunity in
the U.S. far outweighs any barriers to
entry,” he says.
According to the IFA’s Economic
Impact Study, in the United States:
there are more than 900,000 franchise business locations; more than
3,500 different franchises; they create
more than $2.3 trillion in sales annually; 1 in every 7 jobs is tied directly
or indirectly to franchising; and 54
cents of every retail dollar is spent at
a franchise. Every product and service
in the U.S. is provided by a franchise.
The U.S. has well-defined franchising
laws. And, most important, the U.S.
market is open to good new concepts
from other countries.

Still, there are considerable challenges for
a foreign franchise wanting to succeed in
the U.S. market. Trademarks, domain
names, intranets, franchise advisory councils, state franchise laws, extreme sector
competition, property leasing, translation,
detailed manuals and systems, marketing
limits, and measurement conversions are
just a few of the U.S.-centric aspects of
franchising that many other countries do
not have. Other challenges are dealing
with the large geography, the diversity of
the culture and economy, and the sheer
size of 310 million consumers. And often,
a foreign franchisor thinks they will find
a country master franchisee to develop
the entire USA.
According to Mark Seibert, CEO of
iFranchise, the attributes any franchise
needs to succeed in the U.S. are:
• It needs to be credible. Does your
company have experienced management?
A track record? Is the concept proven?
• It must be unique. Is your business adequately differentiated from
its competitors? Competition is high
in the U.S. Does it have a sustainable
competitive advantage?
• It needs to be teachable. Are the
systems in place? Are operating procedures documented in manuals?
• Most of all, the franchise needs to
provide an adequate return to its franchisees. In the U.S. today, franchising
is all about good unit economics.
According to Darrell Johnson, CEO
of FRANdata, a company that documents the performance of franchises,
two key topics are important to understand before a company starts taking
active steps