International Franchise Information

If you are an individual living in a country other than the United States, you will find the following franchise information will help you understand the mechanics and special considerations of buying a U.S. franchise for operation in your country.

 The Ideal International Franchisees
 Where to Find the Best International Franchise Opportunities
 Types of International Franchising
 Checklist for Choosing an International Franchise Business
 Financing the Project
 Further Franchise Information on International Opportunities  

The Ideal International Franchisees

The franchising relationship is often likened to a marriage. This comparison is heightened in the international franchise relationship, where a lengthy courting and engagement period normally precedes the ultimate “marriage”. Some franchisors and franchisees are even asking for test period arrangements, of say, one or two years, before the final franchise agreement is signed.

The procedures can be painstaking because the stakes are big in international franchising. The franchise relationship, as we noted in the previous chapter, is usually that of a franchisor and a master franchisee. The territory that is licensed to the master franchisee is not a zip code area or a portion of a state, instead, the licensed area is quite often an entire country or a large portion of one.

In general terms, these are the qualities and requirements the franchisor will be looking for in a master franchisee:

1. The master franchisee should know the local market. This includes the culture, real estate opportunities, suppliers, financial institutions and relevant laws and regulations.
2. Ideally, the franchisee will have experience in the industry or business that is being franchised. In lieu of this, knowledge of and successful experience in a general business area are usually acceptable.
3. Proven financial resources are a necessity. The master franchisee must have the wherewithal (either alone or most commonly with other investors) to buy the franchise rights, set up prototypes and systems and develop the concept in the agreed upon territory.
4. Proven management skills are another necessity. For the most part, the master franchisee will be functioning just as the franchise system does in its native country. That requires management skills in such areas as sales and marketing, training and operations.
5. The master franchisee should be enthusiastic and convinced about the feasibility of the franchisor’s concept and system. Wanting to “do it your way” is a red flag to the franchisor.
6. The franchisor looks for a certain “chemistry” in its master franchisee, which can be defined in part as integrity and a co-operative attitude.

Where to Find the best International Franchise Opportunities

Finding the right franchise when you are a native of, say, Hong Kong or Brazil and would like to operate a U.S. franchise in your country is a little more difficult.  You can start your search by checking out FranchiseHelp’s International franchise directory for opportunities in your country; or contact us (link to form) for more specific consulting needs.

Types of International Franchising

Although most franchise systems prefer a master franchise set-up for their international expansion, other forms of agreements are sometimes chosen. These formats include the single-unit franchise, the area development agreement or a joint venture agreement.

Master Franchise. In this arrangement, the master franchisee (also called the “sub-franchisor”) is granted a franchise for all or part of a target country. The master franchisee, which may be an individual, a group or a company, has the right to develop the entire territory or sub-franchise the units to third parties (sub-franchisees).

The franchisor trains the master franchisee. In turn, the master franchisee recruits and trains sub-franchisees to operate individual units of the franchise in their country. In effect, the master franchisee is now the franchisor in that country and receives a portion of the royalties for its support of individual franchises.

Area Development Franchise. Similar to a master franchise agreement, a person, group or company gains the right to develop an entire country or part of it. However, unlike the master franchise, the focus is on running the business, not selling franchises. Substantial capital and management resources are necessary for the area developer, since there will be no sub-franchisees to share the risks and capital requirements.

Single-Unit Franchise. U.S. franchises rarely sanction a single unit outside the country with the possible exceptions of Canada and Mexico (because of their proximity). In this case, a franchisee obtains the rights to open a unit of the franchise in her or his native country. Franchisor steer away from this type of arrangement because of the great costs sustained in servicing one unit outside the country.

Joint Ventures. Two parties, the franchisor and the sub-franchisor, make contributions to the investment in this arrangement. The parties negotiate their ownership shares and decide how to finance their contributions. The franchisors often contribute expertise, a system and sometimes cash. The foreign partners may contribute money and local knowledge. In essence, the joint venture company becomes the sub-franchisor.

Franchise systems will usually not consider a joint venture arrangement, which puts their own capital at risk, unless the country is one they want to enter and they can’t do it any other way. This is most common in Eastern European countries, where the markets are promising, but potential franchisees do not have the capital to totally fund the investment.

Checklist for Choosing an International Franchise Business

The following are the basic questions you should be able to answer getting down to serious negotiations with a franchisor.

Preliminary

• Is there any regulation of foreign investments in your target country? Find out the details.
• Are there any local laws and restrictions which would prohibit certain types of franchises?
• Are there any import restrictions or laws governing the kinds of products or services which you can source from outside the country?

More Specific

• Is there already an established demand for the franchise product or service? (It is very risky and expensive to try and create a demand where one does not already exist.)
• Does the franchise have at least minimal name recognition? (The franchisor should have at least 25 outlets in a concentrated area.)
• Is the franchise system financially strong and stable? (Companies looking for a quick buck will fail. The franchisor must commit to a longer pay-out period for international franchise.)
• Is the system and the mind set of the franchise management flexible? (Often a part of the system has to be changed for a foreign market.)
• Does the business have unique features that will give it an edge over the competition?
• Are suppliers of the components, ingredients, equipment, or other needs of the business readily available?
• Is the franchise trademark registered and protected in the target country?

Financing the Project

Financing your international franchise investment, just like a domestic one, will be a challenge. And, since we’re talking in terms of developing an entire country market, the numbers will be much larger and the time spent in putting together the financial package will be considerable. Usually a consortium or a group of individuals invests in a master franchise or area development agreement. It is rare that an individual will be able to finance and develop an international investment alone.

Further Franchise Information on International Opportunities

Do you want to become a Master Franchisee of a US concept in your country? Please fill out the form below. We usually respond to questions and inquiries within one working day.