Small Business Expansion through Global Franchising

Elayne McClaine

Date

May 23, 2016

Many established businesses often reach a plateau in their business cycle where they must contemplate future growth.   You’re competing with the same domestic brands and experiencing less and less returning on investment and profitability.  You’ve exhausted your domestic customer base.  The Internet has taken you global but with far less profitability.  Expansion can take the form of physical growth through multiple locations—either domestically or globally.

Franchising is a popular method.

Why not consider global franchising?   International franchising is a strategic method that minimizes dependence on domestic demand.  For small businesses, this may seem high risk and far-fetched.   However, worldwide expansion might be an option worth investigating.  Over 60% of IFA members currently franchise or operate in international locations, and 16 percent generate between 25 percent and 30 percent of revenue from international activities.  Top 200 Franchisors now have 36% of their units outside of United States.

According to the United States International Trade Administration, nearly 300,000 businesses with fewer than 500 employees exported from the United States, accounting for 97.5 percent of all U.S. exporters.

Smaller Business Enterprises are more prone to expand through franchising than larger firms enterprises.

If the brand or business concept is sound enough to attract demand globally the challenge would be to select the best country and the ideal franchising model.  Companies must be extremely diligent about diminishing focus on the core business and deploying costly human and financial resources.  International business comes with its own set of issues--political stability, trademark and intellectual property protection and the country’s approach to Law are just a few.  Hiring, firing, training all come at an additional cost.  Excessive taxation pitfalls have to be scrutinized.

Traditional and hybrid franchising concepts are being designed to accommodate smaller businesses.  Particularly, smaller franchise concepts are popular in developing or emerging nations.  According to the IFA, their members are eyeing overseas expansion as an important way to diversify their portfolios.

Small firms with a healthy domestic brand and a solid business model should be able to thrive in a worldwide marketplace.

MBEs firms are especially attracted to global expansion and franchising.  The opportunity may offer new revenue sources and the opportunity to leverage their product or services to nations that might share their heritage.

Traditional franchising is the most direct method of entry into a foreign market.

There are many low-cost franchise opportunities that might be novel and appealing across the seas. Disclosure laws and local nuances in laws must be fully investigated.

A Joint Venture with an in-country partner can allow a franchisor to share start-up expenses.

Be very wary of loss of control or legal protection.   Local laws may favor their national.  Extra attention throughout the single or multi-unit negotiating process would be essential.

Franchise Co-branding is a concept that is especially designed for Small Business.

Upon investigation, you may find that for a lesser investment, a strategic alliance could be created with a local franchisor.  Franchisor will benefit from local partner’s knowledge of local market conditions, culture, political, legal and economic conditions.  Economies of Scale for Franchisees would result in lower overhead and operating costs.  Shared space, equipment and cross trained employees would result from complimentary or compatible brands in a single location. Your donut franchise could share space with a locally franchised gas station. Local brands which may be supported by governmental micro-franchising programs may welcome a co-branding partner from abroad.

Small businesses with a sound domestic footing may be forced to go global sooner rather than later.  There are governmental agencies like to United States Commercial Service that can help seek the opportunities that have the heritage of an American made brand, but just right for small business.

Visit BeTheBoss.com where you can search for opportunities by industry, investment level and area while researching the franchise industry as a whole using its free resources.


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