Going Global? Choose Wisely: Opening the right door can lead to successful international franchise expansion.

Author:Aliouche, E. Hachemi
 
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Domestic market saturation, increasing local competition, advances in communication and transportation, and growth of foreign economies have spurred franchise companies in the United States to expand to foreign markets with increasing frequency. While in 1989 only 34 percent of the members of the IFA reported having units overseas, by 2016, 79 percent reported that they were already or aspired to go international. Given that more than 95 percent of the world population lives outside of the United States, going international is compelling for successful U.S. franchise companies.

WHERE TO EXPAND?

One of the key issues facing franchise companies considering international expansion is which countries to target. Entering the wrong market at the wrong time would surely lead to failure as illustrated by the experiences of companies that expanded into Iran in the 1970s and then sustained heavy losses following the 1979 Iranian Revolution.

It is not surprising that many international ventures end up in failure. It is not uncommon that the decision to go international and the selection of the expansion countries were based on intuition, opportunism, personal experience, or some other ad-hoc method. Given the potentially significant impact of international expansion on a company's growth and profitability, a more strategic approach is essential.

There are more than 200 countries and territories that can be potential international expansion markets. However, these countries and territories are very different from each other, with different cultures, economic sizes, political systems, laws, etc. Some are friendlier to franchising than others. No franchise company has unlimited resources; therefore, it behooves the expanding franchisor to focus its limited resources on a few priority countries where it has the highest likelihood of success.

MARKET POTENTIAL AND RISKS

It is easy to see why a target country's market potential is a key factor. Markets that grow faster and have large customer bases with high purchasing power are very attractive to all businesses. Not long ago, many companies saw the BRIC countries (Brazil, Russia, India, China) as must markets because of their perceived high potential. However, these countries also had high market risks that were often neglected. Today, two of these countries (Russia, Brazil) are struggling in political and economic stagnation and crisis. Thus, market risks also are key in evaluating countries as potential...

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