When domestic franchisees begin thinking about growth, they typically consider opening new stores within their community, the broader city, or a close-by territory. Once they've achieved scale and operating efficiencies -and confidence - the logical next step is to expand into different states and regions of the country. But a new growth path is opening for some domestic franchisees: international expansion.
From a franchisor perspective, international growth often follows a fairly well-established protocol: first, do the market research, then put together your franchise documentation, complete the legal work to protect your brand, build out your financial and growth models, etc. After all of that is in place, it's time to find a local partner to become your unit operator, area developer, or more likely, master franchisee in a particular country. You have enormous faith that this partner will succeed, yet this is precisely where the biggest risk comes into play. No matter how well-developed your foundation, if you choose the wrong franchisee partner, you will likely fail.
To mitigate this risk, franchisors often hire franchise consulting firms to source candidates, conduct background checks, and perform due-diligence. These professional firms have strong histories of attracting solid performers. But another avenue is opening to franchisors which could significantly increase their likelihood of success.
Larger, multi-unit franchisees are always seeking new paths for growth, but in some cases the runway for growth in the U.S. has stagnated, limiting expansion potential. In other cases, domestic performance has softened, and the financial returns aren't as attractive as they once were. International expansion is a logical alternative, offering clear advantages to both franchisees and franchisors who pursue this option. But there are also challenges which must be considered and addressed.
Choosing the wrong international franchisee has a broad range of negative consequences. There is a long list of "first-to-market" failures introducing brands into new countries. Invariably the most common point of failure is because the master franchisee either didn't have the skill to open and operate effectively or underestimated the financial commitment necessary to succeed. Either way, the consequences can be catastrophic, and the brand suffers.
Choosing an existing multi-unit franchisee effectively eliminates...