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International Franchising and Licensing

Callum Floyd of Franchize Consultants in New Zealand outlines background considerations and requirements for successful international franchising and licensing development.
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Updated: Jul 25, 2010
Word count: 740 · Read time: 5 mins

International franchising and licensing enables companies to efficiently leverage their most valuable asset, their brand and associated intellectual property (encompassing trademarks, patents, know-how, and business and marketing systems) in return for royalties and/or products sales. Franchising and licensing reduces the requirement to invest company resources in expansion by instead recruiting international franchise/license partners who a) provide the capital establish local operations, b) are more motivated than employees to succeed, and c) have the important knowledge of their local markets. The partners, in turn, need to operate within strict brand, business and operational guidelines. The partners are then rewarded by profits and the franchisor, importantly, receives royalties and/or product sales in return.

Harnessing the potential of internationalization is an exciting prospect. Yet it also presents a complex set of decisions and challenges that require addressing in a methodical and structured way.

A key initial step in the internationalization process is an assessment of export readiness. Exporting is challenging on resources and successful exporting requires sustained commitment over time. History, unfortunately, is littered with half hearted and failed export attempts. Consequently, it is essential companies complete an honest and thorough assessment of their readiness before exporting.

Ideally the company will possess a first class business concept that exhibits distinct [and preferably several] unique selling propositions. Overseas consumers, particularly those in other western countries, such as the US are rarely starved for choice. Consequently, care must be taken as an apparent niche may exist for a very good reason.

A solid infrastructure, including solid operational and franchise management support systems and programs, will be required to assist management and support of existing domestic and new international operations. In addition, the business should have a solid domestic track record. Legitimacy is valued highly by prospective international franchisees. It is therefore important to have demonstrated a high level of domestic success.

While the rewards for successful expansion are great, successful international franchisors will invariably require much greater financial and managerial investment, and time, than originally anticipated. Thus, business planning is crucial to ensure financial resources and management succession provisions are sufficient to invest properly in international development.

A common misconception in international franchising and licensing is that a successful franchising program for one country can be readily applied to another – with great success. This is a strategy employed by some companies seeking rapid international growth. But this approach is incorrect. What works well in one country can be totally inappropriate for another – and even disastrous – as many experiences have shown. It is therefore necessary to research and adapt the franchising format from one country to ensure it is optimal for the target country.

Depending on the target country there are a number of areas where the business and aligned franchising format require changes. Examples include the commercial structure for the international relationship, the structure for expansion within the target market, the basic business concept, including how it is run, the breadth of supporting services provided, optimal types and levels of franchise/license fees, to mention a few.

Such adaptations are necessary from country to country due to numerous differences in areas such as local pricing, customer needs, preferences and buying habits, disposable income, demand size, industry structure, legal requirements etc. In addition, there are firm-specific factors such as growth targets, attitudes to risk, desire for control and available resources that also require consideration.

Successful international franchising and licensing development takes considerable planning, involving business, franchising, legal and accounting specialists. Preparations involve multiple stages, from target country selection, business optimization, feasibility reviews, channel development planning, systemization to marketing. Overall, a well- planned and structured international franchising and licensing program has the potential to provide many successful domestic companies with an intelligent and efficient method to leverage returns from the intellectual property associated with their businesses.

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