By Win Robinson
If you operate a successful service business in New Zealand you can export it. It can in most cases be exported by a franchise structure just like Fastway Couriers, EC Credit Control, Les Mills Gym programmes, Harcourt’s Real Estate and other franchisees like BurgerFuel, NZ Natural Ice Cream and Esquires Coffee who have all successfully taken their businesses off shore using a franchise format.
The Americans, British and some other countries have their overseas embassies actively promoting their respective franchise systems through their embassy outlets around the world. The reason for this concentrated activity is that franchise systems return royalties to their franchisor country and of course as the franchise network grows through the addition of new countries as well as growth within those countries can produce very large royalty sums.
The company intending to export via a franchise channel need not have a franchise operation at home but may be set up as a conventional business. However, that business needs to be sound and have a home base which is profitable. The financial position of the franchisor must be secure and the company must have access to resources that can assist them to export. That is financial and human resources.
There are several franchise structures that can be appropriately used. These include:
- Direct franchising
- Master franchise arrangement
- Area development arrangement
- A joint venture arrangement
- A company owned franchise operation
This will entail the franchisor of the conventional business company entering into a franchise agreement with each individual franchisee in the target country and providing the normal franchisor support to those franchisees. This method can be limited in scope because the further away the franchisor is from the target territory or country the more difficult it becomes to service those franchisees. However with a relatively small number of franchisees it has been successfully operated in Australia and other countries reasonably close to New Zealand.
Is where a person or company will have the right to either open its own outlets or to sub-franchise, or to do both. Mostly sub-franchising will be established and the master franchisor acts like a franchisor in his own country or territory, but with the support from the franchisor in New Zealand. This will include initial training, ongoing support, the provision of a master franchisor manual and the receiving of regular reporting.
Is where the franchise right is sold to a company who undertakes to cover their territory or country with branch outlets. This is not sub-franchising as per the master franchising. Restaurant Brands is an example of an area developer for Yum Foods of the USA and thus owns all the Starbucks, KFC’s and Pizza Hutt outlets, although they have been franchising some of the Pizza Hutt branches recently. An area developer network usually has to be built over a stipulated period of time.
A Joint Venture Franchise
Is where the franchisor besides granting a franchise to a company in an overseas country also owns shares in that company. The only reason I put this structure in this article is because there are a number of such arrangements in Europe and elsewhere. However it has become less popular because of the many disadvantages that have been caused by such an arrangement. Why would a franchisor feel that he/she needs to invest in the franchisees company and risk having operational loss and to put more capital into that company when he/she has a sound franchise agreement which will give him/her all the power that should be required.
There is also much scope for disagreement on operational matters with joint venture partners who will resent the fact that the franchise agreement will give the franchisor the last word on many such issues.
Company Owned Operation
Is where the company wishing to export sets up its own franchise operation in the foreign country. This is usually done by setting up a branch in the territory or country. This branch then acts as the franchisor for that country going out and recruiting franchisees who set up their own businesses in their local territory. This can be a more expensive way of establishing a franchise network than a master franchise structure, area developer structure, or even a direct franchise structure.
The franchise structure selected and developed early in the construction of developing an export franchise programme is fundamental to ensuring that your franchise format or structure is both competitive and enduring. Proper analysis and selection is critical at this early stage because core franchise infrastructure is difficult to change once franchisees have been established.
There are both advantages and disadvantages of each different franchise structure, but one form or its hybrid will be the most suitable for the exporter’s objectives and the circumstances in the target country. Professional and experienced advice will need to be taken.
Your Franchise Entry Plan
Fastidious research and planning for your entry into a particular country is imperative. While international franchising is exciting, the reality is that most export attempts fail. And, in our view, most failures and/or the aftermath could be avoided if such comprehensive upfront planning were conducted initially.
A good franchise entry plan needs to consider multiple elements; not least:
- What are the potential risks and rewards?
- How would we be structured internationally?
- What support and infrastructure will international franchisees need?
- What should the FSO look like now, and as we grow internationally?
- Which types of franchising should we use?
- What royalty rate and other fees should we charge?
Planning your franchise export development is extremely important. The need to appreciate how important planning, administration and franchise expertise will be to a successful franchise programme is vital. There are many things to take into consideration both in the strategy you will use to export down to the conditions in the target market from local laws, exchange controls, specific franchise laws, intellectual property safeguards, taxation, government attitudes etc
Five Step Export Development Plan
International Franchising should be considered a process – and a logical one at that. Boiled down to five summary stages you really need to consider the following:
- Assess your export readiness – look at your local success and resources. Do you have the strength and size, in terms of performance, and people and financial resources to do it.
- Country selection – rather than just responding to an unsolicited request from an often exotic location, which country is the best fit for you, and why?
- Assess and research possible target markets with a proper Franchise Entry Plan. Look to build a specific entry plan and assessment for that market.
- Establish the necessary infrastructure – including protecting your IP and developing a support structure appropriate to the country
- Start testing
- Work cooperatively with local advisors and specialists and be prepared to support the programme
About the Author
Win Robinson has a history of practical experience in establishing and operating successful franchises dating back over 30 years. He has a Bachelor of Business Administration from Woodbury University in California. He is Managing Director of Franchize Consultants (NZ) Ltd, this country’s leading franchise advisors. He is a past Chairman of the Franchise Association of New Zealand and has served on the World Franchise Council.
Win is very keen to seem more companies in New Zealand export using a franchise format, which he believes is a way that even small companies can compete in the world market.
Franchize Consultants (NZ) Ltd specialises in developing new franchise business systems, support for franchise networks, training franchisor and their staff and developing franchise export plans. The company also reviews existing franchise systems to increase their competitiveness and results.