Expanding Your Franchise Overseas Can Make You Millions — Or Tank Your Profits If You Don’t Consider These Risks.

Expanding your franchise concept internationally is a challenging decision. It can offer tremendous growth opportunities beyond your current home market. However, doing so prematurely can put undue stress on your system as you try to replicate your U.S. operations for a culturally different demographic while also managing domestic expansion and support.

Before expanding to new international markets, ensure that your business concept is thoroughly developed, all intellectual property is registered and trademarked, marketing materials and manuals are translated, and you have a local team available in the targeted markets to assist with launching and troubleshooting.

Inexperienced franchisors should avoid rushing into international expansion without conducting thorough research and laying the proper groundwork. International units can be more challenging than domestic ones due to travel distances, language barriers and cultural differences. It’s essential to ensure that your products or services are needed or wanted in your target international market.

So, if it’s this challenging, why not just stick with growing domestic units and skip the international headaches? For one, the ability to introduce your products or services to new, untapped markets can be a significant revenue boost, especially if you’re running out of territories to develop domestically. Another plus is that many foreign consumer markets are eager for U.S. concepts. Best of all, American franchises are usually viewed as sound investments because of the proven systems and training they offer.

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Successful franchising always depends on tapping into expert advice and assistance, but nowhere is that more important than expanding into international markets. You need to engage with franchising and legal experts who specialize in international franchising and have knowledge of the countries you’re targeting. They will have a network of colleagues with intimate knowledge of the laws, regulations and political and business climate of the markets you’re exploring. Before you invest in an international program, these experts can help you narrow down the countries or regions where your concept will work.

Some other key considerations for international franchise expansion include:

• The all-important political and economic stability of the target county.
• The country’s franchise regulations or laws. Most countries have some form of business regulations to protect their citizens, but only a handful have specific franchise registration requirements that must be complied with.
• Assess the relative ease or complexity of bringing products into the country. You’ll need to set up appropriate logistics for certain proprietary items to get them there. Or, if you plan to source products locally, you’ll need local connections to help establish a reliable local supply chain.
• How the royalty and ad fund fees will be transferred back to the U.S. in an efficient manner. Remember, you’ll also be dealing with an exchange rate, transfer fees and local banking regulations.
• Being able to find the right partners who are financially equipped to expand your concept beyond one unit. Several different legal structures can be used, from directly granting a franchise to an individual or group to setting up a separate entity via a Master Franchise Agreement for each country, where your master franchisee grants the rights to individual franchises and supports those local franchise units.

  Once again, this is where your trusted advisors can advise you on the best structure for your concept and the country it’s in. Getting to know your partners is essential. You need to be comfortable with them as people and well-informed about their other partners and businesses they may own. Both parties need to follow transparency laws that require disclosure of all entities they are associated with, their owners and the people making the decisions. You need to know where the money is being invested in your concept.is coming from.

Side note: It also goes without saying that the same due diligence and expert support are needed when a concept comes from another country or region to the U.S. as they are for U.S.-based concepts going abroad. International franchisors will also need to find trusted local franchise advisors and lawyers to help them transition from a national or regional concept to an international one as they enter the U.S. market.

Where to expand first?

Canada has long been the first choice for many U.S. franchisors’ international expansion because of its proximity and because English is the first language for most of the country. But don’t be fooled into thinking Canadian culture and business environment don’t differ from the U.S. Similarly, Mexico is often the first foray for U.S. franchisors looking to expand into Latin America due to its geographic proximity, but language and cultural differences also abound.

For example, let’s say you’re expanding your concept to Latin America; not only does the Spanish in that region vary across countries, but it’s also important to be aware that Spanish is not the only language spoken in the region. In fact, in South America alone, the number of Spanish speakers exceeds that of Portuguese speakers by just a few million people.

Another example is that a franchisor looking to expand in the European Union cannot assume that a single approach fits all 27 member countries. In fact, the region has 24 official languages, and each country has its own culture and governing rules.

So, as part of the planning for international expansion, when preparing both your documents and your training materials, don’t rely on your high school foreign language skills or Google Translate. Not even the latest in AI is likely to be fully reliable in this case. This is when utilizing actual human resources in each market you’re expanding into is critical. They will know the regional vocabulary and the idioms used so that you don’t include embarrassing mistakes in your materials. The extra step in doing so is also a sign of respect; it shows you are culturally sensitive and professional.

Related: Tips and Strategies for Navigating Cultural Differences in International Business

It’s a small world

With advances in technology, including video conferencing, messaging apps, AI-powered communications tools, and more, the world is getting smaller, and the ability to bring services to people beyond your borders is, in many ways, easier than ever. There is financial as well as personal gratification in bringing your business to another culture, but it comes with an all-in investment of time and resources to do it right. International development is not something you can dabble in; it is a serious commitment.

Of course, as we’ve always been told, nothing worthwhile comes without hard work. That hard work must be supported by a team of experts, both internal and external to the franchisor organization, who can effectively implement a well-thought-out international game plan.