Finding a suitable master franchisee is an essential part of successfully expanding a franchise overseas, says Farrah Rose, director of international development at the International Franchising Centre
Taking one’s franchise overseas for the first time is undeniably an exciting prospect. However, an understanding of the mechanisms involved is absolutely crucial if one is to have any significant chance of success in foreign climes.
Master franchising is typically the method used by existing franchisors to replicate their business in other countries. The structure of the business will be the same – the process of proving and adapting the system before roll-out to sub-franchisees will mirror the franchisor’s experience in their home country. All the necessary franchising skills can be transferred to the master franchisee so they will know ‘how to run the franchise’ as well as knowing ‘how to run the store’.
The master franchisee basically becomes the franchisor in their country and has all the dealings with their domestic franchisees that the original franchisor has with those in their own country. In a nutshell, it is the responsibility of the master franchisee to effectively introduce and grow the franchisor’s business in the territory, maintaining all of the required standards, and it is the franchisor’s job to train them how to do it and subsequently support them in doing so.
When you consider that the master franchise fee for a whole country for a service-based franchise is often less than the cost of setting up a single unit outlet for some food service or premises-based retail franchises, one can see why more people are thinking ‘why should I just become a franchisee when I could be a master?’
Of course, the skills required of a master are very different but for someone who is of the mindset of a typical franchisee, i.e. not too entrepreneurial and looking to be part of a proven system with established support structures, master franchising can offer far greater potential than simply running a single franchised outlet.
Similarly, for a franchisor whose network is well-established in its home market, the lure of international franchising can often be irresistible. The dream is often made more attractive when individuals or businesses from foreign countries approach that franchisor with the question “can I do what you do in my country?” But why should someone who approaches a franchisor out of the blue be the right person to operate that system in their country? Indeed, who says their country is right for that system?
So how do the parties meet their ideal match?
Preparation and marketing
Many years of practical experience helping franchised businesses move around the world lead me to believe that it is a much easier process if both parties engage with The Franchising Centre’s network of professionals than if they try to do it by themselves.
The consultant in the franchisor’s home country will prepare the franchise offer package and development plan then work with the partner consultant in the destination country to research the market for the relevant product or service in the target market. Once all parties are confident that a marketable package has been produced, the destination market consultant will trawl their database of qualified investors who have registered to be approached when a suitable opportunity becomes available.
Sometimes, an executive recruitment service can help to team up serious investors (‘the money’) with an ambitious franchise development manager (‘the man’) in order to create the ‘dream team’ to develop the new master franchise operation. After all, a good franchisor will want to be convinced that the chosen partner has as many of the necessary resources for success as possible.
Whatever the source of an enquiry, it is more likely to move through the recruitment process if it is professionally followed up and there are clear stages through which it must pass.
Our international franchise development team spends as much of its time working for potential masters as it does for franchisors and the things to consider are a mirror image of each other. Both sides should be looking for positive mutual commitment to building a sound business over many years and this will involve working together with a common-sense approach to financing, training and support.
The franchisor needs to show evidence of a policy decision to embark on and properly resource, as well as an international development programme; the potential master needs to demonstrate that they are adequately funded and skilled to develop the business in their country. Both sides should have input to detailed market research on the product or service as well as considering the potential differences in key ratios such as property costs, wage rates or petrol prices. They should also build in some franchising research – how does the franchising market for potential franchisees differ between the countries and is the proposed fee structure and rate of franchisee roll-out realistic? What about the costs of franchisee recruitment, or local laws and cultural differences that may affect the operation?
The candidate will also want to know about the franchisor’s track record. If the home market is a country that requires pre-contract disclosure for domestic operations then they should be given a copy of the relevant disclosure document and contact details for other international master franchisees should also be provided as a matter of course.
Before even despatching marketing materials, qualifying the potential master can start with simple telephone screening to decide whether there is a potential match based on the profiling criteria established before the recruitment project starts. Following that will be further telephone or personal meetings, establishing that appropriate finance and experience exists, all leading up to the all-important ‘discovery day’ at the franchisor’s office in their home country.
By the time the candidate gets to this stage they will need to be pretty well sold on the opportunity because it is obviously a serious commitment to make such a trip. Similarly the franchisor will need to be pretty well sold on the candidate to devote the required amount of time and personal resource to the visit. It would be difficult to achieve such commitment without the involvement of a mutually-trusted third party.
After the discovery day, when the candidate returns to their home country, the local consultant can help to keep the impetus going by obtaining feedback from, and providing it to, both parties as to how things went and what outstanding issues need to be resolved. Assistance with development of the roll-out plan and obtaining working capital finance from local banks is an added benefit at this stage, as is access to qualified legal support to deal with negotiation of the agreement.
Of course a franchisor can do all, or most of, the above themselves if they have enough experienced staff and plenty of resources, but this is rarely the case and the added complication of time differences makes it worse. Having a third party, who understands franchising, to nurse both parties through the process can be invaluable.
International franchise agreements are extremely complex and can best be devised by working with an experienced consultant who can negotiate to broker a deal between the parties. Far too many franchisors and master franchisees rush into signing agreements without considering, or even realising, what can go wrong in practice. A two-handed team of consultant and lawyer is the best asset you can have, whichever side of the deal you are on.
Farrah Rose is director of international development at The International Franchising Centre.