Time and Practicalities of Franchising in other Markets

By Martin Mendelsohn

Martin Mendelsohn’s series of articles focuses on the basic issues to be considered when expanding a franchise system into other markets. Last month Martin looked at financial and manpower resources. This month he looks at how the issues of time and practicality can effect franchise development in other countries…

Time span

It will take time:-

• to select and evaluate the most desirable target territory for the business.
• to find the persons or organisation with whom the franchisor would like to establish a working relationship in the target territory and to conclude a contract and have the first (pilot) operation established.

Remember it will always take longer than one may consider appropriate to reach the point when the first outlet is opened.

The Three Factors: -

• Manpower
• Financial and
• Time

are invariably underestimated by franchisors with manpower for all three costing or taking time and manpower resources by up to three times the budgeted estimates. For example, many do not appreciate that time and money start to run from the first moment that the franchisor decides to consider an international activity. Money is not likely to flow until the first deal is signed and the upfront fee paid - the continuing franchisee fees do not flow until the first store is opened although if the franchisor is a product supplier the mark up on products will flow (albeit modestly) from the time payment of the initial inventory is made.

The Practicalities

It is essential to have a basic understanding of the target territory - the people who live there, how they live and the effect that any differences between that territory and the domestic territory will have on the franchisor’s business.

The franchisor will also need to have a grasp of the business and commercial issues in the target country and how they differ from those in the domestic market.

A non-exhaustive list of the business issues to be considered would include:

• The first and most obvious is what sort of market exists, how extensive is it and how much competition is there?
• Will there be language difficulties, if so how will the franchisor cope with its training programme?
• Is there availability of raw materials and/or products which the franchise system needs?
• Does the government in the target territory have an unhealthy interest in franchising?

Having checked these issues, there a number of legal issues to be considered preferably with a solicitor, not only experienced in franchising but with international experience and with access to the best available advice in the target territory. For more information on the aspects of law you need to consider, please read my next article.