Routes to market:How to set up a franchise abroad
View transcript for Episode 22- Setting up a franchise abroad recording
As a franchisor, you'll be allowing another person, known as a franchisee, to use your business name and process. And sell goods and services to specifications set by you. Or sell on goods that they have purchased from you.
The franchisee usually pays a fee at the start and ongoing royalties.and gets ongoing support from the franchisor.
Franchise benefits
The main benefit is that you can make money with less investment and risk. And it allows a faster launch in some international markets.
Franchise challenges
However, that needs to be weighed up against potentially high initial costs. For example, in legal fees. And it can mean lower earnings than direct exports.
You will not have direct control over the franchisee either. But keep in mind, that like you, they’ll want it to work financially too.
Is it right for you?
To identify whether a franchise is right for your business first of all make sure your product, services and process are well defined and well structured.
What you’ll learn
- what a franchise is
- how much work is needed to set one up
- whether your business suits franchising
How franchising can help you trade
If you want to export to another country, one route to market is to become a franchisor.
As a franchisor, you allow another person, known as a franchisee, to:
- copy your business name and processes
- sell goods and services to specifications set by you, or buy the products from you
The franchisee usually pays a fee at the start and ongoing royalties (an agreed percentage of sales value) and gets ongoing support from the franchisor.
What you’ll need to do
Be sure your product, services and processes are well defined and well structured.
Conduct research to help you select a market.
Decide how much you can support the franchise with promotion, training, and standards checking; and then create the support programmes.
Work out your return compared to if you operated in the country yourself, using an agent, distributor, or setting up a joint venture.
Make sure your franchise is attractive. Can you show a previous franchise success? Create a pitch document to sell your franchise. You may also need to take on staff to sell your franchise.
Ask a franchise association in the UK or target country for advice.
Get legal advice in the UK and in the target country.
Make sure your intellectual property, particularly your trademark, is protected in the target market. This should be done as early as possible and certainly before you enter into any business discussions. The Intellectual Property Office offers specialist support.
Find a partner that fits your business and negotiate an agreement; agree targets.
Setting a franchise model
Consider:
- initial fees for the franchise
- royalty percentage on sales
- size and territory awarded to each franchisee
- what business experience and cash franchisees need
- what support you’ll provide
Create a spreadsheet to see how different numbers affect time commitments and money coming in and out. A 1% difference in royalty payments could be worth millions a few years down the line.
Pros
- Your business makes money with less investment and risk
- The franchisee wants it to work financially too
- The size of your business matters less
- Faster launch in international markets
Cons
- High initial costs, for example legal fees, and time expenditure
- No direct control over the franchisee
- Cost of supporting and promoting the franchisee
- Lower earnings than direct export
Choose franchising if you:
have an established product or service and want to expand fast
Do not choose franchising if you:
don’t have a strong brand or can’t support franchisees
Franchising is recognised in more established export markets and offers the opportunity to generate additional income. However, it is not well understood in new and emerging markets.
International trade adviser
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