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International franchising, in simple terms, is when a business allows another entity to use its licensed procedures, processes and business model to start their own copy of the existing business in another part of the world. According to this international franchising definition, a restaurant may grant a franchise, including their menu, procedures, style, brand, etc., to an individual looking to start a business or open a restaurant. This can help improve brand visibility, and it should produce extra income for both the franchisee and the franchisor, but how can a business owner decide whether this is the right path for their company?
The Purpose of Franchising
The purpose of franchising is, at its root, a method of marketing or advertising a company’s goods and services. It can be viewed as a growth strategy, giving the franchisor control over expansion yet limiting their own capital investment since the franchisee takes on that cost and risk. It widens the market and creates a network of outlets that expand the customer base. There are advantages and disadvantages to franchising, both for the franchisor and the franchisee, and franchising isn’t guaranteed to work with all business models.
International Franchise Benefits
For the international franchisor, the advantages include worldwide expansion of the business without giving up too much control or requiring extensive capital; the franchisee provides the capital resources needed to start up their franchise. The legal risk is thus lessened for the franchisor, who's only responsible for the business that contains their own capital.
In addition, it speeds up business growth, and the ownership on the part of the franchisee usually results in increased motivation and better staffing. However, not all of the money from the franchised entity will end up in the franchisor’s pocket as the franchisee is entitled to a portion of that profit. There’s also a portion of control that must be handed over to the franchisee, including employment and supply chain, that the franchisor must agree to give up.
Benefits of Being an International Franchisee
For the international franchisee, the first advantage is that opening a franchise immediately makes you a business owner but with the tools for success that aren’t available to someone starting their own business. The franchisor provides the brand, business plan, processes and guidelines and often offers training for franchisees in business principles they may not be familiar with.
Franchising offers a higher chance of success than an independent start-up, and it’s generally easier to obtain capital for a franchise due to its success rate. However, the franchisee must be prepared for anything; there's no guarantee of success built into a franchise agreement. They also have to give up more control than they'd have in an independent business because the franchisor is still the decision maker for the franchise.
International Franchising Pros and Cons
International business franchising gives a business owner the opportunity for growth in global markets, especially when their business franchise might offer a new product or service that’s currently unavailable in that region. Bringing in a new exciting option can create substantial profits as people enjoy the new experience. There are also occasionally advantages in regulations and taxes, depending on the location. Franchising to a local individual can also help with integrating the original business model into the culture of the new locale.
Examples of international business franchises include:
- Restaurant chains, such as McDonald's, Burger King and Pizza Hut.
- Hotel franchises, such as Marriott, InterContinental and Choice Hotels.
- Real estate franchises, such as RE/MAX and Century 21.
- Service franchises, such as H&R Block, Merry Maids and Interim HealthCare.
The decision to franchise, especially internationally, depends on the business owner’s eventual goals, business model and available resources. It can be an incredibly successful way to grow a business if the owner can accept the risks and shared control.
- Franchise Direct: Current Trends and Research in International Franchising
- Franchise: International Franchise Opportunities
- Thomas S. Dicke. "Franchising in America: The Development of a Business Method, 1840-1980," Pages 12-13. UNC Press Books, 1992.
- Thomas S. Dicke. "Franchising in America: The Development of a Business Method, 1840-1980," Page 119. UNC Press Books, 1992.
- International Franchise Association. "Franchise Business Economic Outlook." Accessed Sep. 20, 2020.
- Federal Trade Commission. "Franchise Rule Compliance Guide," Pages i, 24-119. Accessed Sep. 20, 2020.
- International Franchise Association. "Royalty Fee Requirement Definitions," Page 1. Accessed Sep. 20, 2020.
- McDonald's. "Franchising FAQs." Accessed Sep. 20, 2020.
- U.S. Bureau of Labor Statistics. "Table 7. Survival of private sector establishments by opening year." Accessed Sep. 20, 2020.
Danielle Smyth is a writer and content marketer from upstate New York. She has been writing on business-related topics for nearly 10 years. She owns her own content marketing agency, <a href="https://www.wordsmythcontent.com/">Wordsmyth Creative Content Marketing</a>, and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In addition to this content, she has written business-related articles for sites like <a href="https://www.sweetfrivolity.com/">Sweet Frivolity</a>, Alliance Worldwide Investigative Group, Bloom Co and Spent.