Franchisers sell a defined, proven business format or method of operation, offering a product or service that has sold successfully. An independent business is based on both an untried idea and operation. Franchisees can often buy lower-cost goods and supplies through the franchiser, resulting from the group purchasing power of all the franchises. Franchising provides a uniform system of operation, so that consumers receive uniform quality, efficiently and cost-effectively. A uniform system brings with it the advantages of mass purchasing power, brand identification, and customer loyalty, capitalizing on the proven format. A franchiser also provides management assistance, including accounting procedures, personnel and facility management. An individual with experience in these areas may not be familiar with how to apply them in a new business. The franchiser helps a franchisee overcome this lack of experience. Franchisors help franchisees develop a business plan. Many elements of the plan are standard operating procedures established by the franchisor. The most difficult part of a new business is its start-up, since even experienced managers lack the knowledge to set up a new business.
One of the biggest benefits to franchising is marketing. The franchiser can prepare and pay for the development of professional advertising campaigns. Regional or national marketing done by the franchiser benefits all franchisees. In addition, the franchiser can provide advice about how to develop effective marketing programs for a local area through a cooperative marketing fund, to which the franchisees contribute a percentage of their gross income.
It’s possible to receive assistance in financing a new franchise through the franchiser, who often makes arrangements with a lending institution to lend money to a franchisee. The franchisee must still accept responsibility for the loan, but the franchiser’s involvement usually increases the likelihood that a loan will be approved. A franchiser also provides training for the franchisee. This is especially important if the concept is complex. The best training combines classroom or one-on-one training at the franchiser’s facility with field training at the franchisee’s place of business.
International Franchising Definition
International franchising refers to a domestic business’s expansion into foreign countries and markets. International franchising is a complex process that requires thorough considerations of many factors, such as feasibility, adaptability, and benefits versus risks. Main aspects of international franchising are as follows;
- Replication: During the process of international franchising, companies often strive to replicate successful domestic business models in foreign markets.
- Challenge: Differences in language, laws and financial systems, between franchising business and host foreign market can pose serious challenges during international expansion.
- Benefits: International franchising means new markets with new customers and selling potentials. International franchising also places company’s name and presence in a global market.
- Adaptability: learning to adapt to the needs and demands of a new foreign market can attract local customers and buyers and lead to higher business success in a new country.
- Counsel: International franchising experts help companies understand a foreign market before expansion. Consultants advise businesses on a number of subjects, from financing to culture gaps.
Advantages of International Franchising
- There is a higher likelihood of success since a proven business formula is in place. The products, services, and business operations have already been established.
- Bankers usually look at successful franchise chains as having a lower risk of repayment default and are more likely to loan money based on that premise.
- The corporate image and brand awareness is already recognized. Consumers are generally more comfortable purchasing items they are familiar with and working with companies they know and trust.
- Franchise companies usually provide extensive training and support to their franchisees in effort to help them succeed.
- Many times products and services are advertised at a local and national level by the main franchise companies. This practice helps boost sales for all franchisees, but individual franchisees don’t absorb the cost.
Disadvantages of International Franchising
- Franchises can be costly to implement. Also, many franchises charge ongoing royalties cutting into the profits of franchisees.
- Franchisors usually require franchisees to follow their operations manual to a tee in order to ensure consistency. This limits any creativity on the part of the franchisee.
- Franchisees must be very good at following directions in order to maintain the image and level of service already established. If the franchisee is not capable of running a quality business or does not have proper funding, this could curtail success.
- Sometimes franchisors may be lax on their commitment to support the franchisee. Also, they may make poor decisions that would have an ill effect on the franchisee. Therefore, it is important to research any franchise concept thoroughly before signing any agreements.
Benefits of International Franchising
Purchasing a franchise is one way for an entrepreneur to get started in business. Franchises offer a proven business model to follow as well as support in areas like financing and training. International franchises can provide the opportunity to take advantage of growing global markets, although the franchisee will need to overcome the hurdles associated with adapting to the ways of a new country.
- Cultural Adaptation: Franchises provide the business owner with a full range of support services. This proves beneficial when it comes to adapting to the ways of a foreign country. The company can help you hire local management and workers who are familiar with the methods of doing business in the country, which can make the transition much smoother.
- Business Expansion: If you already own an established franchise and are looking to expand, adding units in another country can provide a more profitable alternative to an already saturated market. This is particularly meaningful if you sell a product or service that is rather common in your home country.
- Cornering the Market: You may even be fortunate enough to open a franchise in a country where there is little competition and there is a great need for your product or service. This will enable you to corner the market and possibly open several locations, establishing you as the leader in your business before the inevitable entrance of competitors occur.
- Change of Lifestyle: Owning a franchise in another country can result in a new and exciting way of life. Franchisees from a cold climate may relish the opportunity to move to a warm, sunny locale to open a business. Some may also look forward to expanding their horizons by experiencing and assimilating into a new culture.