All the world's a franchise
13 Sep 2006

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If you travel to almost any country in the world, there is a good chance you will encounter a business that is part of a franchise system originating in Australia. While food-based franchises such as Gloria Jean’s and Boost Juice are the most visible, there are many other Australian franchisors that have found overseas success: lawn mowing franchises in Canada, pool cleaners in the US and dog washers in Britain.          

“There are huge opportunities for Australian businesses,” says Rod Young, who, as executive director of consulting firm DC Strategy (formerly Deacons Consulting), has provided advice to numerous franchisors expanding overseas.

“About 22 per cent of Australian franchisors are either already operating overseas or are actively looking for ways forward. Australia has a major advantage: our legal framework for franchising is widely seen as the best in the world, and that lends credibility to the Australian franchise industry.”

Young nominates Howard’s Storage World, Cartridge World, Domes Coffee and Cash Converters as a few of the franchise groups which have successfully expanded overseas.

“In my experience, there are two categories,” he says. “The first group, the ones most likely to be successful, are those who do their homework, plan carefully by developing an international franchise strategy, and put effort into building their relationships.

“The second are those franchisors who have not considered international expansion until someone emails them and, usually with a big dose of flattery, says they would like to negotiate a master franchise for an overseas operation. In these cases, the franchisor often hands over more than they should, and doesn’t follow up overseas operations properly. The result is that the expansion either fails or just splutters along.”

Pro-active franchisors, according to Young, should be willing to put a minimum of $250,000 into an expansion move, and not expect a positive return for two years or more.

“The first move after you have developed your international strategy should be to go to several target countries and spend some time walking around, assessing the market and the competition,” he says. “You need to put effort into finding the right master franchisees, through connections such as suppliers, banks or business associations. Once the operation is up and running, the franchisor has to be prepared to have a senior person go back several times a year. It’s a big commitment in time and money, but the eventual returns can make it very worthwhile.

Most franchisors begin to look overseas when they reach about 50 per cent market penetration in Australia, and when the company has matured management and reporting systems in place.

The most popular markets are English-speaking countries with comparable legal systems, such as New Zealand, Canada, and the US and Britain. However, markets such as South Africa and Singapore are growing in popularity while the huge population of China beckons. But franchisors looking at China should be aware that recent changes to Chinese law mean a franchise cannot be granted until the franchisor has owned and operated two company-owned stores for at least a year.

Legal requirements such as the Chinese rules underline the need for a solid base of information. One avenue to find out about the conditions in a target market is Austrade, which has an officer dedicated to franchise-based expansions. “Of course, we want more local systems to expand into foreign markets, but we want it to be responsible and strategic expansion,” says Austrade franchising specialist Cheryl Scott. “The systems that have had the most success overseas are those that have thoroughly researched the market before jumping in. However, I suspect some franchisors are not aware of how much assistance is available from the government – and not just from Austrade, but state governments as well. It is important to tap into multiple sources of assistance.”

She notes that Austrade can not only supply technical information but can provide advice on contacting potential franchisees. Trade shows and exhibitions in which Austrade has a role have also proved to be a useful means of establishing a presence and gaining vital intelligence.

Scott identifies issues of intellectual property as a crucial matter for franchisors, and suggests a franchisor looking overseas should take steps to protect it.

“Before going offshore you should think of ways of separating IP out of the business,” she says. “You can, for example, put your IP into another entity to avoid selling it off. However, it is not just a matter of protecting IP. In the first instance, you have to work out exactly what you have, and this means conducting an IP audit to have it valued, and then written into the agreement. Many people tend to underestimate what they have and give it away too quickly.”

Young agrees about the importance of protecting IP, and makes a link to choosing the right partners: “You need someone you can trust, and who shares your values and goals. In the end, the country you go to is not as important as who you go with.”

by Derek Parker

The Australian “Entrepreneur”

28 July 2006

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