The Fastest 2 Minutes in International Business

For 2015, EGS’ U.S. clients are seeking licensees in over 20 countries. Our GlobalTeam™ of highly experienced international project managers on the ground in 35 countries contributed to the following brief summary of the world mid-2015:

Updated: July 27, 2015

The Fastest 2 Minutes in International Franchising

For 2015 EGS’ US franchisor clients are seeking licensees in over 20 countries. Our GlobalTeam™ of highly experienced international development project managers contributed to the following brief summary of the franchising environment around the world for the New Year:

The Fastest 2 Minutes in International Franchising

In 2014, EGS’ US franchisor clients are very busy finding licensees in over 25 countries. Our GlobalTeam™ of highly experienced international development project managers contributed to the following brief summary of the franchising environment around the world.

Working with US Commercial Service (USCS) to Succeed in Taking Your US Franchise into New Countries

According to an International Franchise Association (IFA) early 2014 survey of its franchisor members, 82% now think that taking their franchise international is important to the future success of their franchise. Five years ago, 54% thought going international was important.

Based on 25 years of international franchise experience as a franchisor, master franchisee and, most recently helping over 20 US franchisors go international, I know the most difficult task is finding the right country and the right licensee for your particular franchise.

One solution for US franchises can be working with the U.S. Commercial Service (USCS), the international-focused arm of the U.S. Department of Commerce. The USCS has experts on the ground in over 100 countries whose job is to help US companies sell their products and services.

There are several ways the USCS can help a franchisor go global:

• Country and Sector Reports
• Gold Keys – in-country meetings with pre-qualified licensee candidates
• Franchise Trade Missions – to the Philippines, Mexico and India in 2014
• Background checks on licensee candidates
• Meeting arrangements and local advertising
• Local business and cultural knowledge
• Follow-up after your in-country meetings

But this is not magic where you get on the airplane, land in the new country, meet your new licensee, sign an agreement, get back on the plane for home, and the new licensee sends you the initial license fee. To have a chance at success using the USCS team in any particular country, the franchisor must know and clearly communicate the following:

• Why do you want to enter this particular country?
• What is the profile of whom you want as a licensee?
• How is your brand different than what is already in their country?
• Detailed, clear information on your franchise
• Clear steps and terms for acquiring your franchise
• A financial model that shows how your franchise will succeed in their country
• What training, support and marketing help your franchise will give the licensee

And the franchisor needs to clearly define what they want in an international licensee or master franchisee in a country, such as:

• A passion for and understanding of your business
• A successful business with knowledge in your sector
• Good reputation in the country
• Experienced management to put into your franchise
• Access to suitable real estate
• Marketing oriented company
• The capital to start and grow your franchise in their country

Our company, EGS, has successfully worked with the USCS in over 20 countries around the world since 2001. Here are a few of the successes we have had in recent years working with the USCS:

• Central America – Fuddruckers®
• Chile – Denny’s® and Fuddruckers®
• China – Right At Home Senior Care® and Rita’s Italian Ice®
• Dominican Republic – Denny’s®
• Indonesia – The Melting Pot®
• Ireland – Mr. Handyman® and Two Men And A Truck®
• Mexico – Build-A-Bear Workshop®, Denny’s® and The Melting Pot®
• Mongolia – Round Table Pizza®
• Singapore and Malaysia – Abrakadoodle®
• Viet Nam – Carl’s Jr.®

Not all USCS posts in all countries are able to help find area licensees and master franchisees. To find out whether the local office has a specialist for franchising, go to the following website for specific countries: www.export.gov/country

Or you can contact Ms. Jennifer Loffredo, the U.S. Commercial Service Officer based in the US who manages the USCS Global Franchise Team: (248)452-2254, Jennifer.Loffredo@trade.gov

A close working relationship with the USCS people on the ground in the country, plus patience in finding and signing the right licensee for your specific franchise, are critical to success in using this valuable resource for US franchisors. At the end of the day, you have to help the USCS post help you find your licensee in a country.

The Place of Culture in a Flat World

In April 2005, New York Times columnist Tom Friedman published the iconic book on globalization, “The World Is Flat: A Brief History of the Twenty-First Century”.

The title eludes to the perceptual shift required for countries, companies, and individuals in order to remain competitive in a global market where historical and geographical divisions are becoming increasingly irrelevant.

Per Wikipedia, “Friedman himself is a strong advocate of these changes, calling himself a ‘free-trader’ and a ‘compassionate flatist’, and he criticizes societies that resist these changes. In his opinion, this flattening is a product of a convergence of personal computers with fiber-optic micro cable with the rise of work flow software.”

Many readers, including this author, initially interpreted this as saying that the world is increasingly the same, diversity is going away. A re-reading of Mr. Friedman’s book, and subsequent writings, shows this is not exactly correct. He is proposing that the business world is adopting the same standards worldwide in order to compete with companies in other countries. A strong case can be made for this postulation.

Along comes culture. Dictionary.com defines culture as: “The quality in a person or society that arises from a concern for what is regarded as excellent in arts, letters, manners, scholarly pursuits, etc.; development or improvement of the mind by education or training; and the behaviors and beliefs characteristic of a particular social, ethnic, or age group.”

Businessculture.org says, “Culture illustrates the accepted norms and values and traditional behaviour of a group . . . ‘the way we do things around here.’ The culture of each country has its own beliefs, values and activities. In other words, culture can be defined as an evolving set of collective beliefs, values and attitudes.”

In my experience working in 68 countries over the past 42 years, culture is alive and prospering. In order to do business in other countries, you must be aware of the local culture and how it impacts business to be successful. Flatness is not as important as the culture with which you are dealing. In other words, you must be aware of the diversity in doing business that the local culture represents to be successful in today’s global business environment.

Robert Shaw, a highly experienced and successful global franchise executive based in Orange County, California, has studied the knowledge of local culture as a way to win in business. Mr. Shaw defines three major cultural types that you have to take into account to win in global business:

• Linear – Aggressive, time is money, task focused, individualistic, the “John Wayne” approach – North America, Australia and Northern Europe
• Multi-Active – Relationship comes FIRST and BEFORE business, top heavy hierarchy, only meet with decision-makers – Mediterranean, Latin America, Middle East and India
• Reactive – Relationships first, quiet nodding, listeners, group decisions – Asia (except India.) Nodding simply means they may understand what you are saying. Not that they are agreeing with you.

The aggressive ‘let’s get the deal done and go home’ that US business people often follow leaves no time to develop the relationships that most cultures value and require in order to get business done.

And here are a few cultural “no-no’s” to remember that Mr. Shaw and I have encountered over the years:

• White flowers as a gift in Japan – white is the color for funerals
• Showing the bottom of your shoes in the Middle East – dirtiest thing you can do
• Making the sign for ‘okay’ in Brazil
• Referring to Taiwan as a country in China
• Talking politics – sports and local culture are better topics
• Folding business cards – cards are expressions of who someone is and what they have accomplished

Terri Morrison, in her classic book, “Kiss, Bow and Shake Hands”, shares a few basic but critical cultural differences in doing business in key countries. In regards to meetings:

• In Brazil, lack of punctuality is a fact of life; be flexible about your counterpart’s (lack of) punctuality
• In China, punctuality for all appointments is important
• In India, Indians appreciate punctuality, but do not always practice it themselves!

The bottom line? While business processes may be flattening, cultures are not. To succeed in global business you have to add the cultural factor to your approach to people and companies in other cultures. Ignore the ‘non-flat’ local way of doing business because you think similar business processes are all that counts in a country and you will fail.

Cultures are what make the world an increasingly interesting place!

Ranking Countries as Places to Franchise Into – A Few Parameters

To enter a country, a franchisor has to find a licensee, secure trademarks, sign an international license agreement, train the new licensee, travel to their country and provide on-going support in order for the licensee to start-up and grow properly to produce royalties. Therefore, the biggest challenge a franchisor has in taking their brand global is choosing the right countries that will give them the best Return On Investment (ROI).

Some of the most important parameters the franchisor needs to know are: (1) the size of the consumer market that can afford their product or service in a country; (2) the legal environment and whether it will allow them to maintain control of their brand if a problem occurs; (3) how easy is it for a foreign company/brand to enter a country and what barriers to entry exist; (4) how easy is it to open a new business in a country keeping in mind that franchises are usually new business; and (5) what is the political and economic stability – or instability – of a country.

EGS has been evaluating and ranking countries as places to franchise on a quarterly basis since the founding of our company in 2001. We developed a tool for this – GlobalVue™. The latest issue – 2^nd quarter 2014 – can be downloaded at the following link: http://edwardsglobal.com/index.php/globalvue/

EGS uses more than 25 information sources to establish and monitor these key parameters. Plus, EGS has associates under contract in 32 countries that keep us up to date on their countries. This is not a one-time evaluation, but a constant research project.

Things can change quickly in a country, taking it from being open to foreign brands and lots of local company investment to a downward market where new entries will fail. And economic parameters in a country can also begin to change for the better, which makes for opportunity for those franchises who are monitoring the world consistently.

Market size for your franchised products or services is key. Lots of people in a country does not automatically make for lots of consumers who can afford to buy your franchised products or services. Take Indonesia with a population of 240 million and a strong desire for US franchises. The consumer base for most US franchises is the middle and upper class, which is about 20% of this number. Still a significant potential market!

A few years ago the World Bank studied the occurrence of new investment by companies in a country. This is a very important parameter for franchisors because we need new investment happening to find licensees who will invest in our brands. The World Bank found that countries with annual Gross Domestic Product (GDP) growth of 4% or more are seeing new investment. 2-4% growth was ‘okay’. Less than 2% annual growth resulted in little new business creation. This makes sense and should be considered by franchisors looking at new countries to enter. If businesses are investing then we generally find consumers are also spending. This, or course, results in sales at businesses and royalties for franchisors.

Three years ago, Ireland was near the top of countries to franchise into. Today, unfortunately, their GDP growth rate is near zero and they are trying to recover from almost 20% unemployment. But Ireland is very receptive to US franchises and will come back in the future. So, it is important to keep up with global trends in order to focus your annual marketing on the countries most likely to give you a good ROI.

Another big challenge is how corrupt a country is because this directly impacts your licensee’s ability to do business and make a profit. And US companies are held responsible for how their licensees do business in their country under the U.S.’s Foreign Corrupt Practices Act of 1977.

Here are links for information on particular parameters mentioned in this blog posting.

(1) Political and economic stability can be research through these free online resources:

www.economist.com
www.ft.com

(2) The ease of starting a new business in a country is usually tied to the economic freedom to open a new business in a country.

www.freetheworld.com/release.html
www.heritage.org/index
www.fraserinstitute.org/programs-initiatives/economic-freedom.aspx

(3)       Legal concerns are important to evaluate so you will know how easy or difficult it is to franchise in a country and whether you can protect your brand in the case of a problem.

www.franchise.org/IndustrySecondary.aspx?id=45874

(4)       Corruption in a country impacts the ability of a business (franchise) to succeed. One of the best sources of information on country corruption can be found at the Transparency International website and on their Corruption Perception Index that measures more than 50 local parameters.

www.cpi.transparency.org/cpi2013/