by Rudolf A. Kotek
Does the Franchisor know anything about the world?
If the Company you are interested in has never franchised outside its home country, then you both may well be in for an interesting joint learning experience. It’s usually easier for a Developer to work with Franchisor already experienced in the international arena. Such a company will have encountered and dealt with the cultural, legal, financial and economic differences involved in developing franchises in new countries and will recognize the need for sensitivity and flexibility. The Staff will have been trained to “think global”. You would be wise to ask, “How many people in your organization are dedicated to supporting international franchise growth? An international franchise agreement typically will remain in effect for many years. Although there are no guarantees of success you must be confident your Franchisor is going to be around for some time. An important question to ask is, “What portion of your franchise company’s income is derived from royalty fees and what proportion comes from franchise licensing fees?” The answer will give you a sense of how dependent a Franchisor is on the scale of new franchises and how much the Franchisees contribute through royalty payments.
It is critical to your success in international franchising that the Franchisor have a plan for transferring the accumulated system know-how clearly and completely – and provide you with the necessary support resources to help put that proven expertise to work. The basic requirements are: The training of your staff to become skilled in daily operations including “how to franchise” if you intend to sub-franchise. This instruction usually will be provided at the Franchisor’s corporate headquarters. A set of procedures manuals that describe in detail the operation of the business. Marketing programs that can be used in their present from adapted for use in the Philippines. Active marketing support for the opening of the first – and possibly subsequent – units in the Philippines. Many large franchise systems can pass on their Franchisees substantial savings, made possible by purchasing-power relationships established with suppliers of equipment’s and raw materials. You’ll want to know what purchasing opportunities and restrictions exist for expansion in the Philippines.
The international Franchisee should expect fairness and consistency in the level of fees (perhaps related to demographic and consumer income statistics) and in the amount of the royalty percentage. It is essential to make a realistic financial projection – based on the Franchisor’s experience – for both the proposed individual units and for the master franchise operation itself. The Franchisor should provide you with information that will enable you to prepare budgets for both of those levels. Adjustments will have to be made to take account of local conditions. For example, rent maybe higher and wages lower in the Philippines than in the Franchisor’s home country. However, you’ll need to make a best-guess of the overall cost of getting started, the pace at which sales of product or service will build in each unit and the rate at which you’ll be able to open additional units, whether sub-franchised or corporately owned.
Beware of being too ambitious when you agree to the number of units you can open within specified time frame. Be sure to add in the overhead cost of being, in effect, a Franchisor, and include the cost of training and supporting your Franchisees. Finally, don’t forget to include the cost of the master franchise fee, royalties and any other payments to the Franchisors. In summary, international franchising is arguably the largest world of business potential entrepreneurs around the globe have ever seen.
Venturing forth into this expanding universe is well worth the time and effort it takes to explore its almost limitless possibilities. Like undertaking any journey, knowing your destination is only the first step. The main idea is to follow the map and read the road signs. Get assistance from an International acclaimed Franchise Consultant like RK Franchise Consultancy, who was involved in many Master Franchise arrangements in the Philippines with foreign Franchise Companies.
Rudolf Kotik is the founder of RK Franchise Consultancy Inc, which developed more than 300 Filipino Companies into Franchise Systems. Email: rk@rkfranchise.com
