All too often, a franchisor begins an international franchise expansion or jumps into another foreign jurisdiction because some eager prospect approaches them with a financial enticement.

Sometimes, such a move by a too early stage franchisor is justified by arguments like “well if it fails over there it won’t affect the system in the US”, “it is easy money that is much needed at home and we are not investing in this, there will be no cost”, “our competition is over there already” or “it will enhance our image and make domestic sales easier when everyone sees we have ‘gone global’”. In reality, an international expansion must be “pushed” by solid planning and the establishment of a sound foundation, not “pulled” by a chance encounter with an eager prospect. The drain on resources, the loss of future possibilities and the potential for bad publicity, in this electronic and ‘global’ age, of a failed international expansion may out way any perceived advantage.

The choice of which foreign markets and in what order is critical in succeeding in an international franchise expansion. Some obvious factors are closeness geographically to the home market and linguistic and cultural similarities. Although, Mexico, for example, meets one criteria, but not the other. Grouping countries in natural blocks, i.e., the Middle East, Eastern Europe, South America, may also prove to be more efficient than to direct limited resources to more wide-ranging markets.

You must be aware of the worldwide proliferation of franchise specific legislation or legislation that affects franchising. We provide that list above.

Not all of these countries require a registration like the US registration states, but many have disclosure requirements (which requires to dissemination of the local disclosure document before any funds can be taken), and some require the filing of the executed franchise agreements. Some of these are merely franchise relationship laws, like in Kazakhstan, others are only disclosure laws, like in Ontario, China, or Taiwan. Others, however, require a filing/registration prior to being able to sell franchises in those countries, these include Brazil, Indonesia, Malaysia, South Korea, Mexico, Australia, Saudi Arabia, Vietnam, and Japan. Penalties in some of these countries can be significant, while others may not be, but could prevent or delay the relationship. The existence or not of such laws is a factor to consider when deciding upon an expansion strategy.

Acceptance/demand for the products and services of the franchise system should also be an important factor. This is a point not lost on the Wal-Mart company, when it closed its operations in Germany. Also, these days there are many more competing franchises available around the world that are local or from countries other than the US. There can be strong local brands that will be fierce competition to the system’s franchisees.

There are dramatic differences, one country to the next, as to the number of businesspeople who will be accepting of the franchisor’s terms and financial proposition. To put it more directly, on average, prospects in countries like Canada and England, for example, are more likely to negotiate strenuously and over longer periods of time, than would typically be the case in say Mexico or Bahrain.