There is no arguing with the idea that franchising is an alternative method of financing the growth of a business, as the franchisee’s capital is employed in the expansion rather the franchisor having to tap its own financial resources. However, that truth is moderated by the fact that the “pump has to be primed”. As is the case in an early-stage domestic franchise program, you must invest capital before a return is realized. International expansions are no exception, even if the categories of investment are different.
Internationally, you have to be prepared to encounter greater travel costs, costs in establishing solid supply chains locally or across borders, greater franchise marketing costs, costs for foreign market research for adaptation issues, translation costs for agreements and manuals, legal costs to protect trademarks and comply with local laws, etc. Another factor affecting your capital requirements will be the international expansion vehicle you choose. Master franchising typically allows you to download a significant portion of the foreign development costs onto the shoulders of the master franchisee. By comparison, unit franchising directly into the foreign market requires you to finance all of the costs.
The bottom line is that an international franchise expansion will not succeed if you do not have sufficient capital to cover the necessary costs.