Will your idea wash overseas?
Ian Moses ran into a roadblock when he tried to franchise his mobile pet-grooming business in Japan: The Mercedes vans that he had retrofitted were too big for the groomers and the streets. The founder of Dana Point-based Aussie Pet Mobile switched to a Nissan model that was smaller and cheaper.
In Portugal, Yoshino Nakajima had to rethink the 10-minute marketing pitch for Home Instead Senior Care of Omaha. Quick meetings just weren’t possible in that laid-back Mediterranean culture.
After pulling back from far-flung ventures in the aftermath of the 9/11 attacks, entrepreneurs are returning to global franchising in growing numbers.
But transplanting a popular American concept to foreign soil can be tricky, as Richard Rennick learned when he tried to franchise his American Leak Detection brand in South Korea in the late 1990s. The Palm Springs businessman said it was hard to sell his services in that country because of the language barriers and the technical requirements, which were difficult to translate. His partner eventually closed the business.
“We didn’t give up,” said Rennick, who franchised his product in a dozen other countries, including Brazil and Chile. “We just learned from our mistakes.”
This year Rennick sold his company and now works as a franchising consultant.
Rising incomes and exposure to American culture have created a global appetite for U.S. franchise concepts that has expanded far beyond fast food, hotels and car rental agencies to unusual products like those of Edible Arrangements, which specializes in baskets of hand-carved fruit. The Connecticut company, which was launched in 1999, recently opened an office in Britain and operates franchises in Canada and Puerto Rico.
“You are now seeing a microcosm of what you see in the U.S. transported overseas,” said Scott Pressly, a partner with Roark Capital Group in Atlanta, which owns the Cinnabon and Carvel ice cream brands. “That’s a fairly recent phenomenon.”
California has been particularly fertile territory for companies that want to franchise and for entrepreneurs who want to buy into those operations. The Golden State leads the nation in number of franchise headquarters (130) and is the home for 80,340 franchise businesses creating $187.4 billion in economic output, according to the International Franchise Assn. in Washington.
Under the franchise system, companies buy the right to market and distribute the franchiser’s goods or service and to use the brand for a fixed period. Franchisees are given technical assistance, management training and other tools, and supplies needed to run the business. In the U.S., franchise fees vary dramatically, but most fall between $50,000 and $100,000, according to the franchise association.
When going abroad, most U.S. franchisers award a license to a master franchisee with the right to develop the business in a country or region. Companies said the franchise model allowed them to expand to several countries at the same time and avail themselves of businesspeople knowledgeable about the local business laws, language and customs.
Moses launched Aussie Pet Mobile in Sydney, Australia, a decade ago and moved the company to Dana Point in 2000 to develop the U.S. market. Through its franchisees, the company operates a fleet of brightly decorated vans that travel to people’s homes and provide full pet grooming services for about $30 above the going rate.
Moses, who says he has never groomed a dog, said most of his franchisees were investors who hired other people to provide the grooming. He said demand for his company’s services was booming, even in developing countries such as China, where there are pockets of high-income, pressed-for-time dog lovers.
“People love their pets, and that’s a phenomenon that’s all over the world,” Moses said. “It wasn’t that difficult to duplicate it.”
Aussie Pet Mobile, which has 330 franchises in the U.S., brings in $12 million annually, Moses said. Five master franchises control the business in 16 foreign countries. Moses charges a $75,000 franchise fee plus the cost of converting the grooming vans. In addition, franchisees must come up with money to cover the van leases, groomers’ wages and supplies and fuel.
Franchise companies are also tapping into other demographic shifts, such as the aging of baby boomers in developed countries. Home Instead Senior Care, which offers nonmedical services to seniors living at home, has opened 800 offices in 10 countries. Home Instead’s franchises provide caregivers, who are paid by the hour to run errands, assist with bathing, provide a light lunch and do light housekeeping.
Nakajima, the company’s vice president of international development, said the concept had even taken hold in countries such as Japan, where the daughter-in-law has traditionally been responsible for taking care of her husband’s parents. She said those traditions were breaking down, with more women working. By paying someone to provide “respite care,” the children are fulfilling their duties and their parents feel less guilty.
“We’re finding this scenario in every country we go to, especially Western European countries,” Nakajima said.
But not all countries are equal when it comes to franchising, experts warn. The U.S. has the most well-developed -- and heavily regulated -- franchise industry in the world. Some countries, such as Germany and France, are more difficult for foreign brands to penetrate because of their tightly regulated economies and preference for local brands.
Franchise rules differ dramatically. For example, non-Chinese firms have to own at least two units in China for a year before they can start granting franchise licenses, said Rochelle Spandorf, a Los Angeles franchise attorney. The Chinese government is reviewing its franchise laws and is expected to impose even tougher regulations.
Though U.S. brands remain well-liked and respected, the growing unpopularity of the Bush administration’s foreign policies has increased the risks for well-known American brands in some parts of the world, Spandorf said. Prominent U.S. brands such as McDonald’s and KFC have been attacked during anti-U.S. demonstrations in Pakistan and China.
Before heading overseas, companies should build a strong business at home and make sure that their product will pass government muster and be accepted by consumers overseas, franchise experts said. The next step is finding a well-capitalized and knowledgeable partner abroad and making sure that the partner can get adequate supplies or equipment.
Finding a way to protect proprietary information, such as recipes, software or brands, is also crucial in developing markets such as China. Companies are urged to register their trademarks and patents in countries where they might want to operate.
Another challenge is in finding ways to satisfy local tastes without undermining a brand, said Geoff Hill, president of Cinnabon Inc., a division of Roark Capital’s Focus Brands Inc. Hill said the company would not change Cinnabon’s rich, cinnamon-infused bun recipe for foreign audiences but is developing new products. In Egypt, the company recently opened Cinnabon Bakery Cafes, which serve breakfast sandwiches and other light fare.
“We’re very, very protective of our brands,” Hill said.
