Hamilton Pratt

International Franchise Expansion from the UK

The use of Franchising to Expand Internationally

Research has been conducted on the reasons why US based franchisors have sought to expand overseas as well as the perceived disadvantages of international expansion. The conclusions which the research reached are set out below:-

Reasons for Overseas Expansion %
Additional growth/expansion 28.2
Added revenue/profits, improved ROI, or other direct financial gain 28.0
Larger market, more market penetration, more market share 16.9
International identity, greater name recognition 10.5
No/less competition 5.9
Untapped potential 5.1
Added exposure (in general) 5.1
Other categories of benefits 17.5
No benefits 7.9
Cell Cell
Perceived Disadvantages %
Lack of control/accountability 35.5
Difficulty of supporting/servicing franchisees, operating challenges 14.4
Cost/expense 13.6
Distance, time difference 10.0
Culture/language difference, difficulty of judging local needs 9.5
Government regulations, laws difficulty of repatriating royalties 8.7
Quality control 6.0
Logistics/supply problems/cost 5.4
Resource drain, spread too thin 4.1
Time needed to develop/implement a plan 3.5
Increased risks / uncertainties 3.3
Complications/trouble (in general) 3.0
Adapting product/marketing to new markets 2.7
Other categories of drawback 15.7
No drawbacks 1.9

Notwithstanding the difficulties facing those businesses using franchising as a method of international expansion, franchising is increasing in popularity as a means of international expansion. Indeed many businesses who do not use the franchising format in the United Kingdom adopt one of the franchise methods set out below to expand overseas. These methods are:

  • Direct franchising – whereby a business grants franchises to franchisees in another country;
  • Establishing a subsidiary/branch in the target country which grants franchises to franchisees in that country;
  • Establishing a joint venture with a local partner to grant franchises;
  • Entering into a master development or master franchise agreement. Under a master franchise agreement the master franchisee undertakes to grant sub-franchises to third parties. Under a master development agreement, the master developer undertakes to open outlets itself rather than by way of sub-franchising.